Terming Iran nuclear deal as historic, Bank of America Merrill Lynch said the potential return of up to 0.7mn bpd in production over the next 12 months could add downside pressure on forward oil prices of $5-10/bbl.
In their base case, as sanctions are unwound, the National Iranian Oil Company to ramps up production to pre-2012 sanction levels of 4.5mn bpd of liquids by 2020 and maintains this with limited development of new fields. Merrill Lynch’s medium-term balances still point to a range of $60-80/bbl for Brent.

The bank said the Iran - P5+1 Joint Comprehensive Plan of Action (JCPOA) (the ‘Deal’) is of historical importance. Iran has been subject to sanctions since the Islamic Revolution in 1979 and its 36-year isolation may be soon coming to an end.

Iranian economy could have matched that of Saudi Arabia

Iran is the world’s 18th largest economy by purchasing power parity. Within MENA, Iran’s hydrocarbon-rich economy is the second largest behind Saudi Arabia and it trails only Egypt in terms of population.

The gradual and partial removal of sanctions could help Iran's domestic demand rebound rapidly, especially if oil exports normalize to pre-2012 levels.

Merrill Lynch's analysis suggests the Iranian economy would have matched the size of Saudi Arabia, were it not for sanctions. “We think the Deal is likely to bring macro benefits to Iran in three stages: cash, trade, and investment.”

UAE, Turkey, and South Caucasus gain but Russia may lose

The gradual and partial removal of sanctions could imply $200bn in annual import demand by 2020, from $80bn now. “We believe UAE and Turkey are best positioned to enjoy potential upside in Iranian trade volumes.”

The Deal should also support South Caucasus via freer trade, but could have some negative spill-over effects on Russia via lower oil prices or eventual competition to supply gas to Europe. Still, sustaining any boost in activity would require Iranian macro reforms, the bank said.

Beneficiaries in the equity, credit, and debt space

Savola and MTN already have Iranian exposure and look well-placed to benefit, according to our Fundamental Equity Research team. They think Emaar could be a key beneficiary from greater Iranian property demand in Dubai.

The Deal could be positive for refiners such as Tupras. Oil & Gas, EU/Turkish autos, civil aerospace and Turkish and MENA banks are sectors that have medium- to long-term potential upside, in their view.

The bank's Credit Research team is most positive on DP World, Tupras and Emaar. Dubai, Armenia, Turkey EXD would benefit, although political considerations constrain the latter two.
Source: Bank of America Merrill Lynch