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Iran-US Nuclear Deal: Will Your Monthly Fuel Expenses Decrease, Will Your Savings Increase?

November 27, 2013
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In light of the nuclear deal that has been signed between Iran and USA, it is very natural for countries that import oil directly from Iran to wonder about the cost of fuel prices and whether it will increase or decrease. So when you are puzzled, you naturally want answers or want to engage in a discussion from which you can get answers!

So to those of you who wish to engage in some friendly Economics jesting, let’s move forward!

This is how we proceed with our thoughts. It will range from technical and necessary to wild assumptions made only to make our rudimentary understanding of the Nuclear Deal easier!

So let’s begin!

A few countries that import oil directly from Iran include:

#Financial Modeling

To refresh your memory, here are some of the key highlights of the Iran-USA Nuclear Deal:

  • Iran to freeze or roll back its uranium enrichment programme to levels which would provide assurances that Tehran could not enrich to weapons grade. Iran promised to limit uranium enrichment to 5 per cent
  • It is to dilute its stockpile of uranium enriched to 20 per cent which can have medical uses
  • Tehran agreed to halt construction of its heavy-water plutonium reactor at Arak
  • Iran agreed to more intrusive inspections by the UN watchdog, the IAEA
  • In exchange for the concessions made by Iran, some $7bn in international sanctions are to be lifted, including on gold and precious metals and aviation spare parts
  • This decision is “reversible”. Depending on Iran’s compliance, the sanctions imposed on the oil and banking sector would not be affected at this stage

Now, to make things interesting, we shall project a hypothetical situation based on various assumptions. The assumptions are based on changes that might come about with the Iran-USA Nuclear Deal, such as

  • Removal of restrictions and shipping cover of crude oil
  • Ability to purchase contracted volumes more easily
  • Lifting of insurance restrictions
  • I – P – I Gas Pipeline making accessibility to crude oil easier
  • Lower costs when purchasing in bulk and directly from Iran

A few more facts and then we get back to the fun stuff!

  • India imports 500,000 tonne of crude oil every month since August 2013
  • India’s crude imports from Iran are expected to total 11 million tonne in the twelve months ending March 31, 2014, a drop of about 15% from the previous year
  • This implies a possible $8.5 billion saving for India as easing tensions will soften oil prices
  • This in turn should reduce India’s import bill, help ease forex pressure and help lift the rupee
  • Because of the Iran-USA Nuclear Deal, India can hope to buy more Iranian crude through long-term contracts
  • Indian oil companies can also proceed with stalled projects

Coming closer home, let us make it more fun and see how it might affect an individual directly.

Let us take India as an example. The cost of petrol in New Delhi, India since September 2013 is

#Financial Modeling

Let us plot a graph based on our wild assumptions!

#Financial Modeling

This would imply that the expenses of any given individual who is required to buy 40l of petrol per month would decrease. Let us take another graph to demonstrate the same.

#Financial Modeling

This in turn implies greater savings, which in turn implies more vacations!

#Financial Modeling

So as you can see, the Iran-USA Nuclear Deal might just end up being easy on the pockets of citizens in India! Not only will it help aid the Indian economy and diplomatic relations, it will also have a more visible and positive impact on the individual.

This friendly Economics banter wasn’t all that bad, was it? For all you know, something along the same lines might actually happen in the following months!

If you wish to add anything further to this post, if you have queries or comments, feel free to start a discussion thread below!


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