Why Middle East won’t cheer Iran deal

With the ink barely dry on a nuclear deal between world powers and Iran, which could see the country's oil coming back online, Iran's fellow OPEC member, Saudi Arabia, and its historic enemy Israel, are not likely to cheer the deal, experts warn.

After years of talks, Iran and six major powers clinched a historic nuclear deal Tuesday in which Iran is likely to see some sanctions removed in exchange for restrictions to its nuclear program.

While Iranians are likely to take to the streets to celebrate the deal and the potential end to years of hardship, Iran's neighboring Middle Eastern countries could be perturbed by the accord's ramifications.

A ‘historic mistake’

A man stands by a billboard with a picture of the world and Jerusalem's Dome of the Rock, as Iranians march in a Qods (Jerusalem) Day rally, an annual anti-Israel event, in Tehran, Iran, on July 10, 2015.
Scott Peterson | Getty Images

Israel has already reacted against the agreement and is not happy with the apparent rapprochement between the West and Iran, a country whose previous president, Mahmoud Ahmadinejad, said he would like to see Israel wiped off the map.

Taking to Twitter, Israeli Prime Minister Benjamin Netanyahu said the deal was "a historic mistake" and that it was the result of the world powers – the U.S., Russia, China, France, Britain and Germany - wanting to reach an agreement "at any cost."


Although Iran's current President, Hassan Rouhani, has toned down the anti-Israeli rhetoric, Israel doubts how committed Iran is to not giving up its pursuit of building nuclear weapon it could use against Israel.

Saudi-Iran rift to widen?

As well as the deal potentially prompting rifts in the geo-political landscape of relations between Israel and the West, Iran's relations closer to home could be damaged, however, when its main export – oil – comes back on to the market and puts rival producers and economies, such as Saudi Arabia, under pressure.

Iran is a member of the Organization of Petroleum-Exporting Countries, a 12-country oil producing group led by Saudi Arabia, which has the highest output in the group. As such, Saudi Arabia might not be too happy with another rival producer coming back into production, analysts told CNBC.

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"There is little doubt that the Saudis wouldn't have wanted a deal but couldn't risk relationship with the U.S. It's pretty shaky at the moment already," Malcolm Graham-Wood, founding partner at Hydrocarbon Capital told CNBC Tuesday.

Iran deal: A new chapter of hope
Iran deal: A new chapter of hope

"Saudi Arabia has been producing flat out lately to remain the enforcer in OPEC… Word has it that they are nearly at 11 million barrels a day which is indeed close to their limit -- although they still carry a target of up to 15 million b/d in the longer term," he added. "Technically, Iran is out of quotas so I think that anyone who can increase production is doing so while they can."

Despite an over-supply of oil and lack of global demand causing oil prices to halve since last June, Saudi has pushed the group to maintain its 30 million b/d production ceiling, a limit it has also been exceeding lately in a bid to push its U.S. rival shale oil producers out of business. Iran, however, publicly opposed the group's decision not to cut supply.

On Tuesday, oil prices fell on news of the deal that means that Iranian oil could soon flow back into an already over-supplied oil market. By late morning, Brent was trading down 1.8 percent at £56.75 and WTI crude down 1.9 percent at $51.20.

No stone left unturned

Another analyst said that Iran's oil supply was ready to go and would do anything it could to restart its economy – which is the second-largest in the Middle East after Saudi Arabia, according to the World Bank -- even if it meant a rift with Saudi Arabia over oil in the process.

"Saudis will certainly not feel very thrilled with this deal," Naeem Aslam, chief market analysts at AVA Trade said in a note Tuesday.

"Although, it may take a certain amount of time to become fully equipped with an ability to produce oil at its optimum level, Iran does have a significant amount of oil reserve which is ready to hit the market," he said, adding that this would only add to the oil glut on the market and increase the selling pressure. "

"Saudis are not going to wide open the quota of oil for Iran as a member of OPEC," Aslam warned. "Nevertheless, it's a different question whether Iran will give any second thoughts to those quotas -- given that Saudi Arabia is already pumping record amounts of oil and alienating other members. For Iran their number one priority is to build their economy and they will leave no stone unturned in achieving this," he said.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.