A global deal to lift sanctions against Iran could unleash a flood of oil onto world markets by next year just as crude output picks up in Libya, Iraq, and North America, triggering a slide in prices and a major shake-up of the energy landscape.
The prospect of cheaper oil is a welcome relief for the West, but poses a big threat to Russia and a string of countries that depend on oil revenues to finance their budgets.
The first reaction of the market was to sell off oil. In Asian trading, Brent crude sank as much as 2.2 per cent to $US108.62 a barrel.
The weekend deal in Geneva between Iran and key world powers opens the way for a gradual end to sanctions, provided the new government of Hassan Rohani delivers on pledges to curb its nuclear program.
The accord should unlock 800,000 barrels a day of global supply by next year in a market of 89 million, rising over time as foreign companies return and the country's ruined oil industry comes back to life. Export curbs will stay in place for another six months, but a planned escalation of curbs will not occur.
Citigroup said the Geneva deal should cut global oil prices by $US13 over time, enough to depress Brent crude below $US100 and US crude below $US85.
The bank said falling energy prices could mark the death of the commodity supercycle, already struggling as China shifts to a new phase of "smart urbanisation".
Alastair Newton, from Nomura, said the "geopolitical risk" premium in the oil price should fall but there would be no immediate softening of the oil embargo, adding that talks could still break down over Iran's heavy-water reactor at Arak.
America's rapprochement with Tehran is a dramatic upset in the region's alliance system at a time when Shia Muslims led by Iran are locked in an epic struggle for Middle East dominance with a Saudi-led bloc of Sunni regimes.
Chris Skrebowski, editor of Petroleum Review, said the great unknown was how Saudi Arabia would react to a move deemed treachery in Riyadh, already exposed in a WikiLeaks diplomatic cable exhorting the US to "cut off the head of the snake" in Iran.
Tehran's diplomatic triumph may embolden Saudi Arabia's aggrieved Shia minority to press demands, perhaps even threatening the main Saudi oilfields in the Eastern Province where they dominate. "The Saudis are very angry. The great question is whether they can live with this deal, or whether it is intolerable," he said.
The US energy department said North America would add 1.5 million barrels a day of oil supply this year, mostly from shale, and 1.1 million barrels a day next year.
This new supply is coming just as Iraqi Kurdistan opens a new pipeline to Turkey. Iraq's output crashed to 2 million barrels a day over the northern summer as al-Qaeda attacks increased, but Baghdad claims output is poised to recover. The International Energy Agency expects Iraq to triple supply to 6 million barrels a day by 2020.
Goldman Sachs and Bank of America have both warned that crude prices will slide in 2014, much to the alarm of states that depend on oil to make ends meet. The "fiscal break-even point" needed to balance budgets is near $US120 for Bahrain, Nigeria and Algeria, and $US110 for Venezuela and Iraq.
Oil duties furnish half the budget in Russia where the break-even price reached $US117 last year. Fitch warns that it may downgrade the country if there is a prolonged fall in crude prices.
Even Saudi Arabia is feeling the pinch. It boosted spending by $130 billion in 2011 to avert social protest, and its break-even cost has jumped to $US98, though it still has $US700 billion of foreign reserves to be used in extremis. The implicit threat to dump US dollars is unusable at a time when monetary tightening by Washington is likely to drive up the greenback.
Mr Skrebowski said Riyadh might try to "rap America's knuckles" by flooding markets with enough oil to puncture the US shale oil revolution. Production costs at the US Bakken shale field are around $US80 a barrel.