Iran sanctions deal to unleash oil supply but Saudi wild card looms 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 will 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 Mid-East dominance with a Saudi-led bloc of Sunni regimes. Chris Skrebowski, editor of Petroleum Review, said the great unknown is how Saudi Arabia will 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. Mr Skrebowski said the Middle East is a tinder box, in the grip of a Sunni-Shia civil war comparable in ideological ferocity to the clash between Catholics and Protestants in early 17th Century Europe. Saudi Arabia has already shown how far it will go to protect its interests, helping to overthrow Egypt's Musilm Brotherhood. The US energy department said North America will add 1.5m b/d of oil supply this year, mostly from shale, and 1.1m b/d next year. This new supply is coming just as Iraqi Kurdistan opens a new pipeline to Turkey. Iraq's output crashed to 2m b/d over the summer as al-Qaeda attacks reached a crescendo, but Baghdad claims output is poised to recover. The International Energy Agency expects Iraq to triple supply to 6m by 2020. Goldman Sachs and Bank of America have both warned over recent days 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 $120 for Bahrain, Nigeria and Algeria, and $110 for Venezuela, and Iraq. Oil duties furnish half the budget in Russia where the break-even price reached $117 last year. Moscow is tightening its belt but 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 $130bn in 2011 to avert social protest, and its break-even cost has jumped to $98, though it still has $700bn 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 dollar. Mr Skrebowski said Riyadh may 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 $80. It is unclear whether the Saudis still have the spare capacity to pull off such a feat, or whether other Gulf OPEC producers would join forces in a replay of the Arab oil embargo of 1973. The Saudis have played a responsible role over recent decades as the swing force in global markets ensuring stability. An open rift with Washington might be suicidal at a time when OPEC control over global oil supply is in any case greatly reduced, and the cartel is itself deeply divided. Even the Emirates have cautiously welcomed the Geneva deal, distancing themselves from the Saudis. Yet anything can happen once emotions are at fever pitch in a region already torn apart by war.