London: A global deal to lift sanctions against Iran could unleash a flood of oil on to world markets by next year just as crude output recovers in Libya and Iraq, 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 major threat to Russia and a string of countries that depend on oil revenues to finance their budgets.

The Sunday 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 programme.

The accord should unlock 800,000 barrels per day (bpd) of global supply by next year in a market of 89m, rising over time as 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 $13 (Dh47) over time, enough to depress Brent crude below $100 and US crude below $85. 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”.

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 $130 billion in 2011 to avert social protest, and its break-even cost has jumped to $98, though it still has $700b of foreign reserves. The implicit threat to dump US dollars is unusable at a time when monetary tightening by Washington is likely to drive up the dollar.

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 Iran is locked in a struggle for Middle East dominance with a Saudi-led bloc of countries.

Chris Skrebowski, editor of Petroleum Review, said the great unknown is how Saudi Arabia will react to a move deemed treachery in Riyadh. Iran’s diplomatic triumph may embolden Saudi Arabia’s aggrieved Shiite community 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. Skrebowski said the Middle East was a tinder box, in the grip of a Sunni-Shiite civil war comparable in ideological ferocity with 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 Muslim Brotherhood.

The US energy department said North America will add 1.5m bpd of oil supply this year, mostly from shale, and 1.1m bpd next year. This new supply comes just as Iraqi Kurdistan opens a new pipeline to Turkey.

Iraq’s output crashed to 2 million bpd in the wake of Al Qaida attacks, 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 that crude prices will slide in 2014, much to the alarm of states which depend on oil to make ends meet.