Iran Nuclear Deal Ticking Bomb For Republicans

The Iran nuclear deal is a ticking bomb for Republicans on Election Day, November 2016. It's why they are desperate to block it. An election prediction model that has never been wrong forecasts the Democratic presidential nominee will win the 2016 election in a landslide, if Iranian economic sanctions are lifted.

Moody’s Analytics’ election forecaster, which uses oil and gas prices as a key determinant, has accurately predicted the outcome of every presidential election from 1980-2012.   The model forecasts whether or not the incumbent party will maintain control over the White House. Its latest finding shows Democrats winning almost as strongly as President Obama did in 2012:

Our Moody’s Analytics election model now predicts a Democratic electoral landslide in the 2016 presidential vote. A small change in the forecast data in August has swung the outcome from the statistical tie predicted in July, to a razor-edge ballot outcome that nevertheless gives the incumbent party 326 electoral votes to the Republican challenger’s 212.

The Moody’s model also uses housing prices, the state of the economy, and presidential approval, in addition to the key determinate of oil and gas prices, in predicting election outcome.

There's a huge surplus of oil in the world, stemming from both buoyant world production supply and stagnate demand, likely to leave crude oil and gasoline prices at low levels not seen in decades, through election day 2016.

Goldman Sachs's September note on oil from the bank's commodities analysts forecasts the average U.S. benchmark price of West Texas Intermediate crude oil through 2016 will be $45 per barrel, but warned the risks of a collapse to $20 were growing:

"The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China's slowdown and its negative EM feedback loop ... While not our base case, the potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater as storage continues to fill."

And there's another reason to believe prices could fall much further before the oil market achieves a better balance. The collapse in prices from over $100 per barrel in mid-2014 helped shore up demand in 2015, but that factor will fade.

"Not only is emerging market growth slowing, but the [economic] benefits from lower oil prices are most likely behind us, as our ... modeling shows that they typically last 9-12 months," Goldman Sachs noted.

"There are reports that stock piles are at their highest levels ever, when you have supplies at their highest levels, 1.3 billion barrels, this is not the place where you expect oil prices to go up," Erin Gibbs, equity chief investment officer at S&P Capital IQ told CNBC on Friday.

We're negative on oil in the short term -- over the next 12 months -- because of a supply glut," said Patrick Armstrong, CIO, Plurimi Investment Managers to CNBC's Squawk Box Europe. "There's no way the world gets rid of this supply glut in the next 12 months and long term oil moves higher," he added.

And this is before Iran's oil is fully accounted for by mkt analysts. Since the nuclear deal between Iran and six world powers was reached in July of this year, Iran's floating oil tanker fleet has been loading up oil. Platts estimated Monday that the amount of Iranian crude oil and condensate held afloat is currently at between 51 million and 53 million barrels. Most analysts estimate Iran's floating oil tanker fleet currently holds only about 30 million barrels of Iranian crude oil and condensate.

The United States, United Nations, and European Union levied multiple sanctions on Iran for its nuclear program since the International Atomic Energy Association (IAEA), the UN's nuclear watchdog, found in September 2005 that Tehran was not compliant (PDF) with its international obligations. The United States spearheaded international efforts to financially isolate Tehran and block its oil exports to raise the cost of Iran's efforts to develop a potential nuclear-weapons capability and to bring its government to the negotiating table.

Iran agreed to restrictions on its nuclear program and intensive inspections in an agreement signed with world powers in July 2015. Under the deal, the most punishing sanctions are poised to be lifted when the IAEA verifies that Iran has taken steps such as reducing its stockpiles of fissile materials and centrifuges.

In mid-September, the Democratic minority in the US Senate staved off staved off a united Republican effort to sink the Iran nuclear deal. With the deal in place, after Republicans failed to scuttle the nuclear agreement, sanctions related to Iran's nuclear program are likely to be lifted before the end of the year.

The IAEA gained access on Sunday to an Iranian military site, to which it had been denied entry since 2011. Iran’s cooperation with inspectors is aiding the investigation of the nation’s past nuclear activities, the International Atomic Energy Agency told world powers in Vienna on Monday. The IAEA is scheduled to deliver its final report on Iranian compliance with the terms of the July deal by December 15, or before. If that report says Iran is complying with the terms of the July agreement, sanctions will be lifted and Iran can begin delivering oil to world buyers.

By then, Iranian oil tankers are likely to be anchored at delivery ports ready to offload. The fleet of tankers will immediately return to home port to refill their tanks with oil stored in land-based tank farms to continue the flow of Iranian oil onto the world market.

Iran’s vow to increase output “at any cost” to reclaim market share will potentially add to a global surplus that Goldman Sachs Group Inc. predicts may keep prices low for the next 15 years. Iranian Deputy Oil Minister, Mansour Moazami, has indicated Iran will double crude oil exports to 2.3 million barrels per day as soon as sanctions are lifted.

Oil producers such as BP Plc and Royal Dutch Shell Plc have expressed interest in developing reserves in Iran, the world’s fourth-largest, once sanctions are removed. The nation pumped 2.9 million barrels a day in August, ranking as the fourth-largest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. Production levels will likely increase by at least several hundred thousand barrels per day, as soon a sanctions are lifted.

Iranian oil production is likely to further increase by late 2016, with the help of BP and Shell. After taking care of needed repairs to its oil fields halted by the sanctions, experts say it could add upward of 4 million barrels of oil a day to global production. "Absent a rise in global demand, an increase in supply of this magnitude would inevitably depress prices," ratings agency Moody's Investors Service said in July. Modernization of Iran's oil field production with up-to-date oil production equipment and technologies will allow the country to further increase production.

Crude oil prices and gasoline prices at the pump remaining at or below $2 a gallon through 2016 will give the electoral edge to the party occupying the White House.  Will a landslide win for the presidential candidate propagate a Democratic wave into the Senate and House?