“The relief in EU sanctions on oil shipping insurance is a big deal and creates the conditions to make it easier for Iranto get at least up to the sanctioned levels,” Olivier Jakob from Petromatrix energy consultancy said.

“A lifting of the insurance ban could free up some of Iran's strained tanker fleet for increasing use in domestic floating crude oil storage,” Goldman Sachs said in a note.

India's refiners cut oil purchases further after European reinsurers added a clause that could mean claims arising during the processing of Iranian oil would not be met.

Although Sunday's interim deal is not intended to allow any increase in Iranian oil exports, a “joint plan of action” document posted on European Union and U.S. government websites says that in return for Iran meeting its commitments, the West would:

“Pause efforts to further reduce Iran's crude oil sales, enabling Iran's current customers to purchase their current average amounts of crude oil. Enable the repatriation of an agreed amount of revenue held abroad. For such oil sales, suspend the EU and U.S. sanctions on associated insurance and transportation services.”

It is not clear whether this also means that the problematic clauses in Indian refiners' insurance contracts will be removed, but alleviating insurance headaches for some shipments should help smooth a trade that has dipped below sanctioned levels this year.

Kevin Book, managing director at ClearView Energy Partners in Washington, said the easing on insurance could provide for an increase of 200,000 to 400,000 barrels per day (bpd) in Iranian exports, particularly to Indian refiners.

A fact sheet posted on the U.S. State Department's website on Sunday said that the nuclear deal would not allow any increase in Iranian crude sales over the next six months.

“Under this first step, the EU crude oil ban will remain in effect and Iran will be held to approximately 1 million bpd in sales, resulting in continuing lost sales worth an additional $4 billion per month, every month, going forward,” the fact sheet said.

Benchmark Brent crude dropped about $2 a barrel early on Monday to around $109.

Analysts at Barclays bank said no more than 400,000 bpd of Iranian oil were likely to return to the market in the coming months, adding that Iran could struggle to drastically increase its exports due to remaining sanctions and difficulties restarting shut-in production.

LONG TERM

Iran is home to some of the world's largest oil and gas reserves, but U.S. energy firms have been barred by Washington from Iran for nearly two decades.

Several European energy giants had planned multi-billion dollar investments over the last decade to help develop Iranian reserves, which could significantly improve global energy supplies over the long term.

U.S. pressure drove European energy companies away from Iran in the late 2000s, however, for fear of jeopardising their interests in the U.S. market if they stayed.

Western bans on investment in or provision of technical services to Iran's energy sector remain firmly in place, and western energy giants who are keen to go into Iran as soon as sanctions are lifted will have to wait.

Sanctions preventing the sale of refined petroleum products to Iran, which needs to import such fuels because it lacks refining capacity, also remain in effect.

OIL MARKET

U.S. pressure on Iran's customers to find other suppliers has supported global oil prices over the last two years.

Rising U.S. and Saudi production has helped dampen the impact on the market.

U.S. lawmakers had been planning to make deeper cuts to Tehran's crude exports, but Washington has put any further nuclear-related sanctions on hold.

“The various groups aligned against any deal give the market good cause for scepticism, but this deal is clearly a significant and bearish development,” Seth Kleinman, head of energy research at Citigroup, said.

The White House estimates that Iran has lost more than $80 billion since the beginning of 2012 because of lost oil sales. It estimates Tehran's earnings over the next six months will be down $30 billion by comparison with a six-month period of 2011, before sanctions were imposed.

'LIMITED, TARGETED' RELIEF

The agreement suspends U.S. and EU sanctions on some other sectors of Iran's economy in the initial six-month period. The relief, which the U.S. State Department said was “limited, temporary, targeted and reversible”, could allow Iran to collect about $1.5 billion by resuming trade in gold and precious metal as well as some trade for its auto and petrochemical sectors.

About $4.2 billion of oil sale revenue also can be transferred in instalments from accounts frozen in the West if Iran fulfils its commitment, bringing the total relief allowed in the package to about $7 billion, according to the State Department.

“The vast majority of Iran's approximately $100 billion in foreign exchange holdings are inaccessible or restricted by sanctions,” the State Department said on its website.

The pact also allows specified foreign banks to release Iranian oil revenue that has been frozen in its U.S. accounts to pay for food, medicine, medical devices and other humanitarian purposes for domestic use in Iran.

Sanctions were also lifted on Iran's auto industry, and the pact temporarily permits spare airplane parts to be sent to help ensure the safety of Iranian civil aviation.

Spokesmen for General Motors Co and Chrysler Group LLC declined to immediately comment. A Ford Motor Co spokesman said it would “monitor the situation carefully as it may evolve over the next months”, while following all legal requirements expected under the current sanctions.

The U.S. government imposed sanctions on auto exports to Iran after the 1979 revolution. But a small number of popular models are imported and sold in Iran by third-party distributors.