Lifting sanctions against Iran may lead to drop in oil prices

Business Materials 7 May 2015 20:27 (UTC +04:00)

Baku, Azerbaijan, May 7

By Elena Kosolapova - Trend:

Agreements between Iran and the 5 + 1 group (the United States, France, Britain, Russia, China + Germany), if they are achieved, and bring about the lifting of sanctions against Iran, can seriously affect the world energy market, deputy director of the Energy Research Institute of the Russian Academy of Sciences Vladimir Likhachev said.

Iran and the 5 + 1group should conclude the final nuclear agreement by June 30. The parties reached a framework agreement on the issue in early April. Iran expects a total withdrawal of Western sanctions after reaching the agreement.

"It seems that the sanctions will be gradually removed, and Iran will raise its oil production," Likhachev told Trend by phone May 7.

He said that this may lead to a decrease in world oil prices.

In addition, the expert said that Iran ranks second in terms of the largest gas reserves in the world, therefore, the lifting of sanctions against Iran could also affect the natural gas market in the region.

At the same time, the oil price is unlikely to fall below $60 per barrel, because it is not profitable for producers, according to Likhachev. He went on to add that the price of oil is not formed in Iran or any other country, but on the stock exchanges, and should be acceptable for both buyers and producers.

"We [members of the Institute of Energy Research of the Russian Academy of Sciences] always assumed that the price at the level from $60 to $80 per barrel is a normal world price," Likhachev said. "This is the lowest allowable limit of price for the largest producers of OPEC as well."

He said the price of $70 per barrel is also acceptable for the break-even production of shale oil.

Likhachev said that despite the sharp drop in oil prices, the very low prices lasted only six weeks. Now again there is growth observed, in particular due to the political situation in the Middle East, and the average price for the year will just be in the range of $60-$80.

"We hope that the price in the range of $60-$80 is relatively stable," said the expert. "This price satisfies almost everybody."

In his view, the price in the current range is quite comfortable for all members of OPEC, and in the near future one should not expect any fundamental changes from them, or in particular the revision of quotas.

With regard to the statements of discontent of individual OPEC members about the current quotas on oil, it will not be able to influence the future decisions of the organization, according to Likhachev. He said that Saudi Arabia will continue to dictate the conditions in OPEC, and the situation where there are some differences and grievances of small states is common for large international organizations.

With regard to Iran, it will eventually enter into competition with all the other producers at an average price of oil, according to the expert.

On May 7, Iranian Oil Minister Bijan Namdar Zanganeh said that an acceptable oil price for Iran would range from $70 to $75 per barrel.

Today, oil prices are at the level of about $70 per barrel.

Edited by CN


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