Lifting sanctions from Iran to immediately affect oil prices - expert

Lifting sanctions from Iran to immediately affect oil prices - expert

Baku, Azerbaijan, July 9

By Elena Kosolapova - Trend:

If Iran and six negotiators are able to agree to lift sanctions from Iran, this will immediately lead to a sharp drop in oil prices, Sergey Smirnov, the expert of the Kazakh Institute of Political Solutions, said.

"The prices will immediately fall as soon as the decision on lifting of sanctions is made, no matter whether Iran will supply the raw materials to the market or not," Smirnov said.

He said that the speculative factors have a great impact on oil prices on the global market. So, even the situation with Greece led to a slight decline in oil prices, although Greece consumes little.

"If the sanctions are lifted from such a large producer of oil as Iran, the market will definitely react," the expert said. "The decline will be more significant than in case of Greece. Later, the prices will likely to start restoring and react on the oil volumes, to be supplied by Iran to the world market."

Smirnov said that at present, there is no accurate information about the condition of the Iranian oil fields and the country's efficiency to restore the production in the previous volumes.

"So now it is difficult to predict the duration of oil price fall," he said. "Although there is the information that Iran has considerable oil reserves in the storage tanks."

However, the expert said that the talks on Iran's nuclear program are hard and therefore, the sides are unlikely to come to an agreement soon.

"The negotiations will likely to drag on," he said.

Currently, "Six" international mediators (Russia, France, China, USA, Great Britain and Germany) and Iran are negotiating. Their aim is to prove the peaceful nature of Iran's nuclear program in exchange for lifting the international sanctions. Initially it was planned to complete the talks till June 30. But on July 7 Tehran and Six agreed to extend the talks for a few days.

Smirnov said that the fall in oil prices in case of lifting the sanctions against Iran, will have a negative impact on Kazakhstan. This will lead to reduction of the income of the National Fund, and as a result the volume of tranches transferred to the budget.

Smirnov went on to add that in such a situation, Kazakhstan will be trying to increase oil production in order to offset the amount it loses from falling oil prices. However, the expert said that it will be difficult to do, as the main fields of the country, especially the fields developed by KazMunaiGas have passed peak production. He said that despite Kazakhstan's plans to increase oil production in the last few years, it only falls. Regarding the resumption of production at the Kashagan field, which would provide additional quantities of oil, the expert said that it is unlikely that it will be held on time, i.e. late 2016-early 2017.

Smirnov reminded that earlier, the chairman of the Kazakh national oil and gas company KazMunaiGas Sauat Mynbayev said that the threshold for payback in oil production at Kashagan is around $100 per barrel. Thus, according to the expert, even given the current prices, production at Kashagan will be unprofitable. If oil prices fall further and cost below $60 per barrel, the prime cost of oil could become almost twice as high as the oil prices. Accordingly, it will be unprofitable to begin production at the field.

Regarding the impact of lifting the sanctions against Iran and the fall in oil prices on Turkmenistan, according to Smirnov, the impact will be small, despite the fact that prices for oil and gas, which is a major source of income of Turkmenistan, are connected. The expert went on to add that Turkmenistan mainly supplies gas to China, and a small portion goes to Iran and Russia. The prices for Turkmen gas supplies to these countries are established by existing arrangements.

Edited by CN


Follow the author on Twitter: @E_Kosolapova

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