Iran’s uncertain oil market prospects

Oil&Gas Materials 7 May 2015 19:20 (UTC +04:00)
Less than two months are left before the most important moment in the world political annals - the signing of a comprehensive agreement on Iran's nuclear program.
Iran’s uncertain oil market prospects

Baku, Azerbaijan, May 7

By Elmira Tariverdiyeva - Trend:

Less than two months are left before the most important moment in the world political annals - the signing of a comprehensive agreement on Iran's nuclear program. It will be clear on July 1, 2015 whether Tehran and the West will be able to agree over the terms of concluding this important agreement, as a result of which, the sanctions will be lifted from Iran.

However, the speed of lifting the sanctions is just one of the stumbling blocks in the negotiation process.

One of the main issues today is the impact the nuclear talks and possible signing of an agreement will have on the oil market. It should be stressed that Tehran's officials are already preparing to obtain all kinds of benefits after several years of economic standstill.

Iranian Oil Minister Bijan Namdar Zanganeh has recently urged the oil-producing countries to make way for Iran's oil returning to the world market.

As he said, all the oil-exporting countries should consider the possibility of Iran's return to this market.

The expectations are rather optimistic, however, several questions arise about the validity of such forecasts.

Firstly, the agreement between the West and Iran will become a reality only on July 1. The parties still have unresolved issues, and one can't predict that it will be possible to completely settle them in the near future.

While each side has its own view of the talks and its own expectations of the agreement results, wouldn't it be at a bit naive to talk about the lifting of sanctions as a settled issue?

At the same time, it is hard for both sides to make concessions, especially on the issue of the time when the sanctions should be lifted.

On one hand, Iran's President Hassan Rouhani insists on the instant removal of all the sanctions immediately after the signing of the agreement, whereas US President Barack Obama prefers a phased lifting of sanctions, as Iran complies with the terms of the agreement.

Apparently, both sides will make the most important decisions at the last minute.
However, even if the sides reach a compromise on this issue, the return of Iranian oil to the market will unlikely automatically affect the price for hydrocarbons or the positions of other supplier countries.

Even if the sides reach final agreements in July, there is no reason to expect serious changes in the oil market, at least from a short-term perspective.

The sanctions imposed on Iran over recent years did their part and seriously damaged the country's chances of quickly increasing production.

Iran's oil infrastructure has become largely obsolete under the sanctions and the country needs new investments in the oil industry in order to really increase the production. There will be a lapse of time before Iran can enter the oil market with any serious offer of large volumes of oil.

Perhaps immediately after conclusion of the agreement Iran will be able to influence the oil market by selling oil accumulated due to the sanction limitations, which is being stored in tankers for now, the reserves of which are estimated by experts at about 10-13 million barrels.

However, after selling this oil, Iran will have to work hard to increase the production, given the infrastructural problems and the question of the natural depletion of fields. In addition, Iran has conserved a lot of oil wells since the time of imposing sanctions against the country, repeated oil production from which would be difficult and costly.

Assessing the situation, one can assume that Iran and the West once again will fail to agree. For example, on the issue of regular inspection, as Tehran will not want to let them into military facilities, this will raises questions of the IAEA. And if this is the case, sanctions may be reimposed, and they may be even more stringent than the current ones.

Considering all this, it's not worth overestimating statements and capabilities of the Iranian authorities about the country's entering the oil market for now.

Edited by CN


Elmira Tariverdiyeva is Trend Agency's staff writer, follow her on Twitter @EmmaTariver