OPEC greets "dawn of a new power play", Iran refuses to "bow"

Business Materials 3 December 2016 15:11 (UTC +04:00)
The recent decision by OPEC to curb the level of output may be "the dawn of a new power play" in the oil market over the next few years, an Iranian expert believes
OPEC greets "dawn of a new power play", Iran refuses to "bow"

Baku, Azerbaijan, Dec. 1

By Farhad Daneshvar - Trend:

The recent decision by OPEC to curb the level of output may be "the dawn of a new power play" in the oil market over the next few years, an Iranian expert believes.

Mehrdad Emadi, consultant at the UK-based Betamatrix International Consultancy, told Trend that OPEC's decision to impose a ceiling on output below the existing level of production by the member countries may be considered the most significant agreement since 2006 reached by the organization.

According to Emadi, the new agreement was reached only after all member countries agreed that Iran will be exempted from the voluntary cuts and/or freeze on the production levels. He said the decision will enable Iran to regaining its footprint in the crude oil market after losing its market share due to the sanctions.

Iran is back, lobbying fails

It is noteworthy that Saudi Arabia and Algeria, prior to the announcement, had insisted that Iran should abide by the cuts or at least freeze its output.

"By expanding its market share and increasing its output, Iran sent an important message to the energy suppliers inside and outside the cartel [OPEC] that it was back and it is determined to pursue its interests with renewed rigor and the country will neither bow to lobbying nor to intimidating threats," Emadi stated.

"In my view, this actually may benefit the organization in that the willingness of the other OPEC members to accommodate Iran in return for a united voice in the energy market and acknowledging the role of Iran as a key producer will make it much more likely to see the reemergence of a more disciplined OPEC that will put unity and long term interests ahead of regional bickering and short terms gains. Such a unity will generate a new level of political and economic credence to the organization in the global energy market," Emadi believes.

Language of constructive dialogue returns to region

"Given the current differences between Iran on the one side and the Saudis as well as Kuwait on the other side concerning the best course of action on how to resolve the conflicts in Syria, Iraq and Yemen, the fact that an agreement could be arrived at without making swipes at any member country or making any negative comments about the challenge of attaining the agreement may signal the return to the language of constructive dialogue instead of solely relying on the instruments of hard power."

This can only benefit the region in that it reduces the space and the need for intervention by other countries including the US and Russia as power brokers.

"It is my assessment that this will benefit all the members and those in the region and encourage economic growth and investment in the area".

Impact on investment in Iran’s energy projects

Iran's ability to persuade the OPEC members to recognize its right to regain its pre-sanctions capabilities to produce oil will significantly enhance the promise of better returns to investment in its energy projects by the West, Japanese and Korean firms that have shown interests in developing new projects in the energy sector in Iran but have somewhat remained wary because of the implicit and explicit threats of new sanctions by the new administration in Washington.

By increasing its exports, economic ties between the EU, Japan, Korea and Iran will deepen making it more difficult for Washington to recruit support for new measures against Iran.

"In this context, I expect a new impetus in the West to invest in the energy projects in Iran. I expect within couple of years we may see a tripled foreign investment in new projects in Iran. In my private discussions with one of the leading European oil companies I have heard the desire to help Iran reach the target of 6.2-6.6 million barrels per day (mbd) as its output before 2020. This requires an investment if more than $100 billion in less than four years in the country by foreign investors," Emadi said.

Return on investment in Iran higher than the average for world

"Although the rapid developments in the alternative energies and their improved commercial competitiveness together with the decline in the projected global growth rate have slowed down investment in upstream projects in the industry, the impact on Iran may be less than other countries since the potential return on investment in the country is higher than the average for the region and indeed globally," he noted.

This is primarily due to under developed opportunities due to sanctions and a very inefficient commercial management of investment projects in the last 10-12 years. To this end, there are still many projects that when developed upon their completion will see attractive returns to the initial capital outlay once the technological know-how and managerial skills are transferred to the country, Emadi concluded.