The world powers and Iranstruck a deal on Tuesdayto curb Iran’s nuclear program for at least 10 years in exchange for billions of dollars in relief from international sanctions.
Since Iran has the fourth-largest proven crude oil reserves, everyone’s wondering what Iran’s re-entry on the global market means.
“A potential return of Iranian oil to the market could not have come at a worse time,” Barclays commodities analyst Michael Cohen wrote in a note to clients. “An increase in Iranian exports beyond 300-400 kb/d would be difficult for the market to absorb.”
Right now, the oil market is already saturated as supply greatly outpaces demand. Consequently, more Iranian oil means that prices could drop further, and there will likely be increased competition within OPEC (especially since Iran and Saudi Arabia are both members of the oil cartel.)
Furthermore, “given continued statements from the Obama administration that sanctions can be snapped back at any time, we would expect refiners to be reluctant to conclude long term procurement arrangements with Iran during 2015,” writes Cohen.
Good news for Mediterranean countries
Still, one area that is poised to benefit from Iran’s oil is the Mediterranean Euro area.
After Iran was banned from selling oil to Europe in 2012, Russia pounced on the market. But now, “Iran is going to be competing in Europe head-on with Russia,” Ed Morse, head of commodities research at Citigroup Inc. previously told Bloomberg.
“We are looking forward to Iran coming back to the market,” a spokesman for Greece’s biggest refiner Hellenic Petroleum told Reuters.
However, it’s important to note that there are still many uncertainties over how quickly Iran will get off the bench and back into the game.
“Restarting of mothballed fields and reopening the sector to foreign investment faces many obstacles,” according to Barclays analysts.
Additionally, Dr. Mamdouh G. Salameh, an international oil economist and World Bank consultant, told Gulf News that Iran’s oilfields are old and need huge repairs if the Islamic Republic wants to increase production.
“It will take Iran more than two years to deploy the enhanced oil recovery (EOR) technology to repair the damaged reservoirs in its oilfields and try to increase production,” he said. “Even then it might only succeed in limiting the fast depletion in its oilfields rather than increase production.”
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