ENLARGE
An Iranian worker at an oil refinery south of the capital Tehran. Direct sanctions on international purchases of Iranian oil, enacted in 2012, have gutted Iran’s exports, cutting crude sales in half to between 1 million to 1.2 million barrels a day over the past year. Photo: Associated Press
Iran, the U.S. and its allies are pushing ahead with talks over a nuclear deal that would change many things—perhaps none faster than the price of oil.
Iranian exports in recent years have been essentially capped by Western sanctions aimed at pressuring Tehran over its nuclear ambitions. A deal easing those sanctions could eventually translate into half a million barrels or more in Iranian crude heading into a currently glutted global market, analysts estimate.
With global crude prices already under pressure, a deal could quickly knock them lower. Some traders even cited the resumption of talks this week between Iranian and U.S. officials as a fresh excuse to bet on a further decline.
“What happens with Iran is important because of the direct impact on oil supply,” said David Hufton at London brokerage PVM. April-dated Brent crude on London’s ICE Futures exchange lost $1.23 per barrel, or about 2.25% to $53.44 Monday.
The benchmark U.S. oil price tumbled to its lowest point in six years during intraday trading on signs of a deepening supply glut. Nymex crude for April delivery lost 96 cents per barrel, or 2.14% to $43.88 by midafternoon Monday in New York.
Western powers put Iran’s export limit in place relatively recently, as part of wide-ranging economic sanctions dating back decades and aimed at bringing Tehran to the bargaining table over its nuclear program. Washington and its allies say Iran is working toward producing nuclear weapons. Tehran says its program is peaceful.
While a deal is far from certain, Iran’s Oil Minister Bijan Zanganeh said on Monday that the country could double its exports quickly. “In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude oil production and exports in several months,” Mr. Zanganeh was quoted as saying by his ministry’s news agency Shana.
But he predicted the additional Iranian supply wouldn’t “significantly affect crude oil prices and world markets.”
Iran has already sounded out Asian oil buyers about taking extra supplies, according to two Iranian oil officials. “We have told our Asian customers we are ready to supply more when sanctions are lifted,” one Iranian oil official said.
Less clear is just how much Iran could pump in a sustainable manner, after years of sanctions and mismanagement of the energy sector drove international oil companies from the country.
Iran could perhaps export as much as 800,000 additional barrels a day, within a year “if they had a market to take their crude to,” said Robin Mills, head of consulting at Dubai-based consultancy Manaar Energy. “That’s just turning the fields back on again,” said Mr. Mills. “After that it would be flat or declining until they get some foreign investment.”
Iran’s oil industry, among the oldest in the world, has been plagued by problems. It has never approached the roughly 6 million barrels a day Iran produced before the 1979 revolution there.
Direct sanctions on international purchases of Iranian oil, enacted in 2012, have gutted Iran’s exports, cutting crude sales in half to between 1 million to 1.2 million barrels a day over the past year. That has forced Iran to shut down production on some fields and severely limit it in others.
Turning lots of production back on suddenly can be complicated—and time consuming—even if wells and reservoirs are maintained studiously. It could be even harder in complex Iranian fields that have been pumping for decades.
Still, some analysts have concluded that a good deal of that lost output could return more quickly than often anticipated. The International Energy Agency, for example, has said that it expects a relatively rapid burst of exports if sanctions are lifted.
“They’ve deployed considerable ingenuity in getting around sanctions and keeping fields in tiptop shape. We think Iran could pretty much come back to the market on a dime,” Antoine Halff, head of the IEA’s oil industry and markets division, recently told an audience at the Center for Strategic Studies in Washington.
The impact of that on the oil market: “We could see a new leg in the downward slide of prices,” said Mr. Halff.
After an initial burst of production, however, Iran is likely to struggle with a plethora of challenges in pushing exports back even to the roughly 4 million barrels before sanctions began taking their toll.
Iran’s active oil fields need maintenance and new technology to stave off a rapid falloff in productivity. Meanwhile, the withdrawal of foreign firms and the loss of revenues due to sanctions, along with simple mismanagement, have prevented the development of rich new fields.
Mr. Zanganeh, who took over as oil minister after the election of President Hasan Rouhani a year ago and a half ago, has earned high marks for instilling a new sense of focus across the sprawling sector.
Still, he publicly called the industry a “catastrophe” recently, underscoring the challenges ahead.
An Iranian worker at an oil refinery south of the capital Tehran. Direct sanctions on international purchases of Iranian oil, enacted in 2012, have gutted Iran’s exports, cutting crude sales in half to between 1 million to 1.2 million barrels a day over the past year. Photo: Associated Press
Iran, the U.S. and its allies are pushing ahead with talks over a nuclear deal that would change many things—perhaps none faster than the price of oil.
Iranian exports in recent years have been essentially capped by Western sanctions aimed at pressuring Tehran over its nuclear ambitions. A deal easing those sanctions could eventually translate into half a million barrels or more in Iranian crude heading into a currently glutted global market, analysts estimate.
With global crude prices already under pressure, a deal could quickly knock them lower. Some traders even cited the resumption of talks this week between Iranian and U.S. officials as a fresh excuse to bet on a further decline.
“What happens with Iran is important because of the direct impact on oil supply,” said David Hufton at London brokerage PVM. April-dated Brent crude on London’s ICE Futures exchange lost $1.23 per barrel, or about 2.25% to $53.44 Monday.
The benchmark U.S. oil price tumbled to its lowest point in six years during intraday trading on signs of a deepening supply glut. Nymex crude for April delivery lost 96 cents per barrel, or 2.14% to $43.88 by midafternoon Monday in New York.
Western powers put Iran’s export limit in place relatively recently, as part of wide-ranging economic sanctions dating back decades and aimed at bringing Tehran to the bargaining table over its nuclear program. Washington and its allies say Iran is working toward producing nuclear weapons. Tehran says its program is peaceful.
While a deal is far from certain, Iran’s Oil Minister Bijan Zanganeh said on Monday that the country could double its exports quickly. “In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude oil production and exports in several months,” Mr. Zanganeh was quoted as saying by his ministry’s news agency Shana.
But he predicted the additional Iranian supply wouldn’t “significantly affect crude oil prices and world markets.”
Iran has already sounded out Asian oil buyers about taking extra supplies, according to two Iranian oil officials. “We have told our Asian customers we are ready to supply more when sanctions are lifted,” one Iranian oil official said.
Less clear is just how much Iran could pump in a sustainable manner, after years of sanctions and mismanagement of the energy sector drove international oil companies from the country.
Iran could perhaps export as much as 800,000 additional barrels a day, within a year “if they had a market to take their crude to,” said Robin Mills, head of consulting at Dubai-based consultancy Manaar Energy. “That’s just turning the fields back on again,” said Mr. Mills. “After that it would be flat or declining until they get some foreign investment.”
Iran’s oil industry, among the oldest in the world, has been plagued by problems. It has never approached the roughly 6 million barrels a day Iran produced before the 1979 revolution there.
Direct sanctions on international purchases of Iranian oil, enacted in 2012, have gutted Iran’s exports, cutting crude sales in half to between 1 million to 1.2 million barrels a day over the past year. That has forced Iran to shut down production on some fields and severely limit it in others.
Turning lots of production back on suddenly can be complicated—and time consuming—even if wells and reservoirs are maintained studiously. It could be even harder in complex Iranian fields that have been pumping for decades.
Still, some analysts have concluded that a good deal of that lost output could return more quickly than often anticipated. The International Energy Agency, for example, has said that it expects a relatively rapid burst of exports if sanctions are lifted.
“They’ve deployed considerable ingenuity in getting around sanctions and keeping fields in tiptop shape. We think Iran could pretty much come back to the market on a dime,” Antoine Halff, head of the IEA’s oil industry and markets division, recently told an audience at the Center for Strategic Studies in Washington.
The impact of that on the oil market: “We could see a new leg in the downward slide of prices,” said Mr. Halff.
After an initial burst of production, however, Iran is likely to struggle with a plethora of challenges in pushing exports back even to the roughly 4 million barrels before sanctions began taking their toll.
Iran’s active oil fields need maintenance and new technology to stave off a rapid falloff in productivity. Meanwhile, the withdrawal of foreign firms and the loss of revenues due to sanctions, along with simple mismanagement, have prevented the development of rich new fields.
Mr. Zanganeh, who took over as oil minister after the election of President Hasan Rouhani a year ago and a half ago, has earned high marks for instilling a new sense of focus across the sprawling sector.
Still, he publicly called the industry a “catastrophe” recently, underscoring the challenges ahead.
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