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Toy tariff story

Nov 20, 2019

An Iran deal won’t change oil market overnight

Adam Allington Apr 3, 2015
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Oil prices were down about four percent on Friday following the tentative diplomatic deal reached between Iran and the United States.

At one point Iran was OPEC’s second-largest oil exporter, leading many people to assume that lifting sanctions would drive prices down even further in a global market that is already awash in cheap crude. This would be particularly bad news for U.S. shale-oil producers.

But Kate Dourian with the Middle East Economic Survey says barriers remain before Iran can re-emerge as a viable oil-exporting country. “The timing is off,” Dourian says. “I think it’s going to be very difficult for Iran to come back into the Market because they’ve lost market share, they’ve lost customers, so, I think it’s not going to be a smooth ride for them.”

In order to get production back up, Iran needs a heavy infusion of technology and investment from outside companies, which is a gamble many international firms aren’t willing to take.

“It’s got to be a really good deal for them to go in,” Dourian notes. “I don’t think they’re going to go rushing in because if Iran doesn’t comply with deal, the sanctions could come right back in again.”

All things being equal three to five years from now, if Iran lives up to its end of the nuclear bargain, Iranian exports could push oil prices down. But all things typically don’t remain equal.

You know, the oil market is a volatile beast, the world remains a dangerous place,” says Trevor Houser, a partner with the Rhodium Group. “I won’t bet on oil remaining permanently cheap just because of the deal yesterday.” 

Houser says any number of potential market disruptions could account for the 1.5 million barrels per day that Iran could potentially supply.

“That’s about how much production we lost in Libya,” Houser says. “That’s about how much production you could lose from a significant disruption in Nigeria or Venezuela.” 

Even without outside investment, Houser says Iran could start exporting some of its current stockpiles by the end of the year, or early 2016.

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