Iran’s Plans to Re-enter the Oil Market

According to the Oil Minister in Iran, the country is now ready to begin negotiations with Saudi Arabia and other Organization of Petroleum Exporting Countries (OPEC) about the difficult conditions currently found in international oil markets.

When sanctions by Western nations against Iran were recently lifted because concerns about Iran’s nuclear program had been assuaged, the capital city of Tehran began exporting oil once again and in fact, announced plans to produce 500,000 barrels of oil a day.

This additional supply of oil will add a great deal of pressure to an oil market that is already saturated worldwide. OPEC nations have not agreed to cut their oil production, so if anything, the problem is getting worse instead of better. Iran says they are willing to negotiate and enter into dialogue with Saudi Arabia and other OPEC states. They believe that the insistence of other OPEC countries to continue to produce more oil than needed is politically motivated rather than done out of a true concern that the world needs more oil. If countries had the will to work together on the topic, the price of oil could be evened out more quickly, Iran says.

In order to reinvigorate its oil industry, Iran needs as much as $200 billion in investments in the country, they say.

Globally, the oil market has lost about 70 percent of its value since 2014. Even though this has occurred, OPEC countries have not changed their position on an upper production limit for oil. They have continued to keep a 30 million barrel a day cap, which is much higher than needed.

Officials from Iran say they cannot reduce production of their crude oil because they must have a high amount of production in order to get their market share back to its pre-sanction level.

Even though too much supply has been one of the primary reasons the prices of oil has decreased, OPEC actually increased its overall oil production by about 130,000 barrels per day in January. In total, they pumped 32.3 million barrels per day over the last month.

Thus far, Arab members of OPEC, including Saudi Arabia, have kept the group from the tactic of bringing oil prices back up by producing less oil. The idea is to use the current environment of low prices to win market shares from the United States, where oil production costs more than in the Middle East.
In other areas of the world, oil prices came back up after some cheap buying in Asia, but the oversupply of oil around the world has not shown any signs of relaxing yet, so overall positive gains will be less than might be thought.

Prices for crude oil have dropped from more than $100 a barrel in July 2014 to less than $30 a barrel.

This dramatic decline, while welcome at U.S. gas pumps, has caused problems around the world. The decline was brought about by a key intersection of several factors, including weak demand, overproduction and oversupply, and a downturn in the worldwide economy, especially in China.

Countries in the Gulf Cooperation Council that depend heavily on oil expect to watch their public debts double while their assets decline by about a third by 2020. In all, GCC countries combined have a $159 billion deficit in 2016. Back in 2012, the result was much the opposite – they had a combined surplus of $220 billion.

As we move forward through 2016, keep an eye on the price of oil and especially on Iran’s intentions throughout the year as they try to re-establish themselves a legitimate oil-producing nation.

Leave a comment