Coming down hard on Tehran

Agreement on Iranian nuclear programme is of global historical significance

Agreement on Iranian nuclear programme is of global historical significance. The country can breathe a sigh of relief for the first time in many years as, in exchange for the restriction of nuclear developments, Tehran has been promised an end to economic and financial sanctions — including exports of oil and investments into the Iranian economy. This will enable the country to increase its sales of oil on the global market. As a result, prices on hydrocarbons will continue falling and even $45 per barrel looks too optimistic. Some experts believe that oil will fall to $20-25 in price. Whether or not these calculations are realistic is worth further investigation.



Iran occupies fourth place in the world as regards the volume of confirmed oil deposits. However, until recently, the country was barred from western financing, technology and sales markets. The USA stopped buying Iranian oil in the late 1980s and, in 2012, the EU joined the sanctions. At that time, Iran produced up to 2.5m barrels daily but, due to the loss of the European market, its mining halved. At present, the situation is reviving and Iranians are convinced that in just a couple of months their former position will be restored. In 1979 (before the Islamic Revolution), Iran produced around 6m barrels a day. Saudi Arabia, for example, mines around 11.5m and Russia produces slightly less. It’s unlikely that the appearance of another major player would leave prices on the global market unchanged. Even OPEC would have little influence. Iran’s Oil Minister, Bijan Namdar Zangeneh, is decisive, “We need no OPEC decision to return to the market. This is our right. We were restricted with sanctions and it would be absolutely normal to return to the market with the ‘ceiling’ we had before the sanctions were introduced.”

An authoritative expert on the energy market, Mikhail Krutikhin, has his own view on the situation. “When Iran joins the market, oil prices will stand at $45 per barrel,” he believes. “However, aside from market factors, psychological aspects must be considered. Prices could fall due to traders’ panicking.” Moreover, the global market is saturated with black gold, with supply outstripping demand. Any negative factors can produce the effect of a falling stone on prices. In recent weeks, the Chinese stock market has registered an evident fall. Potentially, this could slow down the growth of China’s economy and, accordingly, affect demands on energy. The continuing Greek crisis also negatively influences the economy of the Eurozone and can lead to a fall in the global oil market.”

Experts’ views on the possible consequences of lifting the Iranian embargo differ. Owing to the sanctions, Iran had to cease development of its new mines and conserved old mines. Time will be needed to make them active: around 18-24 months. Aside from this, an additional million barrels per day are not a great volume and won’t cause a shock on the market. An analyst from the Forex Club, Valery Polkhovsky, reminds us that the current global daily oil consumption stands at 93m barrels. The current economic situation might become another negative factor in Iran’s triumphal return to the global oil market. According to the International Energy Agency, next year, the global demand for oil will rise by just 1.2m barrels a day. Under such conditions, the Iranians will need to work hard to find buyers for their oil.

The Head of Russia’s National Energy Security Fund, Konstantin Simonov, is convinced that the demand-supply factor should not be exaggerated. “Why did oil prices begin to rise this year after falling in late 2014? What has happened on the market to cause a rise of 50 percent? Nothing has happened. No country has cut its oil volumes and demand has remained almost unchanged,” he commented. Mr. Simonov believes that advocates of the ‘market concept’ are confused, “The volume of money circulated on the market is the decisive factor in oil price formation, rather than the supply-demand ratio. Future contract transactions and deals on virtual oil exceed deals on marketable oil many times over. The Dollar exchange rate is another factor. In reality, oil prices are mostly dependent on the US’ monetary policy rather than anything else.” The USA is not a bystander in the process. As politologist Vasily Koltashov considers, Iran’s admission to the global hydrocarbon market is not incidental at the moment. In a couple of years, this country would rival Russia in the EU in the oil-and-gas sector. It was in fact the Russians who benefited most when the EU introduced the embargo on Iranian oil exports. Since 2012, Russia’s sales to the major markets of Asia and Europe have more than doubled. Moreover, Iran and Qatar have the largest gas deposit in the world at South Pars in the Persian Gulf. In contrast to Russia, this gas is produced in warm weather conditions and, accordingly, is cheap.

Ensuring tough control over many issues concerning the lifting of Iranian sanctions, Washington will make the most of the opportunity to expand its influence (via Iran) in Iraq, Lebanon, Syria and Yemen. The USA needs someone in the region capable of organising an attack on the Islamic State. There are no other pretenders for the role except for Iran. Accordingly, the country is to head the struggle against the Islamic State while Mr. Obama is unable to participate more actively in the events occurring in the region. The strengthening of Iran’s economic potential will enable the USA to take the lead in Asia in the military sphere.

EXPERT OPINION

Alexander Shpakovsky, Director of the Actual Concept information and educational institution, comments:

The dynamics of world oil prices is a two-way street. Our country is also affected. Belarus is a large processor of ‘black gold’ and an exporter of oil products. Accordingly, we lose revenue as a result of oil prices’ falling. On the other hand, we can buy raw materials at a lower price. As regards our relations with Iran, Belarus is open to partnership, evidenced by over $600m of investments in our economy. A high level of political ties has been achieved between our two states. Alexander Lukashenko visited Iran twice but a new impetus for trade-economic and investment co-operation is now needed. The turnover of $100m already achieved can be increased. Until recently, the growth of our mutual trade was hampered by western economic sanctions towards Iran. As they are lifted, we can liaise with our Iranian partners to the full and the situation is expected to change for the better.

By Yevgeny Kononov

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