Market will not collapse

Experts state that returning Iran to the oil market will not lead to a drop in world prices

Returning Iran to the oil market will not lead to a drop in world prices. This is the opinion of an analyst from the Forex Club group of companies, Valery Polkhovsky, “During the last few days world prices have reacted to news about Iran, but after an initial price drop, they returned to their former level. The signing of the agreement has already been built into the current prices for oil,” he noted.

Dynamics of oil prices remain steady

There is speculation regarding the question of how the entry of Iran to the oil market will influence it in the long-term. Valery explained that in the case of the removal of the ban on the export of oil, the country will need time to increase the extraction of its ‘black gold’. According to different estimations, Iran could increase its extraction of oil by a maximum of 250-500 thousand barrels a day. At the same time, world consumption of oil has now reached 93 million barrels a day. “Iran’s share is not essential to the market,” he added.

Before the sanctions, Iran exported about 2.4 million barrels a day, while after the ban; approximately 1 million barrels were delivered through so-called ‘grey schemes’. “If official entry to the market increases the figure to 2 million barrels a day, it will be noticeable, but not critical. It is especially necessary to consider that in the USA, the volume of drilling and extraction of shale oil is decreasing. So the entry of Iran may coincide with a decrease in deliveries from the USA,” Mr. Polkhovsky explained.

He also commented that the Organisation of the Petroleum Exporting Countries (OPEC) has currently exempted Iran from quotas, but will reintroduce them when their oil extraction business has improved. Investments will be needed for the renewal of large-scale oil extraction. “In the near future, Iran’s entry to the oil market will not have a significant impact. There will be no drop in world oil prices as a result,” he confirmed.

Iran and the ‘big six’ oil producing countries (Russia, China, the USA, France, Great Britain and Germany) reached the historic agreement on a nuclear programme following negotiations in Vienna. It is expected that, following this development, economic and financial sanctions on Iran will be soon lifted.

By Mikhail Voloshin
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