Sanctions on Iran’s oil production are set to be lifted as early as this weekend that will mark the end of the country’s nuclear program and pave the way for Western nations to re-enter Iranian territory for oil exploration and production.
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Image of Iranian Parliament JCPOA approval. Courtesy of IRNA. |
News that sanctions could be lifted has seen WTI move into a premium against Brent all the way out to September 2017, according to Ole Hansen, head of commodity strategy at Saxo Bank.
“Crude oil continues to stabilize and the area around US$30 is where the current bear/bull battle is being fought. The bears should in theory have the upper hand considering the news that sanctions against Iran could be lifted within days. But as the date approaches the market will increasingly be asking whether they can deliver,” Hansen said.
Iran is likely to increase production by 100,000 b/d one month after sanctions are lifted and by 400,000 b/d within six times, a survey carried out by Bloomberg, which Hansen contributed to, says.
“After years of sanctions and under-investment we doubt that Iran can just turn up the volume and it will take longer than the market believes before full potential is reached,” Hansen said. “Overall, however, oil fundamentals remain very heavy with the US inventories of products rising strongly for a second week and with China demand concerns still playing its part. Technically, both crude oils have reached oversold territory and are due some consolidation following eight consecutive days of selling. But in order for that to turn into a small recovery the price of both have to break recent highs, which for CLG6 is at $31.71 and LCOH6 at $31.83.”
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Graph courtesy of Bloomberg and Saxo Bank. |
Lifting of the Iran’s sanctions have been supported by new legislation designed to attract more foreign investment into the country, removing previous restrictions on the percentage of foreign shareholding in Iran and even opening up the possibility of registering an Iranian company with 100% foreign capital, according to Sarosh Zaiwalla, founder and senior partner at Zaiwalla & Co.
“This is a particularly important development for the energy sector, in which Iran is hoping to attract $30 billion of foreign investment to help realize its ambitions to increase oil production,” Zaiwall said.
Following a 12-year standoff and two years of discussions, Iran and the six western nations: Britain, France, Germany, China, Russia, and the US reached a joint comprehensive plan of action (JCPOA) deal in July 2015 over Iran’s nuclear program to ensure it would be exclusively peaceful.
In October, Iran’s parliament voted 64% in favor of the bill on the implementation of JCPOA.
“The imposition of extensive sanctions and trade restrictions on Iran have crippled its economy in the past few years, particularly in the financial and energy sectors, significantly affecting the day to day lives of local Iranians and their businesses, in addition to foreign companies and individuals with an interest in investing in the country,” Zaiwalla said. “The Implementation of JCPOA marks an historic moment in Iran’s re-engagement with international markets and is also an important step towards recovering diplomatic ties.”
Zaiwalla also noted that Iran is subject to a “snapback” re-imposition of the terminated sanctions in the event of significant non-performance of its JCPOA commitments. Additionally, the majority of US sanctions preventing US persons from conducting transactions in Iran remain in place and businesses must ensure they comply with all applicable sanctions to prevent problems.
Dozens of multinational companies have extended their efforts in Iran and have been contending for pole positions in an effort to become an exclusive trade partner with Iran since July, according to Zaiwalla.
“This untapped market, with a large young population, offers investors exciting prospects and Iran has been making a concerted effort to capitalize on this new interest,” he said.
In November, Iran offered 52 oil and gas development projects in addition to 18 exploration blocks worth an estimated $30 billion at its Tehran IPC Conference held that month. The projects include 29 new and currently producing oilfields and 23 gas developments, with onshore fields accounting for 34 of the projects.
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Iran offers oil and gas projects
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