Sanctions on Iran’s oil production look set to be lifted after the country and six world powers finally reached a deal over the country’s nuclear program.
The agreement, reached after two years of discussions, following a 12-year stand off and increasingly tough sanctions against the Islamic Republic, will see Iran curb its nuclear program in return for the easing of sanctions.
The move could finally re-open Iran to international oil companies and contractors and enable the country to ramp up production back to its pre-2012 2.5 MMb/d level.
“The agreement on the lifting marks a new dawn for Iran and its relationship with the West. For decades, sanctions have blighted the commercial activities of ordinary Iranians and severely constrained Iran’s ability to prosper in increasingly globalised markets," said said Sarosh Zaiwalla, the international sanctions lawyer fighting sanctions on behalf of Iranian oil companies. "Today is also a historic moment, a step forward for a stronger, more stable region and it sends a strong signal to international investors that Iran is now open for business.”
According to Zaiwalla, Iranian officials said that if a nuclear accord is reached and sanctions are lifted, Iran can double its oil exports in the next six months by producing 1 MMb/d.
But, a timeline for which sanctions are lifted is not yet clear and re-opening Iran’s market is not likely to happen overnight or be easy, suggest analysts. Wood Mackenzie says it would be a gradual process with sanctions not fully lifted until mid-2016.
In June, Wood Mackenzie said, should the deal be approved, and sanctions lifted, western oil firms will still face regulatory and political challenges that could range from inefficient petroleum bureaucracy to heightened regional tensions.
The prospect of Iranian oil hitting the already flooded international market saw oil prices drop as much as 2.1% today, to US$56.63/bbl. Yesterday, Saudi Arabia told OPEC it has raised its oil output to the highest level on record, as it prepared for the return of regional rival Iran to international markets and for peak summer demand, reported the Financial Times. OPEC self-reported crude oil production of 10.6 MMb/d, more than 200,000 b/d on the previous month and its highest level since record began.
Following Russia and Venezuela, Iran has the third largest oil and gas reserves in the world, just ahead of the US and Saudi Arabia. Three-quarters of its total recoverable reserves are yet to be produced, says Wood Mackenzie. Yet, the country is in "in need of significant external investment" to realize its full potential, the firm says. Iran would also need to offer competitive terms if upstream players were to enter, says Wood Mackenzie. Shell and Eni have been reported as having been in talks with Tehran over potential opportunities in the Iran.
The US Congress now has 60 days to review the agreement. According to Bloomberg, if the deal survives the review, it would be one of the biggest foreign policy achievements for President Barack Obama.
Full implementation of the agreement, if approved, is expected to take months.
Read more:
Iran nuclear deal on the horizon
Iranian hope remains, despite delayed deadline
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