The Western powers and Iran have come to a historic agreement regarding the Iranian nuclear development programme; however the impact of this six month accord will have little effect on the short term oil market outlook. Iran’s oil export ceiling remains firmly restricted at 1 million barrels a day (mbpd), significantly lower than the pre-sanctions level of 2.5 mbpd. The limited relief on sanctions will make it easier for buyers to purchase Iranian crude as they can now access insurance for shipping cargoes, meaning the 37 million barrels of oil loaded in Iranian tankers stranded at sea may now more easily be absorbed by the market. Meanwhile, Asian importers are now more likely to maintain Iranian import levels as sanction waivers become easier to obtain.
The limited leeway on the current sanction regime will allow Iran to maintain export sales at 1 mbpd, a potential 20% increase on the average realised last year. However, the impact of these additional barrels on the market is negligible. The real effect of Iran’s potential return to the fold will only become clear in six months’ time when the extent and longevity of the current accord is confirmed. For Iranian crude to begin having a significant impact on the oil markets, a comprehensive agreement with the West – which does not limit export sales – will be required, while the aging Iranian oil industry will have substantial work to do in order to ramp up production to pre-sanction levels. This could eventually open up considerable opportunities for the international oilfield services industries.
Timothy Madden, Douglas-Westwood London
+44 203 4799 505 or Timothy.Madden@DouglasWestwood.com