Economist: lifting of the sanctions on Iran would have short-lived effect on the price of oil


WASHINGTON, 19 Jan –. The lifting of the sanctions on Iran will strengthen the oversupply in the oil market, but the critical consequences of its alleged share in the oil market should not be expected, according to the former assistant to the Minister of energy of the USA, Executive Director of the action team on energy at the University of Rise Charles McConnell.

“Iran’s output would strengthen the global oversupply of oil. Saudi Arabia has already stated that he is not going to lose market share. But middle East suppliers have the lowest operating costs in the world and can afford to build up reserves. But I don’t expect this will have a serious lasting effect, this will strengthen Iran itself, which will return to the market as a full player,” he says.

Sanctions against Iran were lifted on January 16 immediately after the announcement in Vienna about the beginning of the implementation of the nuclear agreement between Tehran and the “six” international mediators (the five permanent UN security Council members and Germany). Earlier, the Iranian government announced that it was ready to increase oil production by 500 thousand barrels per day after sanctions are lifted. According to Bloomberg, this is slightly less than it sold in Europe before the sanctions in 2011 (665 thousand barrels per day) and slightly more than a third from its current production levels. For comparison, countries such as Saudi Arabia, the US and Russia each produce about 10 million barrels per day.

“Russia recently announced production cuts at a very difficult time. But Russia has been more Mature, long-term approach. Iran has critical short-term need to generate profits”, — said the expert. So, according to information from interview by U.S. Secretary of state John Kerry to CNN, Iran to restore production to about 0.5 trillion USD, which is 10 times smaller than is stored in its frozen because of the sanctions accounts.

“Oil prices now are really low. But I don’t expect it will last a long time. The market in a few months will feel the effect of fewer production, reducing investment, and this would generate a trend of increasing prices in a long time. In addition, the risk of geopolitical destabilization, this factor should be taken into account by all countries outside the Middle East who want to feel the security of energy supplies. The price here will be a determining factor for their own confidence,” concludes McConnell.