Iran announced a “Black Monday” in the oil market


Sanctions against Iran, including restrictions on trading oil, can be removed by Monday, January 18th. As reported by Bloomberg , it was said by the Iranian Deputy Foreign Minister Abbas Araghchi on Wednesday.

According to him, the final report of the IAEA that confirms the peaceful nature of Tehran’s nuclear program and execution by the Islamic Republic of its commitments will be published on Friday.

On Sunday it is expected that representatives of “The Six”‘s mediators and Iran will make a joint statement in which they will confirm the execution of a transaction concluded in July, and the lifting of sanctions, said Araghchi.

As a result, Iran will be able to resume oil exports to Europe, suspended by sanctions in 2011.

The Oil Minister of the country Bijan Zanganeh had previously stated that the Islamic Republic is ready to increase supply by 500 thousand barrels per day in just few weeks after the lifting of restrictions, and sell “at any price”. As a part of the sanctions regime, oil exports from Iran can not exceed 1 million barrels per day.

According to a forecast released on Tuesday by the US Energy Department, without immediate inflow of investments Iran won’t be able to increase production quickly – it will add 300 thousand barrels in the current year, and 500 thousand barrels in the next year.

In the medium term, Iran could add to the market as many as 2.5 million barrels, said the head of the Russian Ministry of Energy Alexander Novak in July.

“Of these [2.5 million barrels], 1 million barrels, maybe a little less – 900 thousand – within a year. And the rest – not immediately, since investments are required”, – explained the Minister.

After analyzing satellite data, an Israeli research company Windward reported that Iran had slowly started ramping up production in spring, accumulating oil in supertankers drifting off the coast.

According to the company data from July, 28 Iranian tankers were transformed into floating storage, which was carrying at least 51 million barrels of crude oil by that time.

In March, analysts from Barclays Plc and Societe Generale warned that this accumulated oil will be exported first after the lifting of sanctions.

The return of Iran to the oil market means a new round of price war between OPEC countries for Asian customers, says a senior adviser on security of supply of the Swedish Energy Agency Samuel Sichuk. According to him, most likely Iran will have to offer discounts, as did Iraq after a long absence in the market.

According to OPEC, current overproduction of oil in the world is 1.4 million barrels a day. The US Department of Energy believes that the market will reach a balanced point no sooner than the third quarter of 2017.



Image: Blondinrikard Fröberg (under CC BY 2.0)