Iran May Not Rely on Oil for Recovery

Written By Christian DeHaemer

Posted August 11, 2015

If you’ve been watching the market, you’ve seen that oil is back at its lowest in years after only a short rally to $60 earlier this year. And while fears of more Iranian crude entering the market after the recent nuclear deal have quelled somewhat, the country itself isn’t expecting a flood of supply to come online right away.

“Between the bureaucratic issues they will have in Iran as well as nervousness over the possibility of a sanctions snap-back, you’re not going to see any large-scale investment for the next couple of years,” says Columbia University Center on Global Energy Policy Iran and sanctions specialist Richard Nephew.

I mentioned in the past how Iran will need major infrastructure improvements and expansions to begin exporting a competitive amount of oil and gas into the already glutted markets.

Iran NatGasHowever, one of those commodities is likely to be more profitable than the other.

Make no mistake, the oil market is still looking for its own recovery, and Iran has reserves and production capacity enough to become a major exporter — for a while at least.

Iran claims that its output could reach 2.8 million barrels a day, then increase that to 3.8 million within a month of the sanctions being lifted. Unfortunately, the managing director Iran’s Oil Ministry, Saeid Qavampour, estimates the costs for this production boost to be around $200 billion.

However, Nephew doubts Iran could reach these lofty goals. With the competition from Saudi Arabia and the lack of trades from U.S. companies, it seems unlikely that Iran will be able to find that kind of investment power for its oil infrastructure.

The country does have another option: exporting natural gas. Iran has the world’s second-largest natural gas reserves. Infrastructure investments here would be more worthwhile, and in some cases essential.

Of course, Iran has a political advantage as well. Europe is looking to diversify its import portfolio to reduce its dependence on Russian gas, and Western countries are looking to enforce sanctions on Russia due to its continued problems in Ukraine.

Whether or not we’re ready for it, Iran will undoubtedly be entering the global markets again after this year, so long as it complies with the regulations of the nuclear deal.

However, which market it enters first is the next big question.

To continue reading…

Click here to read the USA Today article.

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Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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