The big question about oil prices: How low can they go? To find out, look to Iran. If sanctions are dropped, a flood of Iranian oil is likely to enter world markets as a cash starved Tehran tries to regain market share and bulk up its earnings. The Wall Street Journal has more:
“In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude-oil production and exports in several months,” [Iranian Oil Minister Bijan Zanganeh] was quoted as saying by his ministry’s news agency Shana.He also predicted the additional Iranian supply wouldn’t “significantly affect crude-oil prices and world markets.”Iran has already sounded out Asian oil buyers about taking extra supplies, according to two Iranian oil officials. “We have told our Asian customers we are ready to supply more when sanctions are lifted,” one Iranian oil official said.Less clear is just how much Iran could pump in a sustainable manner, after years of sanctions and mismanagement of the energy sector drove international oil companies from the country.Iran could perhaps export as much as 800,000 additional barrels a day, within a year “if they had a market to take their crude to,” said Robin Mills, head of consulting at Dubai-based consultancy Manaar Energy. “That’s just turning the fields back on again,” said Mr. Mills. “After that it would be flat or declining until they get some foreign investment.”
If Iranian oil signifiacntly adds to the flow of world oil, that’s likely to cause problems for other oil producers ranging from Saudi Arabia to North Dakota. But the biggest loser would likely be Russia.Anything that makes the current dip in oil prices deeper, or creates the impression among investors and traders that the world faces a long-term oil glut with low prices would hit the ruble as well as Russia’s economic output and its stock and bond markets. Big exports of weapons and other goods to Iran could help offset the losses. But overall, the end of Iran sanctions looks like a bad thing for Russia.It’s not at all clear that a deal will be reached, and congressional opposition seems to be building in the U.S. But it’s not impossible that, as Russian and Iranian interests diverge and the deal comes closer, we might see Russia looking to play the role of a spoiler. No country benefits more from a crisis atmosphere in Middle Eastern oil markets than Russia; it will be interesting to see how Putin will play his cards if it begins to look to Moscow as if the end of Iran’s isolation is at hand.