Iran’s oil minister wants to ramp up his country’s production by one million barrels per day within weeks of the formal lifting of Western sanctions, but as that moment draws nearer the crude realities of accomplishing that task are making the plan look more like a pipe dream. Sanctions are expected to be lifted sometime in the first half of next year, but logistics already threaten to play spoiler. First we learned of concerns over Iran’s oil tanker fleet, and now the WSJ is reporting that Iran’s aging pipeline infrastructure is springing leaks:
Iran’s aging infrastructure is in disrepair after several years without the expertise of the world’s largest oil companies, western and Iranian officials say. The country is likely to be selling as much as 500,000 new barrels of oil into an already saturated market for crude exports, setting up logistical hurdles. […]
There are…serious questions about Iran’s oil infrastructure. The oil fields in southwestern Iran expected to produce the new output are aging, Iranian officials said. Many pipelines are over 40 years old while many operators lack the sort of sophisticated well maintenance techniques of departed foreign companies.
When Iran recently conducted a test to see if its infrastructure could cope with a sudden increase, “there was some leaking of pipelines,” Iran’s oil minister Bijan Zanganeh said in response to a question from The Wall Street Journal.
But there’s an even bigger problem with Iran’s plan to boost production: The world is swimming in crude at the moment. Supply already vastly outstrips demand, and with American shale producers, Russia, and the rest of OPEC all seemingly keen on keeping the crude flowing, there’s no sign that this glut might be abating anytime soon. It’s in this market that Tehran hopes to expand its influence—a market with prices hovering above just $40 per barrel, far below the $100+ prices oil was fetching as recently as the summer of last year.
OPEC meets later this week to discuss its strategy, but it doesn’t seem likely that the Saudis are going to budge from their do-nothing strategy—after all, if the decision not to cut production hurts Iran, all the better. And without Riyadh’s cooperation, there’s no chance that the cartel can make the meaningful supply cuts necessary to set a price floor. It’s a very bad time to be selling oil, but if you’re a buyer? Heady times, indeed.