Abu Dhabi: As Iran and major powers close in on a deal to end decade long blockade on Iranian economy over its controversial nuclear programme, experts have said that ending sanctions will put an additional downward pressure on oil prices.
Iran, an important member of the Ogranisation of the Petroleum Exporting Countries (Opec) holds the world’s fourth-largest proved crude oil reserves and the world’s second-largest natural gas reserves.
The country’s oil production has declined over the years due to international sanctions.
Justin Dargin, a global energy expert at the University of Oxford said if sanctions are lifted, the oil price would likely drop by several dollars.
“Even though it appeared as of late that oil prices were starting to firm up, the lack of an output cut by Opec stopped the rebound. Therefore, if Iranian oil were to come to the market, in the context of the current weakness, it would cause prices to drop even further,” Dargin said.
He however, said it will take sometime for Iranian production to reach pre-sanctions level, as Iranian oilfields are quite mature and have sustained some damage from the production decline and lack of investment.
Oil prices have been on the decline for the past few months due to record shale production and lack of demand. They went up by a few dollars on Thursday after Saudi Arabia launched air strikes on Yemen to weed out Iran backed Houthi rebels with concern rising about disruption to the shipping lanes near Yemen from where the majority of oil passes to Europe from Gulf countries.
Brent, the international benchmark for crude oil was trading at around $57 (Dh209) on Saturday.
Dr Sara Vakhshouri, President of the US based SVB Energy International and an expert on Iran said Iran can technically increase its oil production between 500,000 to 800,000 barrels per day within 3 to 6 months.
“However this increase could only happen if there is an ease on sanctions against Iran’s oil exports, and also capability of this country for finding new markets. It will have an immediate psychological effect on the market and will push the prices down.”
Valerie Marcel, an energy expert at Chatham House, London said Saudi Arabia and Iran will compete for the Asian market share and there will be some new tension in Opec.
“However, a major return of Iran to the market will take time. Significant investments are needed to kick start the upstream sector. Investment may be slowed by the time it will be take to unravel the complex US sanctions regime against Iran,” she said.
On the other hand, Iranian businessmen in the UAE are optimistic that talks between Iran and a group of six countries will yield positive results leading to a free flow of trade between the two countries.
Hussain Asrar Haghighi, vice-executive president of Iranian Business Council in Dubai said trade decreased from $22 billion in 2010 to $5.8 billion last year.
“The sanctions had a negative impact for the business community. Many people refused to do business with Iran fearing sanctions imposed by the Western nations,” he said.
The membership of the business council, which was established in 1992 reduced due to sanctions. From 400 companies in 2009, the number reduced to 150 last year. The bank accounts of a number of companies were suspended.
“Due to closure of bank accounts many people left the country and set up their business somewhere else. Now we are expecting they will be back in the UAE to restart their business. It will give a big boost to trade relations.”
Iran’s petroleum minister had said recently that the country could double its oil exports only several months after sanctions are lifted.