Potential OPEC Tensions Over Iranian Oil

Potential OPEC Tensions Over Iranian Oil
Potential OPEC Tensions Over Iranian Oil

The return of oil from Iran following the landmark nuclear energy deal with world powers could create fresh tensions within OPEC but may reinforce the organization’s output strategy, analysts say.

Tehran and major powers—Britain, China, France, Germany, Russia and the United States—clinched a historic agreement in Vienna last Tuesday aimed at ensuring Iran’s peaceful nuclear program, which paves the way for the removal of sanctions and the gradual return of Iranian oil to the global market next year.

The accord puts strict limits on Iran’s nuclear activities for at least a decade. In return, sanctions that have slashed the oil exports of OPEC’s second-largest producer will be lifted and billions of dollars in frozen assets unblocked, AFP reported.

Iran’s exports could reach a potential 2.4 million barrels per day in 2016, from 1.6 million bpd in 2014, according to data from economist Charles Robertson at investment bank Renaissance Capital.

The Organization of Petroleum Exporting Countries—whose 12 members, including Iran, pump one-third of global oil—is mindful that Iranian oil could worsen a global supply glut and depress oil prices further.

OPEC decided at its last meeting in Vienna in June to maintain output levels, extending its Saudi-backed strategy to preserve market share and fend off competition from booming US shale.

Oil prices sank last week, hit by the Iran nuclear deal and the strong dollar, raising jitters among some OPEC members who next meet on December 4. London Brent oil slid to about $56 per barrel and New York’s West Texas Intermediate dropped to around $52 a barrel.

 Divided on Market Share

Poorer OPEC members Angola, Algeria and Venezuela—whose budgets are heavily reliant on oil revenues—may again argue for less output to support prices, analysts say.

Richer Persian Gulf producers, led by OPEC kingpin Saudi Arabia, remain eager for the organization to preserve valuable market share and force out high-cost US shale producers with lower oil price levels.

“Clearly there is a divide between the countries on this new policy of seeking new market share,” Ann-Louise Hittle at consultancy Wood Mackenzie told AFP.

“So it could be a contentious (OPEC) meeting and there could be pressure for an emergency meeting before December.”

Faced with stubbornly low prices, Algeria’s Energy Minister Salah Khabri indicated to state news agency APS last week that an emergency OPEC meet could be needed.

“The real problem starts when OPEC members begin to fight for quotas amid oversupply and market share disputes,” said Jassem al-Saadun, head of Kuwait’s Al-Shall Economic Consultants.

“If Iran, Venezuela, Algeria and Libya—all of which need to pump more—enter into a dispute with the Persian Gulf producers, then it could be the end for OPEC,” he warned.

Danske Bank analyst Jens Naervig Pedersen said such countries had been “really hit” by low oil prices.

But he added: “Their collective power is probably not great enough to turn the mind of Saudi Arabia and the core members of OPEC in the Middle East.”