Iran could restore oil production halted by sanctions faster than anyone anticipates, if the history of previous shutdowns is any guide.
The consensus among analysts and traders is that Tehran needs at least a year after sanctions are lifted to raise output to the level prevailing before restrictions were imposed in 2012, according to Bloomberg.
Exports of crude and condensates have been cut from 2.6 million barrels per day in 2011 to 1.4 million bpd in 2014, according to the US Energy Information Administration.
Following the conclusion of the comprehensive nuclear deal with the world powers on July 14, Oil Minister Bijan Namdar Zanganeh said the country will reclaim its former market share by exporting 500,000 bpd immediately after sanctions are lifted and boosting production to 4 mbpd in less than three months.
The consensus among most analysts including Wood Mackenzie Ltd. and Standard Chartered Plc, is that Iran will need at least a year to return to its pre-sanctions level of production of 3.8 million barrels a day from 2.8 million barrels today.
However, the report suggests that similar pessimistic assessments of supply disruptions at OPEC members Libya and Venezuela were confounded by quicker-than-expected recoveries.
Even after equipment was damaged during the shutdown and the company fired thousands of workers, the Latin American nation was able to lift output by 2 million barrels a day in just four months. The recovery was “sharper than expected,” the Paris-based IEA said in April 2003.
The Libyan conflict all but halted production and analysts, traders and the rebels themselves said it would take 18 months to increase output to about 1 million barrels a day. In reality, production surpassed that level in just six months.
“There really isn’t any compelling reason to doubt that Iran could ramp up quite quickly in terms of technical capacity,” said Antoine Halff, head of oil markets at the IEA. The agency does not agree with the “skeptical” view that Iran’s oil fields have been degraded or damaged by the sanctions, he said.
Wrong-footing the pessimists and delivering an additional 1 million barrels a day by the middle of next year, as promised by Zanganeh, could add to the oil glut, depressing prices further.
“We would advise against underestimating the ability of a country to grow its production when it needs dollars,” said Edward Pybus, oil analyst at Exane BNP Paribas in London. The market consensus is conservative and there is “upside” to forecasts of a gradual increase in Iranian output, he said.
Iran has the world’s fourth-largest proven reserves of crude oil (behind Venezuela, Saudi Arabia and Canada) and the largest proven reserves of natural gas (ahead of Qatar and Russia), according to BP.
It is the oldest major oil producer in the Middle East and output peaked at more than 6 million bpd in 1974.
