Iran Unleashes Oil Flood, Will Quintuple Crude Revenue In 2016
On Saturday, Iran marked what President Hassan Rouhani called a “golden page” in the country’s history when the IAEA ruled that Tehran had stuck to its commitments under last year’s nuclear accord.
Moments after the ruling was handed down, the US and the EU each lifted nuclear-related financial and economic sanctions on the “pariah state,” much to the chagrin of Israel and Tehran’s regional rivals who view the West’s rapprochement with the Iranians with deep suspicion.
"Everybody is happy except the Zionists, the warmongers who are fuelling sectarian war among the Islamic nation, and the hardliners in the U.S. congress,” Rouhani said, referring directly to Israel, the Saudis, and GOP lawmakers in the US.
In addition to the never-ending feud with the Israelis, Tehran is embroiled in a worsening conflict with Riyadh triggered by Saudi Arabia’s execution of prominent Shiite cleric Nimr al-Nimr and subsequent attacks on the Saudi embassy and consulate in Iran. The argument has raised the specter of an all-out conflict between the Sunni and Shiite powers and stoked sectarian discord across the region.
With sanctions lifted, Iran will now have access to some $100 billion in frozen funds and will be able to increase its oil revenue exponentially even as prices remain suppressed.
It’s easy to see why the Saudis and other Gulf Sunni monarchies are nervous. Iran plans to immediately boost output by 500,000 b/d with an additional 500,000 b/d coming online by year end. “The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported on Sunday, citing Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs.
“Iran could haul in more than five times as much cash from oil sales by year-end as the lifting of economic sanctions frees the OPEC member to boost crude exports and attract foreign investment needed to rebuild its energy industry,” Bloomberg reports, adding that “the lifting of sanctions means Iran can immediately boost oil revenue to about $2.35 billion a month, based on the country’s estimated current output of 2.7 million barrels a day and oil at $29 a barrel.”
Even if oil hovers between $30 and $35 a barrel, Iran will be pulling in some $3 billion a month by summer and nearly $4 billion a month by December.
"Iran's aging oil fields may present some challenges to the pace at
which it can physically raise production," Deutsche Bank wrote last year, as prior to the signing of the accord. Here's a bit more color:
Changes to Iran's sustainable production capacity in the medium term will likely depend partly on the speed and extent to which international oil companies (IOCs) invest in the development of Iran’s oil resources. Currently, 38% of Iran's oil production originates from three large fields and associated areas which began production decades ago (Gachsaran 1934, Ahwaz 1959, Marun 1965). Of the original resource contained in these three "super-giant" fields, only 23% remains now.
Further development drilling will likely be required in order to maintain production, and secondary techniques such as CO2 or associated gas injection may be required to improve the recovery rate and counteract falling reservoir pressure. Prospects for higher production would be improved by IOC participation. However, foreign investment has lagged not only because of sanctions, but also because of the government's buyback agreements which are considered unattractive.
On Sunday, Rouhani said the country needs between $30 and $50 billion in foreign investment in order for the country to hit its 8% growth target for the year. "Untapped potential in many industries indicates that domestic demand cannot solely push the economy toward eight per cent growth," he said. "Attracting foreign investment will be the best way of using the opportunity of sanctions relief to boost the economy and security."
But according to Israel, it's all a charade. On Saturday, The Times of Israel said that according to an unnamed "source in Jerusalem", the first thing Iran will do is send money to Hezbollah. "The implementation of the agreement would have a direct impact on the region, as terror groups Hezbollah and Hamas — both recipients of Iranian largesse — found themselves in possession of new and modern weaponry," The Times wrote. A statement from PM Netanyahu's office reads: "Even after the signing of the nuclear agreement, Iran has not abandoned its aspirations to acquire nuclear weapons, and continues to act to destabilize the Middle East and spread terrorism throughout the world while violating its international commitments."
We wonder whether Netanyahu would say the same thing about the Riyadh, where "acting to destabilize the Mid-East and spread terror throughout the world" is an explicit foreign policy aim.
In any event, Iran just got a $100 billion windfall and will be around $2 billion richer each month by the end of the year. The return of Iranian supply "will have an immediate impact in the spot market” Robin Mills, CEO of consultant Qamar Energy, told Bloomberg by phone. “Putting oil in the market is going to push it down." "Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as $25 a barrel,” Nomura's Gordon Kwan added on Sunday.
As for what effect a richer, more prosperous Iran will have on regional stability, we'd suggest that anything that serves to counter Saudi influence is probably conducive to a more secure environment. Besides, things can't get much worse in the Mid-East, so it's hard to see the downside.
Implementing #JCPOA not a detriment to any country. Our friends are happy & our rivals need not worry. We're no threat to any nation/state.
— Hassan Rouhani (@HassanRouhani) January 17, 2016
(17 votes)
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If you don't mind me asking, what is the tuition at the O&G Troll University like these days?
Because I disagree with the premise of this posting, that makes me a troll?
Generally how it works.
"...oil production was already declining before the sanctions were implemented."
Your assumption here is that only diminishing reserves/supply can explain the pre-sanction decline in production. You may be right, but it is very posssible that your assumption here is false... as plenty of other factors could have influenced Iran's pre-sanctions production levels.
Sorry, you're wrong because you are missing a vital point.
GDP growth of any kind, including oil production, has always been constrained in Iran
by severe power generation shortages. Iran has plenty of untapped oil reserves that will come
online once that problem is solved,
The great irony of sitting on vast amounts of energy, but being unable to get the energy
required to be able to profit from it.
"it means that their capacity is likely only 3 million per day of which the majority of it will be consumed internally."
Huh ?? So you are saying that Iran sanctioned itself and stopped consuming oil until yesterday ?
If you look at the curve above you'll see that there's a total oil production curve and an exported oil curve. the difference is the internal consumption. All countries who reach peak oil production hit a point where local consumption equals production. at that point, all exporting ceases. Egypt is a prime example of what happens when internal consumption hits maximum production. I argue that Iran is close to this point (maybe within 5-10 years?) and their contribution to export volumes will be decreasing over a short period of time.
Rise of ISIS and accelerating middle east instability
Anticipation that Iranian sanctions would be lifted and supply would increase
Well, I guess the Saudi Princelings all have hundred-foot yachts, so they still win, because they can retire and cruise the world sampling the best hookers and blow.
Long Torpedoes
How much of the Iranian oil is already priced into the current market?
It seems like most oil traders would have seen this coming -
I also wonder how much black market oil Iran was already selling -
So they reduce black market oil by 500K barrels and increase oil sales into the open market by 500K barrels -
Worldwide garage sale.
Heading to $20 handle!,
So you can pay for Obozocare.
Speking of insanity, how come there isn't a clause for the ACA that states if you consume "X" amount of gasoline/oil monthly, you're fees will be waived???? Waiting for it....
The US is like a first time car buyer walking into a dealership. We're gonna get screwed it's just a matter of how much.
The dealership is the world. The US is the prick who runs the show - the finance guy. Or maybe the US is the GM and Israel is the finance prick.
This will be the final straw on energy co defaults. It's like they're trying to do it. I don't get it.
From what I read, or remember reading, big oil was late getting into the Bakken sands area. It was mostly small timers willing to risk it.
They go under, banks and big oil buy the wells at pennies on the dollar. It's a win for big oil as the little guys head for the exits, the vacuum must be filled.
I was talking with a hedge fund guy Friday and this is exactly the scenario he laid out for me. The distressed buyers are waiting in the wings to gobble up all the cheap assets
The iranian Rial looks cheap enough
1 Iranian Rial equals 0.000033 US DollarThis scenario is playing out across all productive asset classes, not just oil.
Deflation is all about the rich getting richer... and it's all going according to their plan. So far.
Perhaps geopolitics is a hard thing to direct.
If only the US could give them money.......
Bye-bye Canadian dollar, bye-bye Norwegian sovereign wealth fund, bye-bye...
The Canadian dollar has been in decline for some time due to falling oil prices.
That decline has only been due to the fact that a LARGE PORTION of the VALUE of the C$:U$ has been OIL EXPORTS.
With every dollar it declines that percent less of oil as a relative contributor to the C$'s total value is subtracted.
The remaining value of the C$ is ever-more composed of NON-OIL EXPORTS.
With each cent the C$ declines against U$ it is one cent less composed of OIL REVENUE which means one cent LESS VULNERABLE to any further decline(s) in OIL PRICE.
Considering you take me for an idiot I'll just consider you the same from now on, k Mr. Obvious?
The coming Sunni/Shia war might be the best thing in a long time as these rats kill each other off in the millions. Get the popcorn!
First things first... the House of Saud must fall before the Shia/Sunni conflict can become 'Hot'...
With millions of them as refugees in Western countries, if you are a Western citizen, expect to be killed and raped, in about that order, while having your popcorn...
The charade is Israel crying about this development when you know they would love to see an all out slug fest between SA and Iran. There will be a false flag event in one of those two countries and be blamed on the other. Once SA and Iran are severely weakened, guess who will come in and take over? Petrodollar and Israel will come out smiling. Job well done boys. They just hope it doesn't spill over into a wider conflict and you know it always does.
But, but drill baby drill?
I had forgotten that one, I even agreed, Has not worked out to well.
Thank goodness i bought no oil company stock. Oil could be down here a while. But but low gas prices will fuel the consumer spending. wrong again pundits The future is so hard to see, even for so called experts
Low gas would be great if wages would increase. Stagnation in income growth is killing everything.
Not gonna happen. The ruling class loves their serfs too much to let them have money
How about this one..."you can't drill your way to cheaper oil" That gem was from donkey ears...
The drill, baby, drill policy in conjunction with hydraulic fracturing is what brought us to the reduced price of oil and the crushing of OPEC. Sarah Palin was right, Obama implemented her policy.
This is quite true... and they did it w/o compromising ANWAR.
timed nicely with the "Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears" article
Like the Dallas Fed had any choice.
So much for shale oil states adding 1.3 million good paying jobs a few years ago.., where will they go? Lot's of Wallmarts shutting doors, and Chipolte, well, better not go there.
bartending and lap dancing...go long on booze
First, it will take a while for the oil market to shake out. Second, the US just opened exports. The prototypical response is who would buy US oil at these low prices. Not understanding the oil market, WTI is a much lighter blend than almost every blend around the world. It is highly desired by refiners around the world for a certain percentage to blend with other blends. At this low level, it is very cost ineffective to pump this oil, but at higher prices it will be better. Regardless, even now a certain percentage will be demanded by refiners to blend in their operations. The intrinsic value of $WTI exceeds $Brent. So much to teach Zero Hedgers, so little time:
http://www.wsj.com/articles/u-s-exports-first-freely-traded-oil-in-40-ye...
True, but the larger/marco point still stands... global econ. contraction = lower rate of demand for oil/energy = lower prices = production capacity adjustment (downward) = fewer jobs & lower revenue...
I guess the biggest question is the length of this cycle... the magnitude of the upside manipulation/bubble leads me to conclude that the downside/contraction could/should be lengthy & severe.
Iran's President Hassan Rouhani: "a golden page in Iran's history"...."... "a turning point" in Iran's economy"....
"He called for economic reforms and less reliance on oil revenues in the post-sanctions era." (ITV, today)
The good news Iran will use this new oil revenue to buy airplanes. The bad news it will be from Airbus and not Boeing. On a side note, Hamas will now fly first class and no longer need to drive to terror sites
Iran supports Hezbollah
Yeah? Well Israel and the US created ISIS so fuck you.
If it weren't for hezbollah, the head chopping liver eaters would have been rolling through Beirut long ago so FUCK YOU.
there was nothing negative of hez...
your problem?
He meant Iran supports Hezbollah, not Hamas. Which is a good thing btw.
I have no issues with Hezbollah defending the land in Southern Lebanon and Bekaa Valley because the Shiite people have been there for a 1000 years. There are also Christian militias now affiliated with the movement so again I have no issues with them. yes they are fighting ISIS and I approve of that.