Once international sanctions on Iran are lifted, the country will be able to increase its production of crude oil to pre-sanctions levels – by 500,000 barrels per day within a week, and by more than 1 million barrels per day within a month, Oil Minister Bijan Zanganeh says.
“Some of the most effective sanctions [against Iran] with regards to the oil industry were those that targeted aspects such as sales, volumes, shipment, insurance and the transfer of money,” the minister said the night of July 1 on Iranian state television. “If those issues are resolved, Iran will regain the market share that it has lost which amounts to above 1 million barrels per day.”
Zanganeh said Iran’s government already has informed OPEC about its decision to regain its status as a major global oil exporter, which it enjoyed before the sanctions, and declared that Tehran needs “nobody’s authorization to retrieve its rights.”
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Such an optimistic outlook is nothing new to Zanganeh. As recently as June he predicted that Iran could ramp up oil output by 1 million barrels per day within seven months of a lifting of sanctions. At the time, he said, that Iran could ramp up production to 3.7 million barrels per day, where it stood in 2011, a year before the toughest sanctions were imposed.
The only difference today is that Zanganeh now believes that level can be reached in just one month. For all the minister’s talk of a rosy energy future for his country, he apparently has believers among the world’s most influential oil executives at companies that have been badly hurt by the low price of oil, whose value has plummeted by half from more than $110 per barrel in June 2014.
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This has cut deeply into the earnings of energy companies around the world. As a result, many have ordered dramatic spending cuts, and now appear to be on layoff spree, with Royal Dutch Shell (LONDON:RDSa) announcing the elimination of 6,500 jobs, the British utility Centrica (LONDON:CNA) cutting 6,000 positions and Chevron Corp. (NYSE:CVX) cutting 1,500 jobs.
Such deep job cuts can only mean these companies see no quick respite from low oil prices, and several executives are on the record as saying so. They include Shell CEO Ben van Beurden as well as Bob Dudley, his opposite number at BP (LONDON:BP). Dudley says he expects oil prices to stay “lower for longer.”
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There are at least two reasons the problem is expected to be so protracted. First, OPEC’s decision to maintain production levels came at its semiannual meeting in Vienna in November, and was kept at that level at its next meeting in June. Second, Iran’s determination to ramp up production once the sanctions are lifted, probably in early 2016, means that price relief may be at least a year away, maybe further.
Zanganeh said it was “unfair” to blame Iran for keeping oil prices low. He pointed to OPEC’s decision not to cut output and the group’s move to overproduce by at least 1 million barrels per day. “The issue of oil prices is very complicated,” he said. “There is a strong political will [beyond Iran’s borders] that does not want the prices to rise.”
Instead of waging its price war with rival producers, Zanganeh said, OPEC should cut its own production in order to accommodate Iran’s full return to the oil market.