While not predicting that Tehran and six world powers will strike a deal by the July 7 deadline, a senior Iranian oil official says his country hopes to nearly double its crude exports immediately if and when sanctions are lifted and hopes that OPEC will accommodate this growth by capping production by the cartel’s other members.
“We are like a pilot on the runway ready to take off,” Mansour Moazami, Iran’s deputy oil minister for planning and supervision, told The Wall Street Journal inTehran on July 5. “This is how the whole country is right now.”
Today Iran is exporting about 1.2 million barrels of oil per day, but that figure would reach 2.3 million barrels after sanctions are lifted, Moazami said. That would pose problems for OPEC, which is exceeding its formal ceiling of 30 million barrels per day, a high level of output intended to hold onto market share and force higher cost producers from around the world to cut back.
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Moazami is urging OPEC to return to setting production limits on individual members. “Their mechanism right now is not proper. It has to return to its past ability and capacity,” he said. OPEC ended that practice in 2011 because it generated bad feelings among the members, who flouted them anyway for their own profit. But individual quotas can’t be reintroduced except by unanimous vote.
Instead OPEC moved to a cartel-wide ceiling of 30 million barrels per day, a level that remained static even in the face of the oil glut that began in June 2014. And even as the oversupply persists today, OPEC members are collectively exceeding that limit by 1 million barrels per day.
Even if Iran is able to double its oil output, the notion that OPEC might change its output quota is unlikely given Saudi Arabia’s already strained relations with Tehran. Not only have the two countries long been at odds over Islam – Iran is Shi’a and Saudi Arabia is Sunni – Iran, through Houthi rebels, is today fighting what many call a “proxy war” with Saudi Arabia in Yemen.
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Further, Saudi Arabia, whose Oil Minister Ali al-Naimi is the architect of OPEC’s price war against American shale producers, has been producing oil at near-record highs over the past several months and probably would be reluctant to cut back to make room for increased Iranian production.
But Moazami said a rise in Iranian output wasn’t likely to cause oil prices to fall further because the extra crude on the market would be quickly snapped up as the world’s economy improves, stimulating greater demand for oil. He said he expects the average global price of crude will reach $70 per barrel by year’s end.
There’s been some talk of progress during Iran’s talks in Vienna with Britain, China, France, Russia and the United States – the five permanent members of the U.N. Security Council – along with Germany. On July 5 U.S. Secretary of State John Kerry cited “genuine progress” in unspecified areas, but added that “this negotiation could go either way.”
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There was one piece of specific news on the status of the talks. Yukiya Amano, the director-general of the International Atomic Energy Agency (IAEA), said July 4 in Vienna that his group could have enough data by the end of the year to issue a report on its probe of previous Iranian nuclear research suspected of being associated with the development of nuclear weapons.
Gathering details on such work has been a snag in the negotiations. Iran has denied it ever conducted weapons research, and so far it’s refused to answer the IAEA’s questions on the matter. But access to such information and using the data for future monitoring is a condition for lessening some of the sanctions on Iran.
Amano didn’t say whether this development signaled concrete progress, but in Tehran, Deputy Prime Minister Abbas Araqchi, said Amano’s meeting Thursday with President Hassan Rouhani was “positive and successful” and that the Iranian government is “ready to settle” the issue.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com