• 15 mins Is A Russia-Cuba Energy Deal In The Works?
  • 3 days Iraq Begins To Rebuild Largest Refinery
  • 3 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 3 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 3 days China's CNPC Considers Taking Over South Pars Gas Field
  • 3 days BP To Invest $200 Million In Solar
  • 3 days Tesla Opens New Showroom In NYC
  • 3 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 4 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 4 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 4 days Goldman Bullish On Oil Markets
  • 4 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 4 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 4 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 4 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 5 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 5 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 5 days Aramco On The Hunt For IPO Global Coordinators
  • 5 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 5 days India Feels the Pinch As Oil Prices Rise
  • 5 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 6 days API Reports Huge Crude Draw
  • 6 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 6 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 6 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 6 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 6 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 6 days Exxon To Start Reporting On Climate Change Effect
  • 7 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 7 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 7 days Forties Pipeline Could Remain Shuttered For Weeks
  • 7 days Desjardins Ends Energy Loan Moratorium
  • 7 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 7 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 7 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 10 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
Alt Text

Exxon To Disclose The Real Risk Of Climate Change

ExxonMobil has finally given in…

Alt Text

Adapt Or Die: Oil Majors In The New World

ExxonMobil is one of the…

Alt Text

The Most Important Part Of The OPEC Deal

While oil markets and news…

Gregory Brew

Gregory Brew

Gregory Brew is a researcher and analyst based in Washington D.C. He is currently pursuing a PhD at Georgetown University in oil history and American…

More Info

Having Outmaneuvered OPEC, Can Iran Handle Trump?

Trump election

Arguably one of the big winners from the deal reached by OPEC on November 29 was the Islamic Republic of Iran. Following the end of the sanctions regime in January 2016, Iranian oil production expanded rapidly, growing from 3.5 million bpd to nearly 4 million bpd. Amidst analyst skepticism, including some well-founded doubts surrounding Iran’s existing reserve storage and capacity for further conventional production, the country has succeeded in doing just what it has intended: using the JCPOA, the nuclear deal reached last year with the United States and Western Europe, to recover its lost market share.

The OPEC deal permits Iran to increase production to 3.9 million bpd, well below the current level of 3.7 million bpd. The country’s boisterous oil minister, Bijan Zanganeh, has in the past cited 4 million bpd to be Iran’s “natural” production level. Earlier in 2016, Zanganeh rejected the idea of Iran joining a production freeze until that figure was reached. The OPEC deal falls in line with Iranian ambitions.

Shortly after the deal, Iranian president Hassan Rouhani, who faces re-election next year, said that Iran would be free to pump as much oil as it wanted, though he followed up this remark by calling for greater cooperation within OPEC.

The deal is a victory for Iran’s oil diplomacy. No other OPEC country is being expressly permitted to raise its production to a certain level, though several OPEC members such as Libya and Nigeria are exempt from the deal entirely. Iran’s geo-strategic and economic rival Saudi Arabia, meanwhile, is shouldering a cut of nearly 500,000 bpd, which will bring its production level down to 10 million bpd. The discrepancy in what the Saudis gave up, and what the Iranians were able to win, is considerable. Rouhani and Zanganeh are rightfully celebrating the deal.

The question facing Tehran is this: what now? Where can Iran go from here? The future of Iran as a major producer hinges not just on changes in the market but on the policies likely to come out of the Trump Administration once it takes office in the New Year.

First, there is the nuclear deal, which is widely unpopular among Republicans and which President-elect Trump has vowed to rip up as soon as he takes office. Recently selected members of Trump’s administration include Retired Army Lt. General Michael Flynn and Congressmen Mike Pompeo, who will be serving as National Security Advisor and CIA Director. Both are strong opponents to the deal. Retired Marine General James Mattis has been chosen as Secretary of Defense; he was removed from command by the Obama Administration for being too aggressive towards Iran. Related: Japan Importing Less Crude Oil; Gives Iran, Russia Cold Shoulder

Yet Mattis has reportedly opposed tearing up the nuclear deal, which would potentially re-impose U.S. sanctions on Iran, and measured analysis backs him up. The deal was not a unilateral American move but a decision made by the U.S. and five other nations, many of which have eagerly pursued closer economic ties with Iran since the deal was signed in July 2015. Even if the U.S. backed out of the deal, there’s little chance of the other signatories following suit.

There could be an economic calculus involved: if sanctions were to be re-imposed, Iranian production would be squeezed and Iran could potentially lose market share, taking pressure off of prices and even aiding U.S. domestic production. Yet recent events indicate that Iranian leaders have considered this and Iran’s cooperation with OPEC in reaching the recent deal could show a certain solidarity among OPEC’s members concerning preserving something of the existing status quo. A report from the Columbia Center on Global Energy Policy points to this scenario as a possible outcome of a Trump Administration decision to nix the deal.

As many analysts have pointed out, the deal is largely the result of a two-year long struggle between OPEC and American shale, with shale coming out on top. Should the Trump Administration, in a bid to boost American production by imposing limits on Iran, try to scupper the nuclear deal and bring back the sanctions regime, a response from OPEC, perhaps joined by the European signatories of the Iran deal, could be forthcoming. It would be economic warfare with oil as the prize; not a pretty scenario. Related: Trump’s Energy Advisor Hamm: We Are So Much Stronger Than The Saudis

While the political maneuvering around the Iran deal is sure to be lengthy and byzantine, as the Trump Administration navigates its maze of campaign promises and policy commitments (many of which pit Trump’s working-class economic nationalist populism against the free-market interest of U.S. businesses), one thing is certain: relations between Iran and the U.S. under the new administration are likely to be frosty. The decision of Congress to continue the existing sanctions regime elicited an angry response from Rouhani, who declared in a speech that the U.S. “is still our enemy, we have no doubt about this.”

Second, there is the state of the Iranian oil industry going forward. Last year, the chief problem facing Iranian ambitions to raise production was the decrepit state of Iran’s infrastructure and its aging fields. It was estimated that $150 billion in new investment would be needed for Iran to reach it’s desired 4 million bpd threshold and maintain that level going forward.

Since signing the deal, Iran has overhauled its oil contract system. In November, French oil giant Total SA signed a $6 billion deal to develop Iran’s natural gas, while a deal between Shell and Iran is currently being negotiated. If concluded it would give Shell the chance to return to Iran after a six year absence, and would open up the country’s Azadegan and Yadavaran oil fields, as well as the Kish gas field.

Iran possesses the world’s second largest natural gas reserves and fourth largest oil reserves. It also represents a large and untapped market for international capital, as the recent Boeing and Airbus deals to supply Iran with new aircraft (each worth about $25 billion) indicate. There is some sense that Iran is pursuing these deals while it still can, before a re-imposition of sanctions makes it impossible for U.S. businesses to make deals in Iran.

For most of the year, expectations that Iran could reach the lofty, seemingly-exaggerated heights set by Zanganeh and Rouhani swung between optimism and skepticism. With the OPEC deal in place, Iran can afford to be bullish. Should the U.S. decide to back out of the nuclear deal, a decision which due to the deal’s nature rests entirely with the President and his Cabinet, Iran’s future as a major oil exporter could become uncertain; but that’s only if non-U.S. partners follow the American deal and refuse to buy Iranian oil. With Iran having recovered its pre-sanctions position with remarkable speed, and with an OPEC-backed mandate to maintain that level with impunity, the future looks bright for the Islamic Republic, even with a potential new foe in the White House.

By Gregory Brew for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • keith cummings on December 11 2016 said:
    I really like when leaders of the free world bring us to the brink of global war in support of the oil industry. Now that's guy I can stand behind. Not.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News