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Is Iran’s Claim About Doubling Oil Exports Just Hype?

Iran Oil

After having regained 80 percent of its pre-sanction market share, beating all expectations, Iran now plans to double its exports if market conditions improve, according to Mohsen Qamsari, the director of international affairs of the National Iranian Oil Company (NIOC).

Many had believed that Iran would take time to reach its pre-sanction levels, however, Iran has surprised experts by quickly ramping up exports within a short span of time under challenging conditions.

Some part of Iran’s success can be attributed to the supply outages, which helped Iran to quickly build its exports. Without the disruptions in supply, Iran would have found it difficult to scale up exports in the oil glut environment.

However, it will be an uphill task for Iran to double the exports from current levels because both Libya and Nigeria, both of which are OPEC members, are taking steps to restore production. A combination of these steps has pushed the OPEC production to an 8-year high of 32.9 million barrels per day.

With prices nearing $50 per barrel mark, the U.S. rig count has also shown signs of life. It is an indication that the U.S. shale oil producers will ramp up production if oil prices increase further. Related: Offshore’s Next Big Headache: Breakable Bolts

With all the major oil producers planning to increase production at the slightest increase in oil prices the dependence of these countries on oil is clear.

However, Iran will require fresh investments to the tune of $185 billion over the next five years to reach its ambitious target. Any fresh investment by the Western oil majors will not only require a higher crude price environment, it will also require a favourable business environment in Iran.

Only a handful of the large oil companies such as Total and Lukoil have shown an interest in investing in Iran, though a large number of oil companies like British Petroleum, ENI, Repsol and others attended a conference in Iran.

Iran's Oil Minister Bijan Namdar Zanganeh insists that investing in Iran can be very profitable for the international giants as oil production costs in Iran as low as $10 per barrel.

Iranian Deputy Oil Minister for International Affairs Amir Hossein Zamaninia said in an interview with the Tasnim News Agency back in June that “the implementation of Iran Petroleum Contract (IPC) is one of the many strategies Tehran has adopted to attract investment and upgrade the country’s oil industry.” Related: Is China’s Silk Road Fund About To Make A Big Move In Gold?

Iran currently uses a buyback deal, where the government pays the company a predetermined price for the oil produced. However, with the new IPC rule, joint ventures will be set up between the National Iranian Oil Company (NIOC) and the international oil producing companies and the payment will be shared depending on the output.

However, Iran will have to win over the international investing community before it can find investors for its oil projects.

Nonetheless, Iran’s plans to double its exports will keep OPEC’s production near its highs and compensate for any shortfall arising out of Nigeria and Libya. Supply is likely to stay ahead of the demand in the near future, which will cap oil prices.

By Rakesh Upadhyay of Oilprice.com

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