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Global Energy Advisory – 10th April 2015

 

Geopolitical Update

There is no need at this point for investors to fear a rapprochement with Iran in terms of what it might do to oil prices by adding more supply to the over-supply mix. As you likely are aware by now, a framework agreement was reached last week between Iran and world powers. There’s still a fair amount of road to travel to see sanctions lifted, though Iran wants them lifted immediately upon the implementation of a final deal. Even in that best-case scenario for Iran, it would take some time for the country to rally and ramp up production to the point that it would contribute to the already glutted oil market and further depress oil prices. It is important to reflect on history here: After the 1979 revolution and in the midst of a war with Iraq, Iranian oil production crashed hard, dropping from 6 million barrels per day to 1 million barrels per day. Recovering from this took more than a decade, and even then, the recovery was not complete. If sanctions are lifted immediately, this will not have anything close
to an immediate effect on the global oil market. It would be years before Iran could ramp up production to a level that would have any real effect.

In the meantime, the Saudis may shoot themselves in the foot with their unconstructive air strikes on Houthi targets in Yemen. Not only will air strikes fall short of rooting out the Houthis--who have taken over the capital city and who are being targeted because this…

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