|Iranian oil supply may surprise, says Fitch||
One of the macro industry themes Fitch Rating sees developing over 2014 is the potential for Iran to increase the supply of oil on world markets by around 800,000 barrels per day (24 percent of its current production) if U.S. imposed economic sanctions were eased as a result of improving relations between the two countries.
Relations between the U.S. and Iran are improving and this could lead to an easing of international economic sanctions against Iran as early as 2014. U.S. Secretary of State Kerry said a deal on Iran's nuclear program could be reached relatively quickly, following Iranian President Rouhani’s visit to the United Nations in September 2013. In addition, Rouhani and U.S. President Obama spoke by telephone that same month in the highest-level contact between the two countries since the 1979 Iranian revolution.
Easing economic sanctions in 2014 would provide an immediate boost to Iran’s oil sector and could allow 800,000 barrels per day to come on to world markets. Iran produced around 4.2 million barrels per day before the EU imposed embargo on Iranian oil imports in 2012 and now produces 3.4 million barrels per day. The ending of sanctions could see these incremental barrels come back on line relatively quickly and would have an impact on the supply balance of world markets as well as the price of oil.
Fitch anticipates production growth could return if sanctions are eased.
The supply impact on world markets could be even greater if Iraq resumes increasing supply at an average rate of 15-20 percent year-on-year in 2014. Fitch views this as difficult, however, given the historical volatility in Iraqi oil production likely to be continuing in 2014.
An easing of sanctions in 2014 could also boost Iranian oil reserves as confidence grows that they could eventually find their way to market. This has broader implications for medium- to long-term oil supply. Iranian proved oil reserves rose 20 percent in the 10 years prior to the EU sanctions imposed in 2012. Fitch believes an improvement in the outlook for the Iranian oil sector in 2014 could start the investment process that will boost proved reserves beyond 160 billion barrels.
In addition, Royal Dutch/Shell Group and Total SA have highlighted the potential energy windfall if sanctions preventing international oil companies from dealing with Tehran were lifted. These companies argue that lifting sanctions and opening up Iran’s vast oil and gas resources to global companies will be vital to meeting the world’s future energy needs. Before the tightening of sanctions against Iran, Shell and Total were two of the most active international companies operating in the country.
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