Stratfor: what the Iran deal means for oil prices

Summary: Here Stratfor discusses one of the big economic and geopolitical questions about the Iran deal, much more important the deal’s effect on Iran’s conjectural nuclear program (30 years of a nuke coming really soon). Low prices have depressed the economies of key nations such as Russia and the Gulf States (plus oil-producing areas of the US). If new oil from southern Iraq and Iran depresses oil prices even more we might see some shocks of a kind unimaginable in the heady days of $100 oil.

Stratfor

How the Iran Deal Will Affect Oil Markets in the Short Term
Stratfor, 16 July 2015

The nuclear agreement between Iran and six world powers will naturally have consequences for global oil markets as Iran, the world’s third-largest oil producer before the Iranian Revolution, eventually exports more oil. Prior to the implementation of sanctions in 2012, Iran was a major crude oil and condensate exporter to Asia, Europe and others — in fact, exports totaled 2.6 million barrels per day in 2011. Today, that figure has fallen by almost 600,000 bpd to Europe and another 600,000 bpd to Asia. Iranian exports now hover closer to 1.4 million bpd, 1 million bpd of which is crude oil.

The July 14 deal paves the way for sanctions to be relaxed by early 2016, enabling anyone to buy oil from Iran. While Iran maintains that it can increase oil production by 500,000 to 600,000 bpd within one month of the removal of sanctions and increase exports to 2.5 million bpd within three months, Stratfor sees these figures as overly optimistic. Iran does, however, have at least 35 million barrels of crude oil and condensate in storage that it could use to increase exports in the interim before its oil production rises again. 2016, consequently, will likely be another year where a healthy oil supply tamps down any oil price recovery.

Potential Obstacles in Washington and Tehran

There are, of course, potential obstacles to passing the deal, both in the United States and Iran. In the United States, President Barack Obama is preparing for a fight with the Republican-controlled Congress, which could reject the deal. Congress has a 60-day review period to approve, disapprove or do nothing with the deal, in which case the agreement would go into effect. Obama has said he will veto any rejection of the deal, and Congress would find it quite difficult to assemble the two-thirds vote in the House and Senate needed to override the presidential veto.

Obama cannot lift sanctions or issue presidential waivers allowing countries and companies to skirt the sanctions during the 60-day review period, only after. The European Union, Japan and South Korea, meanwhile, can remove sanctions more quickly, most likely giving companies from these countries an advantage in investing in Iran.

In Iran, the parliament is interjecting by demanding a full removal of sanctions upon the deal’s signing. Supreme Leader Ali Khamenei and his security council, however, probably have the authority to block the deal. But President Hassan Rouhani and Foreign Minister Javad Zarif likely would not have reached this stage of the process without Khamenei’s blessing. Once the supreme leader has backed the deal, or at least failed to block it, most of the rest of Iran’s politicians should fall in line and stop seeking to halt its implementation.

Sanctions Relief Meets Maintenance Issues

Assuming Washington and Tehran avoid their respective obstacles, sanctions relief could happen by the first quarter of 2016, if not the end of 2015. EU and U.S. sanctions are to be simultaneously suspended once the International Atomic Energy Agency (IAEA) issues a final report that Iran has implemented the terms agreed to under the nuclear deal. The IAEA draft report could come by Dec. 15. The IAEA Board of Governors, which has meetings scheduled for Nov. 26-27, 2015, and March 7-11, 2016, will then vote on whether to adopt it. If the board adopts the report, sanctions would be suspended.

Markets could have indications as to how the IAEA inspections went as early as mid-December. We expect sanctions relief by the first quarter of 2016 (again, assuming domestic opposition in the United States and Iran is overcome), allowing Iran to renew exports.

Iran will begin preparations to bring mothballed fields back online prior to sanctions relief so it can resume exports immediately. But once fields are taken offline — especially for an extended period — they cannot all be brought back online at maximum capacity without new investment. It is unclear how well maintained these fields are and what, if any, damage to infrastructure, equipment and reservoirs occurred during the shutdown process. While not nearly as technologically proficient as its Western counterparts, the National Iranian Oil Co. is not inept, and it likely shut down its most mature fields with lower levels of production and higher operating costs first.

It is difficult to ascertain how much production capacity Iran actually has, and how expensive or difficult it will be to bring mature, largely inefficient fields back online. All of this uncertainty has created wide-ranging expectations of how quickly production will increase.

Dealing with aging oil fields is not a new problem for Iran either. Even prior to sanctions and the exodus of Western companies, Iran had been in the process of injecting gas (along with other methods of enhanced oil recovery techniques) to maintain pressure in the reservoirs to slow the natural decline rate of these fields, often rising as high as 10 percent annually, helping to maintain production levels. But even when Western companies were still there, Iran failed to meet its targeted injection rates. How quickly Iran can drill new wells and build new injection facilities before sanctions relief occurs, then, is unclear. It is one reason Stratfor is suspicious of short-term optimism regarding Iranian production.

It's an Oil World

New Oil Fields and Stored Petroleum

Yet while sanctions were in force, Iran did not totally abandon the development of new oil and natural gas fields. At times with Chinese assistance, Iran has been developing the massive South Pars natural gas and condensate field. (Condensate is a low-density mixture of hydrocarbon liquids that coexist with raw natural gas deposits in many natural gas and oil fields.) Over the past few years alone, 120,000 bpd of condensate production has come online, a figure projected to increase in 2016.

Condensate production is becoming a more substantial percentage of Iranian petroleum production. All told, new condensate production could easily add 100,000 to 200,000 bpd to Iranian oil production in 2016 with Iranian crude oil production separately increasing by as much as 300,000 bpd by the middle of next year depending on when the IAEA actually adopts its report. Whether crude production in fact reaches that level depends on how much Iran prepares before sanctions end, and we fully expect lower production figures. As more injection wells are put into operation and new wells are drilled, Iran’s oil production capacity could increase even more by the latter half of 2016 — perhaps even returning close to pre-sanction levels (an increase of about 750,000 bpd over current levels) sometime in 2017.

However, oil exports may well exceed oil production capacity. Iran has stockpiled substantial volumes of petroleum, a little more than half of it condensate, in tankers offshore and onshore storage tanks for the last few years. Stored Iranian crude oil, which totals 35 million barrels, could quickly be sold. Iran, though, is unlikely to flood the market with this oil storage right away, opting instead for sustained exports as production capacity comes back online over the course of 2016.

Finally, Iran’s oil exports will affect global energy markets and the countries in them. Renewed oil exports in 2016 will continue to keep global oil prices down, ensuring less risk to prices. Subsequently, countries suffering from low oil prices, such as Venezuela, will continue to be battered. North America will be affected as well. Expensive producers will continue concentrating on their most efficient operations, hampering supply growth and cementing previous production declines in the United States.

This is Part 1 of a two-part analysis on energy implications of the July 14 nuclear agreement between and Iran and six world powers. This focuses on the short-term effects of Iran’s return to the global oil market while Part 2 focuses on the longer term.

How the Iran Deal Will Affect Oil Markets in the Short Term
is republished with permission of Stratfor.

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18 thoughts on “Stratfor: what the Iran deal means for oil prices

  1. Hi Editor,

    I would like to know if you would be interested in publishing an article of mine that covers the AM Hack, what its implications are, etc. I have an introductory piece almost ready. “The Ashley Madison’s Hack: 4th Generation Gender Conflict Gets Real” Please advise.

  2. Here is an outline, please advise if it is initially acceptable and of interest: The Ashley Madison’s Hack: 4th Generation Gender Conflict Gets Real

    About three months ago I forecasted the AM hack, many other people saw this coming. The reason we saw this coming is because AM is a systempunkt, a point of a system that if attacked would yield a huge ROI and Black Swan levels of repercussions. The very interesting choices that AM has now are -Shutdown immediatly, permanently OR -Have data released on batches Wikileaks DoS style,which would have the same effect on the site.

    So, Ashley Madison will shut down the only question is how. The Impact Team (the team of hackers that claimed the attack) is likely to eventually release all the data, whether before or after the shutdown. It is notable that AM has a clause that says that if they go bankrupt, they can sell the data. AM has 37 million users, 13 of which are in the US the US has 60 million married couples, add to that 10MM cohabiting couples so this in a fair estimate affects 20% of all commited relationships in the US

    Who would like to get access to this info?
    -People in commited relationships that are not in AM. A “Who is on the CheaterLeaks” phenomenon will develop,as you might guess when 20% of all couples will be affected
    -Anybody tryng to create a CheaterFax.To anyone creating a HoeFax, SlutFax or CheaterFax the most difficult part is where to get the data from. This is their wild dream come true.
    -The General Public who is interested in a CheaterFax. Anybody who would like to know if a certain person is a cheater
    -Lawyers, Lawyers can use this data, either bought from the hackers or from the company itself after bankrupcy, to strengthen their divorce cases, Needless to say the mere release of this info will create a boom in the divorce industry, generating new clients, so to speak.
    -Intel Agencies that dont already have that data.
    -Media: If 1/100.000 of those 37 million are famous people they will have 370 famous people in their hands.

    Repercussions
    -The final moral blow to Marriage in the US
    -Divorce boom, direct and indirect
    -Marriage Bust

  3. Note: The Ashley Madison leaks will do to marriage in the US and select countries what the Snowden case did for the NSA and Intel comms. It will make the reality of marriage cuckoldry undeniable. The vast majority of AM users are married women.

    1. Salient,

      So far as I can tell, the Snowden leaks did little to the NSA. At least so far; perhaps there will be future consequences.

      Perhaps a comparable event is the partial opening of the Stasi files in East Germany. Everybody was informing on each, or close to it. Husbands on wives and vice versa. Kids on parents. Etc.

      Result: life went on.

  4. Note2: Copycats and stygmergic hacks, any site resembling AM or EM, any cheaters site and sugardaddy site will likely be hacked. Over time this will build a large dataset.

  5. “So far as I can tell, the Snowden leaks did little to the NSA. At least so far; perhaps there will be future consequences.”

    Yes, I agree. I meant to the visibility, notoriety, public acceptance and undeniability of whats going on. Before Snowden if you suggested what was then leaked, your would be considered a crazy person. Afterwards, nobody denies it

    Likewise, with infidelity, it will make the obscure and subconciously understood clear for everyone to see. It will make understanding that few had before, mainstream. That was the intent of my analogy.

    1. Salient,

      It’s over my pay grade to do more than guess about such things, but I wonder if this might be another step in the end of marriage in its current form. Men marry, their wives divorce them, they pay for child support. Now men factor in the substantial odds of their wives’ having affairs. The long-time benefit, however illusory it often was, of being patriarch in one’s little castle is long gone — and the access to sex now has alternatives.

      Might we reach a tipping point?

      At what point d

  6. Note3: Please note how Nobody in the manosphere is saying anything about this, its like it didnt happen :)

  7. “Might we reach a tipping point?”

    Yes, a tipping point usually requires 10-13% of the population to be aware
    this has all the likelyhood to meet those numbers, and surpass them.

  8. Note4: If nobody creates resembling sites as they go down as flies, honeypot sites will be created to feed the “SlutFax” dataset.

  9. Note5: Many men will stay married if their wife cheats on them on the down low, not many men will stay married knowing its out there for all to see that their wife cheats on them. out of the 13mm, 10mm are women, this could bring about 4-6 million divorces within 12 months.

    The BlackSwan repercussions of this could be HUGE, never seen before in history, a 500% increase in divorces in 12 months, for example

  10. Note6: If a sophisticated cyber unit would try to target the social cohesion of a society in an aggresve manner, I believe this would be a a move that they would pull, and even if it didnt pull it, you can be sure that they took register of the method now.

  11. Note8: Please advise what your Cyber Guru thinks about the outline combined with the notes. Thank you for your time.

  12. Note3.1: 24 hour delay over

    http://www.reddit.com/r/TheRedPill/comments/3e043v/thoughts_on_the_ashley_madison_hack_37m_cheaters/

    “TLDR Ashley Madison user database compromised. 37m people at risk. Going to get ugly. TRP should have a welcome message for the influx.

    If there were something called a schadenfreude-gasm, today would have been its day of infamy. The best description I’ve found so far is on this security blog. Apparently the hackers are demanding that the hookup site for people seeking extramarital affairs and its affiliated sugar daddy site, Established Men must shut down, or they will expose the names of the sites respective 37 million users.

    It’s literally white knight beta cyber terrorism. In fairness, the whole episode seems like a full-retard clusterfuck in a perfect storm, wherein millions of people who wanted affairs were stupid enough to trust the internet with the secret that could cost them their assets and children – and a site operator who created both an attractive nuisance for vulnerable people then demonstrated profound negligence in protecting it. Who do you think gets cucked? Guys who happen to know a lot about computers, that’s who.

    Its easy to laugh, but if this data gets leaked on 37m people, as a rough measure, when you take the U.S. murder rate of 4.7/100,000 or about 1:22,500 people, and apply it to this group, all things being equal that’s about 1650 people who would probably have been murdered anyway. I know that’s not rigorous, given other factors, but if this list does get out, it would be a reasonable bet that at least that number of people could be murdered as a direct result of jilted spouses losing their shit. Not that I’m taking an over/under or anything, but in terms of consequences, the Ashley Madison hack is more destructive to the economic wellbeing of the U.S. than the OPM hack from a few weeks ago. This could get really, really ugly.

    It may be worth having a sticky post for guys who will end up here in the next few of weeks as they find out about their special snowballs…er, snowflakes and their internetting. Even something from the mods saying, “Welcome Ashley Madison Hack targets, we’ve been expecting you, please see the sidebar, the 50-shades post, and the anti-biotic nuke summary, and for fuck’s sake, LIFT.”

    ** Lessons Learned **

    Marriage is dead.

  13. Note 9: To paraphrase Mr Nietzsche,

    Marriage is Dead, its not that it just died… its dead because WE killed it.

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