Access to oil markets only a first step for Iran, UH panel says

HOUSTON — Iran may have access to global oil markets, but the country’s oil and natural gas sector still faces serious political and economic challenges, a panel at the University of Houston said Monday.

The Middle Eastern country’s economy is ailing from years of international sanctions, the panel said. The country will also need to find buyers amid cutthroat competition that has driven the price of oil below $30 per barrel.

“Iran’s main challenge is finding customers and selling oil in the current market,” said Sara Vakhshouri, president of energy consulting group SVB Energy International.

Iran’s oil production has atrophied from 3.7 million to 2.8 million barrels per day between 2011 and 2014 under the weight of international sanctions. In January, international powers finalized a deal that traded those sanctions for concessions from Iran related to its nuclear program.

On Monday, Iran said it had shipped its first cargo of crude oil to Europe, according to an Associated Press report.

Iranian officials have said they plan to immediately boost production by 500,000 barrels per day and add another 500,000 barrels per day over the next six months. But those barrels will need to carve out space in a global market already flush with oil, Vakhshouri said.

Europe could be the prime target. “Iran lost about 600,000 barrels per day of market share in Europe when sanctions took effect,” she said, adding that they may be able to claw back as much as 250,000 barrels per day of crude.

International companies will be key to maintaining and growing production, said Cliff Kupchan, chairman and practice head at consulting firm Eurasia Group. But Iran’s political situation is hardly welcoming, he added.

“Some international oil companies will rush back in. . . but I think most will react quite cautiously,” he said. “Iran has a weak investment climate. Corruption is widespread.”

U.S. companies, in particular, continue to be locked out of the country under separate sanctions that severely restrict dealings with the Iran. Those restrictions give the U.S. some continuing
leverage over Iran, he added, but they mean almost no benefits of the country’s opening will flow directly to American businesses.

In general, the impact on the market from adding back Iran’s production will be somewhat limited, said Joe Barnes, a fellow at the Baker institute for Public Policy at Rice University.
Even if Iran’s claims to have 1 million barrels per day of readily accessible capacity are true, those new barrels represent only a small fraction of the global demand for oil.

“Any impact that Iran’s increase will have will be on the margin,” Barnes said.

Still, the extra barrels will be an additional hurdle that producers will have to clear before the currently oversupplied oil markets are able to return to normalcy, he said. And with Iran’s production resurgent, oil cartel The Organization of the Petroleum Exporting Countries will have another variable to consider when discussing cutbacks.

“I’m not holding my breath,” Barnes said, referring to possibility that the group might decide to pull back on production to stabilize prices.

The UH Energy Symposium Series has served for three years as a gathering place for industry officials and environmental experts to talk about key energy topics.

Monday’s event, attended by about 400 people, was the third of four energy forums at University of Houston. The series examined Arctic drilling in September and carbon taxes in November. The upcoming discussion in March will cover personal transportation.

FuelFix.com is a sponsor of the symposium series.

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