Some experts believe that the fall of the oil prices
on the back of the news of the lifting of the sanctions against Iran
was speculative. Other experts, on the contrary, believe that the effect
of the Iran factor on the oil prices cannot be ignored. An
international teleconference bridge of specialists from three
oil-producing countries – Russia, Kazakhstan, and Azerbaijan – discussed
just that.
The three oil-producing countries – Russia, Kazakhstan, and Azerbaijan – are former Soviet republics.
Presently, their governments are preparing budget revisions in
response to the low oil prices. As is known, the current year’s budgets
of Russia, Kazakhstan had been based on the $50 per barrel. Now, this
benchmark has gone down to $30 per barrel.
Recently, Moscow, Baku and Astana held an international
teleconference bridge “Collapse of Oil Prices: Effects on Economic
Situation in the Caspian States”. In the discussions, the experts from
Russia, Kazakhstan and Azerbaijan shared their opinions on the reasons
for the falling oil prices and their forecasts in the wake of the
lifting of the Iran sanctions.
For example, Institute of Economics of Kazakhstan Director Zhangeldy Shimshikov named several reasons for the low oil prices.
According to him, the first reason is the slowing down of economic
growth of China – the world’s main energy consumer – and, in
consequence, China’s decreased demand for oil. The second reason is the
political standoff of the European Union and Russia. The third reason is
the resumed oil production in the US for first time in 30 years. And
the forth reason is the arrival of an era of alternative energy, with
the new technologies developing at a rapid rate.
“Besides, we cannot discount the Iran factor. With the sanctions
lifted, Iran intends to double its oil production by the end of the year
and to provide up to 4 million barrels of oil per to the market. Now,
multiply this number by 366 days a year,” Shimshikov said.
But the director of Russia’s National Energy Security Fund,
Konstantin Simonov, said he believes that the effect of the Iran factor
is greatly overrated and is rather a speculation.
“We believe that the Iran factor should be evaluated soberly. First,
even during the sanctions, Iran never left the market and continued to
supply its oil to China and South-East Asia. During the sanctions, the
annual supplies of Iran’s oil were reduced by 45 million tonnes. To
catch up, though, Tehran has to invest heavily in its oil and gas sector
to achieve the former level of production, which cannot be done with
just a snap of the fingers. It is one thing to say they would start
delivering additional volumes to the markets, but it’s a different thing
to actually do that. With the oil prices at 30 dollars per barrel, Iran
will have difficulty bringing money into the oil sector,” Simonov said.
In his opinion, the market factors are not the only ones affecting
the current prices. He noted that the prices had lowered not just in the
oil markets, but also in the other commodity markets.
“The main, fundamental reason for the current situation in all the
commodity markets is the growing American dollar. Money leaves the
commodity markets and goes to cash, as the dollar is becoming a very
liquid asset. This is a conscious policy of the Federal Reserve System,”
Simonov said.
A leading researcher of the Institute of Economics of the Azerbaijan
National Academy of Sciences, Mais Gyulialiev, partially agrees with the
Russian expert.
“The reason for the current collapse of the oil prices is political,
not economic. Otherwise, the Russian ruble would not have devalued
three-fold. Contributing to the fall of the ruble is also the mood of
panic. Where there is no confidence in the domestic currency, people buy
foreign currency,” the Azeri expert said.
Kazakh Institute of Oil and Gas deputy Director General Akbar Tukaev
agreed, saying that the current pricing is affected considerably by
common panic.
“The oil exchanges panic too much in response to any news in the
world. Judge for yourselves, over the past year, the Iran factor has
caused the oil prices to fall by 10 to 20 dollars, even though there has
been no real growth of production in Iran,” Tukaev said.
The Head of the Centre for Study of World Energy Markets of Russian
Academy of Science, Vyacheslav Kulagin, also provided an opinion on the
Iran factor.
“So far, Iran has not increased its production of oil and has not
delivered anything to the market. Therefore, the Iran factor is a rather
speculative factor designed to play into the market players’
expectations. In the meantime, largely ignored has been that fact that
Iraq has been increasing its production volumes nicely. Over the past
five years, Iraq’s incremental oil production has reached 40 percent.
The investment that was made through the post-war tenders in Iraq has
played a role in that,” Kulagin said.
According to Kulagin, a number of factors will be affecting Iran
itself. Primarily, it’s the internal demand for energy. For example,
over the last years of the sanctions, Iran had increased its production
of gas considerably, but the domestic market consumed the entire volume
produced.
“So, there is a large unmet internal demand for both gas and oil. The
second factor is investment. It should be understood that any foreign
company thinking of returning to the Iranian market will want guarantees
that the sanctions will not come back, and that the money will not be
lost. All investors will be calculating the risks while Iran will need
money to develop and implement new technology. For example, it has taken
many years of tenders and the support from the West for Iraq to
increase its oil production by 40%” Kulagin said.
The Russian expert further added that the more money coming to Iran, the more heated the Middle East situation would become.
“It is a constant heat and instability, which can at any moment upend
the oil market. Saudi Arabia’s reaction to the end of the Iran
sanctions makes the investors think hard and calculate the risks,”
Kulagin said.
According to him, it is important to watch the state of the world
economy primarily in the Asian markets, in the so-called “developing
Asia” that had been responsible for the high economic growth.
“Already now we are concerned that we are not seeing the same rate of
growth. The situation in developing Asia will determine what we should
expect from the oil prices,” Kulagin said.
In his turn, Deputy Director General of the Kazakh Institute of Oil
and Gas, Akbar Tukaev, talked about positive forecast for oil prices.
He mentioned the recently published ExxonMobil’s “The Outlook for
Energy – A View to 2040”. According to ExxonMobil’s expert estimates,
the share of oil in global consumption will be 32%.
“In our estimate, the oil demand and supply should start to balance
at the end of the first half-year. At the latest, by late September this
year, the oil prices will grow to 50 to 60 dollars per barrel. A trend
of oil prices growth is starting now,” Tukaev said.
Kulagin added that already $400 billion had been taken out of the oil market.
“These 400 billion dollars were not invested in new oil and gas
projects, which will result in an inevitable correction of the world oil
production,” Kulagin said.
http://neurope.eu/article/the-iran-factor-and-the-oil-prices/