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  • Many of the sanctions against Iran's oil industry have been lifted.

  • But how fast can the powerful OPEC producer ramp up production and exports?

  • Joining me to discuss this is Richard Mallinson, at Consultancy, Energy Aspect.

  • Richard, Iranian officials have in recent day, in recent months talked about ramping up production,

  • immediately after lifting the sanctions by five hundred thousand barrels a day.

  • How realistic is this?

  • Well, clearly, the Iranian governments got some pretty ambitious plans.

  • But I think, they're gonna have a little more of a gradual recovery.

  • They're depending on two things, one is to take existing fields and ramp up the amount of those producing,

  • and the second is to bring several new fields on line.

  • But with the existing fields, they face years without western technology, western investment,

  • and I think that the maintenance state of those fields may limit how much they can bring back overnight.

  • With the new fields, we've seen several years of delays,

  • and I think they're not necessarily all gonna be ready yet.

  • What are your estimates, for the increase in production and also exports?

  • So I think over the next couple of months,

  • we'll see Iranian production going up by say 250 to 400 thousand barrels a day,

  • depending on how many of those new fields come on line.

  • And I think almost all of that is going to go into the export market

  • because of present, the domestic market is well-supplied,

  • um... but it's exports say they really want to target, they really want to increase.

  • It's about then, can they find the buyers, can they

  • as they get back into market, Europe, other parts of Asia,

  • how easy is it to market their crude and to displace other exporters.

  • We can see from this chart here that

  • production and exports have really taken a hit under sanctions.

  • But any increase from here on in ? You know what affect will that have on price?

  • Well, as we can see before the latest round of sanctions,

  • the ones that are being lifted or implemented was producing about 3.6 million barrels a day

  • and exports were close to 2 million barrels a day.

  • That fell off a long way, and Iran wants to bring all of that back as quickly as it can.

  • The oil market was already oversupply, it has been for quite long time

  • and that's what's really driven prices lower.

  • Um... the quicker and the more that Iran can bring back into the market,

  • the more pressure it would put on prices,

  • and certainly the moment of the focus or the concern in the oil market is that

  • there gonna be a large return, very rapidly.

  • But I think if, as we get later in the year, we'll get a better picture of the Iranian recovery,

  • it's only going to be one of several moving parts

  • we're also going to be looking at the decline in the US production

  • the extent to which the rest of non-OPEC's supplies going down

  • and of course what other OPEC members are able to do.

  • And just on that point, oil prices are around 30 dollars a barrel.

  • So what happens when, you know,

  • you throw Saudi Arabia and other big Gulf producers into the mix

  • because they have shown no signs of relenting.

  • Um... you know, how does that competition play out now?

  • Well, I think, from my point of view

  • this 30 dollar price is not sustainable for the global market in the long-run.

  • But, all of the OPEC producers are generally putting as much oil as they can into the market that,

  • in part, about just generating whatever revenues they can to meet their budget,

  • but it's also about market share.

  • We've seen Saudi Arabia and Iraq increase their production significantly last year,

  • and they gonna want to sustain those levels,

  • even if they can't necessarily increase production further.

  • But they've also been putting oil into markets, particularly in Europe,

  • where they anticipate Iran is going to want to return.

  • So, they're trying to get in there ahead of time

  • and prevent or make it more difficult for Iran to win those buyers back.

  • And I think what we're likely to see is Iran, particularly but also Iraq

  • willing to offer discounts, to offer favorable terms

  • to try lure by as a way from Saudi Arabia and the other Gulf states,

  • and none of that is gonna make life within the OPEC anymore comfortable or anymore diplomatic.

  • Um... you know, speaking of some of the Iranian officials, they've said that they are not very keen to lose out on price.

  • So what are the tactics could they deploy?

  • Is it sort of oil-for-goods or other sorts of tactics, that means it may try and get ahead that way?

  • Well, this is a dilemma for Iran. On the one hand, it knows that to lure by it's back,

  • it needs to offer something attractive of favorable terms.

  • From the second, on the other hand, especially at current prices, if it offers cash discounts, that's gonna,

  • eat into the revenue it desperately needs for it's budget.

  • So, I think we will see them looking at what creative ways can they build buying relationships,

  • so exchanges favorable terms for instance, longer payment terms said the price is there

  • but refiners have a little bit longer before they need to meet that bill

  • which can really help them with cash flow.

  • But all of it, I think it's also going to be complicated, by the US sanctions that remain in place,

  • in particular, the ones that will make it difficult for Iran to sell and transact in dollars

  • because no US bank can be any part of the transaction.

  • Thank you, Richard.

Many of the sanctions against Iran's oil industry have been lifted.

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