Wednesday, March 18, 2015

"U.S.-Iran Deal Could Sink Russia"

A twofer. First up The American Interest:
The big question about oil prices: How low can they go?  To find out, look to Iran. If sanctions are dropped, a flood of Iranian oil is likely to enter world markets as a cash starved Tehran tries to regain market share and bulk up its earnings. The Wall Street Journal has more:
“In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude-oil production and exports in several months,” [Iranian Oil Minister Bijan Zanganeh] was quoted as saying by his ministry’s news agency Shana.
He also predicted the additional Iranian supply wouldn’t “significantly affect crude-oil prices and world markets.”
Iran has already sounded out Asian oil buyers about taking extra supplies, according to two Iranian oil officials. “We have told our Asian customers we are ready to supply more when sanctions are lifted,” one Iranian oil official said.
Less clear is just how much Iran could pump in a sustainable manner, after years of sanctions and mismanagement of the energy sector drove international oil companies from the country.
Iran could perhaps export as much as 800,000 additional barrels a day, within a year “if they had a market to take their crude to,” said Robin Mills, head of consulting at Dubai-based consultancy Manaar Energy. “That’s just turning the fields back on again,” said Mr. Mills. “After that it would be flat or declining until they get some foreign investment.”
If Iranian oil signifiacntly adds to the flow of world oil, that’s likely to cause problems for other oil producers ranging from Saudi Arabia to North Dakota. But the biggest loser would likely be Russia....MORE
Which is almost exactly the point made by The Streetwise Professor:

The Biggest Loser, Iran Deal Edition: That Would Be Russia
I am following around Iranian negotiator Javad Zarif, arriving this morning in Geneva, and then going to Brussels next week. Don’t worry, I won’t go biking. Certainly not in the absurd getup that Zarif’s interlocutor-or should I say Sancho Panza-John Kerry did here on the shores of Lac Leman. The man is obviously immune to mockery.

I am resigned that Sancho-I mean John-and Javad (remember, they are on a first name basis!) will reach some sort of deal that will clear Iran’s path to becoming a nuclear power in the near-to-medium term, with all of the malign consequences that entails. Which leads me to contemplate some of those consequences.
One of which relates to the price of oil (and natural gas), the malignity of which depends on whether you are long or short oil (and gas). Of course, one of the countries that is very long oil (and gas) is Russia, and from its perspective the consequences of a deal will be very malign. Which makes one wonder if Putin (or whoever is really in charge these days!) will attempt to do something to derail it. (Or are they too distracted by the folly in Ukraine? Or by dog fights under the carpet?)

The crucial issue is how rapidly, and by how much, Iranian output will ramp up if a deal is reached. There is both a political dimension to this, and an operational one....MORE