Iran has already revived its share in the oil market, so that its oil production and export have almost doubled and are on the verge of pre-sanction levels..
• There is room for Iran to further increase oil exports
Iran’s crude oil exports in post-sanctions era nearly doubled to around 2 million barrels per day and the exported volume was fully absorbed into the international market due to some events which took place in favor of Iran. As a matter of fact, at the time when concerns mounted over wildfires in Canada and political tensions in Nigeria and the cut in their oil exports, Iran’s oil helped stabilize the global oil market. That was somehow the country’s good chance, which made it able to raise exports when there was a shortage in the market. It is worth mentioning that before the sanctions, exports of Iran’s crude oil was hovering around 2.5 million bpd, i.e., there is room for the Islamic Republic to further increase exports thanks to the demand from its customers.
• War on market share will pull prices down
The situation under which Iran could successfully increase its market share was a temporary one. Those countries who were absent in the market are re-emerging and there would be a pressure on the market. When Iran’s exports level mounted, many predicted prices will fall, but there was even an increase in prices due to the dominant conditions. However, in the near future, there would be a challenge among exporters to save their market shares and there will be a pressure on prices, which may push them back to $30 or $40. If so, Iran’s exports, its market share and the offered prices would rely on the volume of crude oil it will sell via term or spot contracts. Of course, in contrast with the term contracts, the market provides no security and guarantee for the spot ones and the government cannot count on a precise volume of exports and the earned income.
• OPEC’s authority under question
As Oil Minister Bijan Namdar Zanganeh said in his recent speech, global oil prices are not his priority. He is trying his best to save the market share even if prices fall to $7 per barrel. Of course, he did not clarify if this is his own viewpoint or it is the government’s official stance. Regarding the Islamic Republic’s role and attitude over the past decades, it is necessary to mention that there had been two distinct schools of thought in the Organization of Petroleum Exporting Countries. Saudi Arabia and its allies including the United Arab Emirates, Kuwait, and Qatar believed in saving the market share and were even ready to sacrifice prices. On the contrary, Iran and a majority of OPEC members tended to defend fair prices. In recent years, however, Iran has shifted its attitude and is seeking to maintain the market share. Therefore, there should not be any expectation for balanced prices when the leading powers are fighting to preserve the market and are ready to sacrifice prices. In better words, the shift in Iran’s attitude has negatively affected the OPEC’s power and there is not any significant support for preserving the prices. So, the international body has lost its power. It cannot define a ceiling or quotas for its members and cannot monitor the market via managing the supply. It has lost its market and supply management authority.
• S. Arabia cannot further oil exports notably
Saudi Arabia has always had excess oil production capacity to influence prices. However, since the past two years, it has been utilizing its full capacity or the biggest part of it to preserve its market share. It seems that the Saudis cannot notably go further than this capacity. In an optimistic view, Saudi Arabia would only add around one million bpd to its current production level, which would not be considered sustainable regarding the capacity of their tanks. Any decision to further increase oil production level will incur damage to Saudi Arabia’s facilities and will indeed reduce its production level in the long run.
• OPEC, non-OPEC producers vying for foreign investment
In recent years, oil exporters, both OPEC members and non-OPEC countries, have been focusing on foreign investment to develop and renovate their facilities to maintain their production level and even to give it an increase on the way to guarantee their shares in the global market. Since the investments made so far require three to five years to bear fruit, those countries which absorbed such investments would have a better chance to add to their production level in the future. Of course, the investments would be financially justifiable if oil prices stand at reasonable levels and do not experience a dramatic drop because costs and revenues in an oil project are highly affected by global oil prices. However, under the current conditions that OPEC has lost its power of supply management, the prices are hit. Yet, the competition for developing oilfields and discovering new ones as well as attracting investments and technology is internationally taking place among oil producers.