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09:18, 28 March 2017 Tuesday
Update: 14:43, 17 October 2014 Friday

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Low oil prices to effect Iran more than sanctions
Low oil prices to effect Iran more than sanctions

Fall in crude oil prices will effect Iran's oil industry more than Western sanctions

World Bulletin/News Desk

Iran's desire to raise its oil revenues by building new oil field technologies may collapse on the free fall of crude oil prices, energy experts said.

"The fall in oil prices will have an enormous negative impact on the Iranian economy and its energy strategy," said Justin Dargin, Middle East energy expert from Oxford University. 

"The recent drop in oil prices will likely impact the Iranian economy much more than Western sanctions have over the past few years," Dargin added.

He pointed out that President Rohani came to power with the promise of having Western sanctions removed and thereby improving the lives of ordinary Iranians. However, the decline in the international price of oil is having vast repercussions throughout the macro economy and is weakening Iran’s hand in its negotiations with the West over its nuclear program and the possibility of lifting of sanctions.

As crude prices have dropped much below Iran's breakeven oil price to stabilize its economy of slightly over $100, Dargin said, "Iran may be forced to charge more for domestic sales of oil, which would anger much of the middle class as they have been squeezed by years of economic mismanagement and Western sanctions."

Lately, Iran has tried to broaden its oil clientele by diversifying its oil products with new technologies in Iranian oil terminals.

Pirouz Mousavi, managing director of Iran Oil Terminals Company said in early October that a new technology will be used for the first time in Iranian oil fields which will mix heavy and light oil. 

The stark decline in the price of oil, however, is likely to impact the amount of revenue that Iran funnels to research and development for advanced oil field technology, Dargan explained.

“What will happen is that Iran will jointly produce oil extraction technology with some of the larger Asian oil companies," he said.

 The fall of the Brent crude prices, due to surplus supply, will likely drop further as there is no signal from the biggest producer, Saudi Arabia, to cut production.

Dargan said that Iranian anger at Saudi Arabia is likely to be on the rise, explaining that Iran blames Saudi Arabia for its politically-motivated increased production to keep prices at a low level to “punish” countries such as Iran for its geopolitical stance in the region.

Gas prices

Falling oil prices across the world are expected to bring down global gas prices within six months, experts said Friday.

Arif Akturk, Gas Group Leader of Petroleum Platform Association told Anadolu Agency that Turkey’s long term gas import contracts are indexed to crude oil prices. He added that decreasing oil prices will cause gas prices imported by Turkey's Petroleum Pipeline Cooperation, BOTAS, to also decrease.

Akturk underlined that the price of gas imported by the private sector in Turkey depends on the negotiations undertaken with the countries that the gas was imported from.

As of 2013, Turkey pays Azerbaijan $349 for every cubic meter of gas, and pays $429 to Russia for the same amount while Iran sells gas to Turkey for $507 per cubic meter. 

“Oil prices will likely begin to reflect a decrease in gas prices in four to six months,” said Benjamin Gage, associate director of IHS Energy Insight.

Gage said countries will continue to export liquefied natural gas, LNG, even if prices are lower, as exporters with long-term contracts with LNG buyers, such as Sonatrach with BOTAS, are contractually obliged to honor the volume of their contract. 

Gage in response to questioning on other impacts of the decrease of oil prices on global gas markets, said that a decrease in global economic activity will challenge the trade of LNG amongst its major fuel competitors - oil and coal. 

“LNG prices for the short-term, which are still a much smaller share of the global market compared to long-term contracts, are likely to retreat to lower price levels if a reduced oil price environment is sustained,” he added.

 



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