How the Iran Nuclear Deal May Impact Iran’s Approach in OPEC

Ongoing nuclear diplomacy between the Islamic Republic and the P5+1 has both Iranian and non-Iranian players in the international oil market focused on the prospects for Iran’s re-emergence as a major oil producer and exporter.

For most market players, the ideal scenario is one in which conclusion of a comprehensive nuclear deal between Iran and the P5+1 leads to a lifting of all sanctions against the Islamic Republic.

–Of course, even if a deal is reached, its implementation—especially in terms of sanctions relief—could be messier and more protracted than this ideal scenario would posit.

–And, as we’ve argued previously, if negotiations fail to produce a final nuclear agreement, Tehran calculates that Iranian willingness to conclude what the rest of the world besides America, Britain, France, and Israel would consider a reasonable deal will make it easier for other countries to rebuild and expand economic ties to the Islamic Republic—and make those countries less willing to continue accommodating U.S. demands for compliance with its (grossly illegal) secondary sanctions.

In any event, it seems likely that Iran will be putting more of its oil onto international markets.  Against this backdrop, we are pleased to publish below a piece by Erfan Ghassempour, “The Geneva Nuclear Deal and Its Effect on Iran’s Approach in OPEC.”  Erfan is a young Iranian lawyer who studied at Tabriz University and is now finishing his masters in international law at Allameh Tabatabai University in Tehran.  He works for Sinopec International Petroleum Exploration and Production Corporation and also writes as an independent energy analyst.  We are pleased to welcome him as an Going to Tehran contributor.

How the Iran Nuclear Deal May Impact Iran’s Approach in OPEC

by Erfan Ghassempour

Iran is thinking seriously about how to put its crude oil back on the market, and—following the November 2013 Geneva interim agreement on Iran’s nuclear program—is planning for a future when sanctions no longer hamper its oil industry.  The country is changing its contracts for the exploration, development, and production of its oil and gas resources to tempt major international oil companies to return to its petroleum sector.  Iran’s Petroleum Minister, Bijan Namdar Zanganeh, has expressly invited seven oil giants to invest in Iran after sanctions are lifted.

Iranian ambitions are also reflected in Tehran’s approach to the Organization of Petroleum Exporting Countries (OPEC).  At the most recent OPEC meeting, held in December 2013—in the wake of the Geneva nuclear deal—Zanganeh made a powerful impression, warning other members to make room for Iranian crude.  One way or another, he declared, Iran plans to increase its oil output to four million barrels per day (bpd), even if prices decrease to twenty dollars per barrel.  (Some analysts think that the highest output Iran could achieve in the near-to-medium term after the lifting of sanctions would be 3-3.5 million bpd—but even that would mean a significant increase in Iranian oil exports, which, according to Zanganeh, are now at 1.5 million bpd.)

Iran’s reemergence on the international oil scene comes at a time when developments in other OPEC member states are increasing the likelihood of an appreciable rise in Middle Eastern oil production—e.g., Iraq’s security is improving, and strikes and rebel attacks seem to be ebbing in Libya.  Zanganeh argues that, even in this context, Iran’s return to the oil market should have no negative impact on prices.  As he told the OPEC Bulletin, over the years other OPEC members had “gone out of the market” for some time, “but when they returned to the market, OPEC knew how to deal with the situation—to create room to maintain the extra capacity, so that these countries can have a good return and for it not to have a bad impact on prices.”

At least on the surface, other OPEC players responded positively to Zanganeh’s message.  OPEC’s secretary general, Abdalla el-Badri, welcomed Iran’s return to the market, denying any concern at this prospect.  Even Iran’s biggest political and oil rival, in the region, Saudi Arabia (the biggest oil producer in OPEC), welcomed an increase in Iranian production.  Saudi Arabia’s Oil Minister, Ali Naimi, told reporters that he did not see a price war on the horizon:  “They are welcome, everyone is welcome to put in the market what they can; the market is big and has many variables—when one comes in, another comes out.”  Mr. Naimi also stated, “I hope Iran comes back [and] produces all it can.”

Iran is also stepping up its cooperation with Iraq on oil issues.  At the December 2013 OPEC meeting, Iraq vigorously defended Iran’s plans to raise oil production, while also making clear that Iraq would remain outside OPEC’s quota system and that other members should decrease their production, if necessary, to make room for both Iran and Iraq.  (Iraq’s Deputy Prime Minister for Energy, Hussein al-Shahristani, has announced that his country intends to increase its oil output to nine million bpd by 2020, partly through cooperation with Iran.)  Recently, Iraq has been helping Iran to develop new contracts to attract more foreign investment to its oil sector.  Baghdad and Tehran have also established a committee to oversee the joint exploitation of fields lying astride the Iranian-Iraqi border.  Some analysts think that the two countries are drawing closer to maximize their relative power and influence—on oil-related issues as well as on strategic and political matters—vis-à-vis Saudi Arabia.

As the six-month deadline for the Geneva interim deal approaches, Iran’s determination to produce more crude becomes stronger.  If a permanent nuclear deal is reached at the end of six months (that is, on or around July 20), it would mean that sanctions will be lifted and Iran will renew its upstream and downstream activities.

So far, the interim deal has been well implemented.  The International Atomic Energy Agency affirms that Iran is fulfilling its commitments; the West has returned some of the Iranian funds that have been frozen in Western banks and has eased some sanctions.  None of the parties has been motivated to breach the interim agreement.  On the Iranian side, the political and economic atmosphere in Iran suggests that Iranian officials are willing to continue this approach; Supreme Leader Ayatollah Seyed Ali Khamenei has publicly expressed his support for the ongoing nuclear negotiations.  On the American side, while some political factions in the United States want President Obama to increase pressure on Iran, this seems more a matter of political posturing than serious action.  At this point, there is little appetite in the United States for torpedoing nuclear diplomacy with Iran.

Iran knows that any improvement in its oil industry is dependent on the nuclear talks.  As the negotiations progress, Iranian officials are playing a bolder role in the region and in international organizations to which Iran belongs.  At the next OPEC meeting in June, Zanganeh is likely to take an even tougher approach than at the previous meeting in December.  It seems that other OPEC states are progressively accepting the inevitability of Iran’s return to the international oil scene.

There are two ways in which OPEC can handle prospective increases in Iranian, Iraqi, and Libyan output:  other members—especially Saudi Arabia—can decrease production to make room for increased production by others, or the organization can raise its current 30 million bpd production ceiling.  Politically as well as economically, much will hinge on what OPEC decides.

 

36 Responses to “How the Iran Nuclear Deal May Impact Iran’s Approach in OPEC”

  1. Jay says:

    I do not share the optimistic outlook of Mr. Ghassempour. However, other market forces at work may change the energy supply/demand landscape to the extent that would enable Iran to increase production. When energy begins to flow eastward to China, Europeans will have to return to their senses – or, live with economic depression!

    http://rt.com/business/159880-gazprom-china-russia-cnpc/

  2. kooshy says:

    I don’t think American planers mind if a few million barrel of adversaries oil is off the market, I actually believe that’s what the American policy is. If it wasn’t for above $100.00 per barrel oil there were no encouragement or justification for all the “new oil” and a possible resulted hope for future energy security of the west by utilizing new technics of explorations likes of deep sea, fracking or sand oil. All this new oil is much more expensive to extract that anything comes out of the wells in Iran, Iraq and N. Africa, so it makes sense to knock some cheap oil out of market keep the price up while the R&D is done and the new methods initial cost is absorbed.

  3. kooshy says:

    One can’t notice that a single barrel of oil has been taken off production from American oil producer clients or direct American market suppliers,so far all oils that is no longer available to the market are from sanctioned unfriendly countries or unstable in transition countries like Libya and Syria or Iraq obviously this has added a premium to price of oil while that premium is rather not too expensive for petro dollar fiat currency which can get offset easily by a printing press

  4. kooshy says:

    One can’t notice that a single barrel of oil has been taken off production from American oil producer clients or direct American market suppliers,so far all oils that is no longer available to the market are from sanctioned unfriendly countries or unstable in transition countries like Libya and Syria or Iraq obviously this has added a premium to price of oil while that premium is rather not too expensive for petro dollar fiat currency which can get offset easily by a printing press

  5. Jay says:

    Rouhani will be at CICA. Let’s see if this talk of eastward shift amounts to anything.

    http://www.asianews.it/news-en/Putin's-visit-to-Shanghai-marks-an-eastward-shift-for-Russian-economy-31118.html

  6. Jay says:

    More specifically, even a loose banking and energy pact will begin to erode the sanctions regime in the long run.

  7. James Canning says:

    If Iranian oil comes onto the world market by a further 2 million barrels per day, I would expect the Saudis to cut their propduction, to ensure price stayed at at least $80 (per barrel).

  8. kooshy says:

    Nasser says:
    May 19, 2014 at 7:13 pm

    Is this preparation to justify an asset freeze on china’s 2 trillion deposits and investments on US TREASURIES? If so I love it.

  9. Nasser says:

    Western commentators are adamant that Putin is travelling to China hat in hand desperate for a deal. Nikolas K. Gvosdev and Dmitri Trenin paint more realistic pictures of the situation.

    “Get Ready World: China and Russia Are Getting Closer”
    http://nationalinterest.org/feature/get-ready-world-china-russia-are-getting-closer-10494

  10. Nasser says:

    From Dmitri Trenin

    “Russia and China: The Russian Liberals’ Revenge”
    http://carnegie.ru/eurasiaoutlook/?fa=55631

    “Russia faces tough road to success”
    http:// usa.chinadaily.com.cn/opinion/2014-05/19/content_17516293.htm

  11. Nasser says:

    kooshy says: May 19, 2014 at 7:46 pm

    I agree that Iran, Russia and indeed the entire non Western world would benefit if Washington becomes crazy enough to confront China and a multi polar world thus emerges.

    But the West has made enemies out of too many already and I don’t think they too eager to make a truly terrifying new one just yet.

    And so I believe China will continue to get the better of the two in its interaction with the West and will manage to suck off more of their technology and jobs.

    As far as the moral authority of the West goes:
    “http://news.xinhuanet.com/english/china/2014-05/20/c_126520552.htm” – Well the pot is calling the kettle black and the whole world is laughing

  12. Bussed-in Basiji says:

    Jenabe Ghassempour,

    What if there is no deal?

    Also this sentence: “Iran knows that any improvement in its oil industry is dependent on the nuclear talks.”

    Is this sentence a statement of fact or your opinion? It all depends on what “improvement” means, doesn’t it?

    How does this sentence harmonize with this sentence by the SL:

    “I have always been and continue to be an advocate of innovation in the area of foreign policy and negotiations. I have always advised officials to do their best to show innovation in the area of foreign policy and international interactions. But the needs of the country and certain issues such as sanctions should not be tied to negotiations. Officials should resolve the issue of sanctions in a different way.”

    http://english.khamenei.ir//index.php?option=com_content&task=view&id=1907&Itemid=2

  13. Bussed-in Basiji says:

    Guess who the “technocrats” are that SL is speaking about…yep, Bijan-joon is among them…

    It seems the whole nuclear negotiations stuff was about getting Bijan-joon and his friends back into the business of selling crude oil- contrary to the expressed command of the SL.

    Its seems “velayat-madari” only goes so far for some- especially if billions of dollar of commissions are at stake when the oil giants want to return to Iran.

    You see it’s not that complicated- Anglo-American oil companies want to return to Iran- you know to “improve” the oil industry (yeah, right)- and they need “technocratic”, “ba-savad”, “English-speaking” “friends” to “facilitate”.

    Who better than Jenabe Zarif, Adeli and company.

    Hey, that’s a good company name and slogan:

    “Zarif, Adeli and Company. Market Leader in Facilitating Iranian Oil and Gas.”

    http://english.khamenei.ir//index.php?option=com_content&task=view&id=1760&Itemid=4

    “Of course, as I said a few months ago, the Americans expressed joy and said that I have confessed to the effect of the sanctions. Yes, the sanctions have not been inconsequential. If they are happy about this, let them be happy. After all, the sanctions have had an effect, which is because of an essential flaw that we are suffering from. The flaw that our economy is suffering from is that it is dependent on oil. We need to distance our economy from oil. Our governments should include this among their basic plans.

    Seventeen, eighteen years ago, I told the government of that time and its officials that they should act in a way that we could shut down our oil wells whenever we wanted to. The so-called “technocrats” smiled in disbelief, as if to say, “Is that even possible?” Yes, it is possible. It is necessary to follow up the issue, take action and make plans. When economic plans of a country are built on a particular base, the enemies of that country will target that base. Yes, the sanctions have had an effect, but not the effect that the enemies wanted. I will explain this issue later on. This is all I wanted to say about the issue of economy.”

  14. Bussed-in Basiji says:

    Better name: “Zarif, Zanganeh, Hashemi, Mar’ashi, Adeli Société anonyme”

    Wouldn’t want the folks back home to realize we are business partners with kafer, zionists and takfiris…all for the “improvement” of Iran.

    And if we bring back “shir o khorshid” on the flag like Jenabe Yunesi recently suggested, and if we “don’t prevent people from seeing beautiful women” as Akbar-joon recently said (I shit you not) it will be as if…well…as if the revolution never really happened.

    The only that would have happened is that the Mohammad Reza shah’s cronies were replaced by Akbar shah’s cronies.

  15. Bussed-in Basiji says:

    شریعتمداری: خوشبختانه مذاکرات بی‌نتیجه‌ ماند

    http://www.jahannews.com/vdciruappt1aqy2.cbct.html

  16. kooshy says:

    A most read and enjoy, the best ever from Dr. Marandi

    China, Iran and Russia: Restructuring the global order

    Powerful countries are alarmed by the threats against Russia as they see themselves as potential future targets.

    Last updated: 20 May 2014 10:56
    Seyed Mohammad Marandi

  17. fyi says:

    kooshy says:

    May 20, 2014 at 10:29 am

    Most of that article is really addressed to US and EU; warning them of the consequences of their actions in giving impetus to the development of alternative financial and commercial institutions.

    But that is an empty threat at the moment, it takes years to develop such alternative mechanisms that are as reliable and as robust as those mechanisms domiciled in US or EU.

    In point of fact, for Iran and the Shia Crescent, they need to develop their own mechanisms – the Cold War against the Shia Crescent will not end any time soon and any alternative Chinese or Russia mechanisms are almost certainly not going to be open to Iran.

    Very many Iranians still do not seem to have grasped that they are in a very long struggle against the Axis Powers as well as the Russia Federation – who wishes to suppress or otherwise dismantle the emergent strategically independent power in the Near East.

    Iranians must develop a strategy for economic and trade integration across the Shia Crescent as well as other states who might be interested in it – Armenia, Afghanistan, Pakistan and others.

  18. Jay says:

    kooshy says:
    May 20, 2014 at 10:29 am

    I read Dr. Marandi’s views yesterday – sensible. However, in my view, practical realities on the ground, rather than any distaste for styles, will dictate the pace of changes to come.

    Russia, having to face a financial blockade that it once tacitly supported against Iran, has developed a new appreciation for the power of the monopoly it once supported. In the latest communique from China, where Putin is visiting, we see:

    “The parties stress the necessity to… reject unilateral sanctions rhetoric,” Economic restrictions applied as punishment are no better than financial aid to forces that seek “a change in constitutional system of another country,”

    Unilateral sanctions is precisely what both China and Russia tacitly supported when it was instituted against Iran! What is different now is the Ox that is being gored! Russians are motivated, but for China to support an alternative financial system, it must first extricate herself from the one she is deeply embedded in. There are spoilers, say India. And, there is the unwinding that BRICS nations, for example, will have to support. This will take time – a lot of time – but, it is a step in the right direction.

  19. ordinary says:

    kindly provide a link to Dr. Marandi’s article.

  20. James Canning says:

    “60 Minutes”, the CBS News TV programme in America, had an interesting piece on Iran this past Sunday. Filmed in Tehran last month. Well worth watching.

  21. James Canning says:

    Saudi Arabia will spend $1.8 billion on consruction of more than 100 new art & archaeology museums. Will boost understanding of early history of the Arabian Peninsula, and benefit tourism.

  22. James Canning says:

    Nasser,

    Russia and China have been negotiating for ten years regarding the price for Russian gas Gazprom will charge. Financial Times reports today this issue still has not been resolved.

  23. James Canning says:

    If Russia keeps Crimea, the seabed of the Black Sea off Crimea will enable Gazprom to build a more direct line to Bulgaria (for South Stream gas project). Russia will have a common border with Rumania (in Black Sea bed).

  24. kooshy says:

    Jay / FYI

    The significance of Dr. Marandi’s article in Aljazeera (2 second one in last couple of month) is not on threatening the west with a new world order (which actually, is very advance in making compering to world of 2001)
    But to me rather the significance is that Aljazeera (a western supported and allowed to broadcast / publish semi major media) for the second time is allowing him to point out the western hypocrisy on democracy, human rights etc. with regard to current world order. He used a fun to read style pointing their standards. Aljazeera was made and is a steam release valve for young Arab street, is becoming necessary to temporary open the valve a bit wider, that’s why Marandi’s point of views gets to be published for now.

  25. Karl.. says:

    Norman Finkelstein taught western ideas in Iran
    http://www.youtube.com/watch?v=5ZmKYk4fw8Y

  26. Jay says:

    Book by former Iran official looks at Quds Force leader, Saudi king (by Barbara Slavin)

    with the following interesting quote attributed to Rouhani w.r.t West’s behavior

    “Mousavian also quotes Hassan Rouhani, then national security adviser, now Iran’s president, using a Farsi expression after Iran helped overturn the Taliban only to be put on US President George W. Bush’s Axis of Evil: “As soon as their donkey passed the bridge [meaning, as soon as they got want they wanted] they will go back to their previous hostile position.””

    http://www.al-monitor.com/pulse/originals/2014/05/mousavian-book-details-iran-overtures-united-states-saudi.html

  27. Jay says:

    kooshy says:
    May 20, 2014 at 2:21 pm

    Okay, I understand what you had in mind now.

    Incidentally, there is no need to threaten the West with a new world order. The West is doing the “job” by herself – admirably. The simultaneous and systematic step-by-step dismantling of internal and external pillars of justice and equality is in full swing. To this end, one “change” Mr. Obama has brought to the scene – one that no one expected – is progress toward dismantling laws that reside at the very core of personal freedoms and the US constitution. His creation of the security state and appointment of sartapies is now the “new world order” – one that he hopes will soon be solidified. FYI’s use of the term “mad king” is truly apt because these folks have only one allegiance and that is to their ideology of being “masters”.

  28. James Canning says:

    According to the Sunday Times (London)in a May 11th report, “London has 72 residents whose fortune is more than [one billion pounds], more than Moscow (48) or New York (43).”

  29. James Canning says:

    Jay,

    A moron occupied the White House, when the US double-crossed Iran so very stupidly. Condi Rice helped dupe GW Bush.

  30. Richard Steven Hack says:

    Gareth Porter on Russian Manipulation of Reactor Fuel Belies US Iran Argument
    http://original.antiwar.com/porter/2014/05/19/russian-manipulation-of-reactor-fuel-belies-us-iran-argument/

    Iran is correct not to rely on Russia for anything.

  31. Richard Steven Hack says:

    Trita Parsi on Iran and the US: An inverted prisoner’s dilemma
    http://www.aljazeera.com/indepth/opinion/2014/05/iran-us-an-inverted-prisoner-di-201451613010914416.html

  32. Richard Steven Hack says:

    Paul Pillar on Saudi-Iran Thaw Troubles the Neocons
    http://consortiumnews.com/2014/05/17/saudi-iran-thaw-troubles-the-neocons/

  33. Richard Steven Hack says:

    After Resigning, Brahimi Says Iran’s Syria Plan ‘Worth Discussing’
    http://www.usnews.com/news/articles/2014/05/19/after-resigning-brahimi-says-irans-syria-plan-worth-discussing

  34. James Canning says:

    RS Hack,

    The US very stupidly failed to back Russia when Russia sought to maintain control of the fuel cycle for all of the Bushehr nuclear power plants. Spectacular foolishness on the part of the US.