Iran is about to get a refresher course in the capricious nature of the oil market and the durable nature of economic sanctions.
When sanctions were tightened in 2012 and took nearly 700,000 barrels a day of Iranian crude oil off world markets, the price of an average barrel of OPEC oil that year ran $109.45.
But as sanctions ease, Iran is poised to boost its sales of oil in the middle of a massive glut, with the OPEC benchmark average barrel selling for just $25.
The result will be sharply lower revenues for Iran. The glut will force a slower ramping up of Iran’s oil fields and exports than Iran had planned, and it could make international oil companies more wary and tight-fisted about making new investments.
Moreover, the lifting of sanctions on Iran could heighten tension over reestablishing production quotas in OPEC – especially between Iran and Saudi Arabia, the cartel’s co-founders and longtime rivals. Eager to protect its market share, Saudi Arabia has been pumping at high levels.
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