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Experts: Lifting of anti-Iran sanctions to have only short-term impact on oil prices

January 18, 2016, 18:23 UTC+3 Alexandrova Lyudmila

MOSCOW, January 18. The fall in world oil prices caused by reports on the lifting of sanctions against Iran is a temporary factor of speculative nature and the market is expected to stabilize in the near future, Russian experts say.

Iran still needs to develop the oil industry and invest huge funds in it to achieve a sharp and stable growth in oil deliveries, which will require a lot of time, the experts say.

EU diplomacy head Federica Mogherini and Iranian Foreign Minister Javad Zarif made a joint statement in Vienna on Saturday evening that the sanctions war related to Iran’s nuclear program was over.

In addition to the cancellation of the sanctions imposed by the UN Security Council, the European Union announced about lifting its own economic and financial restrictions against Iran. Specifically, the European Union lifted full embargo on the import of Iranian crude oil and gas into Europe, as well as its ban on trade operations of EU member states with the Central Bank of Iran.

At the same time, the lifting of the US sanctions on Iran will allow Tehran to regain access to its frozen assets worth about $50 billion. However, about the same sum will still remain frozen.

As Iranian Oil Minister Bijan Namdar Zangeneh has said, Iran intends to increase crude oil output by 500,000 barrels a day immediately after the sanctions are lifted and by another 500,000 bpd within six months after the restrictions end (the Islamic Republic currently produces about 2.9 million barrels of crude oil a day). Most analysts believe that the real increase in Iran’s oil production will be less than it has announced.

The removal of anti-Iranian sanctions was an expected event and the market was in principle ready for this, Head of the Analytical Department at the National Energy Security Fund Alexander Pasechnik told TASS.

"But the legal statement of this fact has nonetheless made the market nervous as it has reacted with the Brent crude price falling below $28 per barrel. It is difficult to tell how long these low oil prices will stay. But the Iranian factor is not the main thing. The point is that speculators are simply using any occasion now to make this situational depression even deeper," the expert said.

Oil prices will stabilize sooner or later but before that they may plunge even more dramatically, the expert added. "Possibly, to $20 [per barrel] as the biggest investment trusts predicted. The thing is that they are provoking this situation themselves as they are controlling the [commodity] exchanges."

According to the expert, speculators are using any occasion to slash oil prices as much as possible. "They are doing this to enter the market at lower positions to gain as much as possible when it switches to a different phase."

As a whole, Iran’s potential is becoming impressive but "it will largely substitute the oil of Saudi Arabia, which took up Iran’s niche in Europe when the sanctions were introduced," the expert said.

That is why, oil market niches will be inevitably re-distributed inside the Organization of the Petroleum-Exporting Countries (OPEC), he added.

"Besides, Iran has problems with saturating the domestic market with oil products. That is why, you can’t talk about the emergence of any additional large volumes on the market. This more looks like a PR action from Iran. They will also hold back large volumes for external interventions until the prices enter the phase of stabilization. That is, no one wants to sell at less than $30 [per barrel]," the expert said.

Leading researcher at the Russian Institute of Strategic Studies Vladimir Blinkov also notes the special role of international speculators in the growth of oil prices after the lifting of sanctions on Iran.

"It is all these international funds that are pushing through these prices. Now they can maximally fall to $25-26 per barrel and then return to $30-32," he told TASS.

"There are no causes for a sharp fall in prices for long. This is because the current Iranian reserves have long been contracted and sold."

"The money freed from the sanctions will, of course, help Iranians gradually build up oil production but now their production cost is $30 per barrel, i.e. higher than the current prices. Besides, Western companies will hardly actively enter Iran because it is more difficult to agree with them than with Iraq."

If speculative factors are now dominating the market, "then fundamental factors, namely, production and demand, will subsequently come to the fore," the expert said.

"Demand traditionally falls in the first quarter and, therefore, the price may rise to $30-32 in the second quarter. By summer, it will start to rise steadily and may reach $55-60 per barrel by the end of the year," he said.

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