Very recently sanctions imposed by the EU and the U.S on Iran for decades now were lifted. Iran can once again sell more oil to global markets with the sanctions being lifted.
“Iran announced its full return to the global oil market by ordering an immediate increase in production, prompting warnings from fellow OPEC members that it risks prolonging the biggest price crash in a decade,” said a report in the Financial Time earlier this week.
As Iranian tankers loaded with 50m barrels of crude prepared to set sail following the lifting of US and EU sanctions, the Brent crude, the international oil benchmark, fell below $28 a barrel for the first time since 2003.
The head of Iran’s national oil company gave the instruction to increase output by about 500,000 barrels a day marking the end of years of economic isolation.
Since there is already more supply than demand, oil prices have already fallen 72% since their 2014 highs. The current oversupply is about 2%. This actually has a huge effect on oil prices even though it doesn’t seem like much. It doesn’t look like things will get any better if there is an addition of Iran’s extra 500,000 barrels, which equals a 0.5% increase in global production.
Since the countries import a lot of oil of a regular basis, low oil prices are great for countries like Singapore, Thailand, India, the Philippines and China. But its bad news for big oil producers like Brazil, Russia, Saudi Arabia, and even Malaysia.
There are three main reasons that Iran is willing to sell more oil at already low prices.
Iran needs to help with their pollution problem and jumpstart their lagging economy and it needs money to update and fix their infrastructure – bridges, roads, buildings.
Household goods, gadgets and clothing from well-known foreign brands are sought to be bought by the Iranian people. The general population didn’t have access to these because of economic sanctions, the rich and connected have always had access to these things. The average Iranian will need money to buy more stuff with sanctions against those now lifted.
An investigation by Reuters found that Iran’s Supreme Leader, Ali Khamenei, has a business empire valued at US$95 billion and Iran’s leaders are keen to support their vast business empires. The ruling class needs oil money in order to maintain their lifestyle.
Only three countries - Venezuela, Saudi Arabia and Canada have more oil than Iran. Iran has even more oil than Kuwait and Libya put together and has more oil than Iraq. So pumping oil is a quick and easy way for Iran to make money.
While experts are of the opinion that eventually the oil market will find equilibrium and supply will balance with demand. But with Iran contributing to the global crude oil production the only question is when that balance would be achieved.
(Source:www.forbes.com)
“Iran announced its full return to the global oil market by ordering an immediate increase in production, prompting warnings from fellow OPEC members that it risks prolonging the biggest price crash in a decade,” said a report in the Financial Time earlier this week.
As Iranian tankers loaded with 50m barrels of crude prepared to set sail following the lifting of US and EU sanctions, the Brent crude, the international oil benchmark, fell below $28 a barrel for the first time since 2003.
The head of Iran’s national oil company gave the instruction to increase output by about 500,000 barrels a day marking the end of years of economic isolation.
Since there is already more supply than demand, oil prices have already fallen 72% since their 2014 highs. The current oversupply is about 2%. This actually has a huge effect on oil prices even though it doesn’t seem like much. It doesn’t look like things will get any better if there is an addition of Iran’s extra 500,000 barrels, which equals a 0.5% increase in global production.
Since the countries import a lot of oil of a regular basis, low oil prices are great for countries like Singapore, Thailand, India, the Philippines and China. But its bad news for big oil producers like Brazil, Russia, Saudi Arabia, and even Malaysia.
There are three main reasons that Iran is willing to sell more oil at already low prices.
Iran needs to help with their pollution problem and jumpstart their lagging economy and it needs money to update and fix their infrastructure – bridges, roads, buildings.
Household goods, gadgets and clothing from well-known foreign brands are sought to be bought by the Iranian people. The general population didn’t have access to these because of economic sanctions, the rich and connected have always had access to these things. The average Iranian will need money to buy more stuff with sanctions against those now lifted.
An investigation by Reuters found that Iran’s Supreme Leader, Ali Khamenei, has a business empire valued at US$95 billion and Iran’s leaders are keen to support their vast business empires. The ruling class needs oil money in order to maintain their lifestyle.
Only three countries - Venezuela, Saudi Arabia and Canada have more oil than Iran. Iran has even more oil than Kuwait and Libya put together and has more oil than Iraq. So pumping oil is a quick and easy way for Iran to make money.
While experts are of the opinion that eventually the oil market will find equilibrium and supply will balance with demand. But with Iran contributing to the global crude oil production the only question is when that balance would be achieved.
(Source:www.forbes.com)