NCPA - National Center for Policy Analysis

Iran Oil Production Could Shake-Up OPEC

April 10, 2015

Saudi Arabia, the world's biggest oil exporter, wants to keep output up to pressure high-cost producers such as U.S. shale drillers. Moreover, they will need to keep pumping out more oil to compete with Iran, who will soon enter the mix now that their nuclear energy negotiations are nearing completion. Iran's reentry into oil signals some important shifts. They include:

  • Preliminary expectations of Iran's contribution to the market are 300,000 barrels per day.
  • At full production capacity, Iran is expected to generate over 800,000 barrels per day.
  • The U.S. Energy Information Administration (EIA) projects a decrease in oil prices by as much as $15 per barrel when Iran is at full production capacity.

Pressure is now on Saudi Arabia, a country that has increased its production to lower prices and maintain market share at the expense of other Organization of the Petroleum Exporting Countries (OPEC), most famously, Venezuela. Many members of OPEC cannot maintain low gas prices as their governments draw significant amounts of revenue from oil taxes. This problem will only worsen when Iran enters the mix, since other OPEC countries will have to cut their production and lose revenue or maintain their production and risk lowering the price of oil even more.

Political tensions are also high, as Saudi Arabia and Iran back opposite sides in the armed conflicts within Yemen and Syria.

Source: Grant Smith and Anthony Dipaola "Iran Oil Deal to Fan OPEC Discord as Saudi's Defend Market Share," Bloomberg, April 9, 2015. 

 

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