Lifting sanctions from Iran will not reduce oil prices

By Vestnik Kavkaza

After signing agreements on the Iranian nuclear program in Lausanne, experts of the IEA predicted that next year oil prices might fall by $15 per barrel if sanctions against Tehran are lifted completely. According to the Agency, Iran can increase production by 700 thousand barrels daily in 2016.

However, Alexei Pushkov, head of the Russian State Duma committee for international affairs, believes that the Lausanne agreement will automatically result in a drop in oil prices: “Oil prices depend on many geopolitical factors. And the situation is quite controversial. There are not so many ways of delivering Iranian oil to Europe. Nabucco is not yet built and will not be built until 2017. Only 17% of Iranian oil had gone to Europe before the sanctions were imposed. Still, even if the delivery question is somehow resolved, Iran's share of the European market went to Saudi Arabia. And, obviously, Saudi Arabia will not give it up. Europe consumes so much oil that 2.5 million Iranian barrels will not play a crucial role. The sanctions have not been lifted yet. A year or more has to pass before Iran increases its deliveries to 2.5 million barrels.”

Another problem which can prevent Iran from exporting to Europe is Yemen, Pushkov says: “Saudi Arabia gets involved in the war. Saudi Arabia has a considerable Shiite minority that lives exactly in the area which has the main oil deposits of Saudi Arabia. The Middle East is on fire."

According to Pushkov, at the same time, the demand for oil in China is increasing, the Asian economies are moving towards greater oil consumption.

Moreover, by 2019-2020 the volume of shale oil extraction in the US will decrease. “The drop in oil prices also affects the American oil companies. When Iran comes on the market, it will also compete with American shale oil. That is why we will also see the decline of oil exports from the US,” Pushkov says, noting that Iranian oil can only partly compensate for the factors that would push for the increase in oil prices. “It is a lack of competence in economics to assess this situation only from the point of view of oil markets. Oil has always enormously depended on politics. And this will continue while the political situation in the Middle East remains highly unstable.”