Global Economy Welcomes Iran Oil Return
By Ali-Reza Soltani
Iran’s nuclear deal with P 5+1 group heralds a new era for Iran’s and global economy. Iran is among countries enjoying high economic potentialities which have insufficiently contributed to boosting national economy through active and constructive links between Iran’s economy and the world economic system.
One may say that one of the main reasons behind the insistence by world powers on the conclusion of long drawn-out nuclear talks was for the purpose of bringing Iran back to the cycle of world economy and benefiting from its economic and even political potentialities with a view to helping stabilize international economic conditions in the strategically important Middle East region.
In fact, the important thing for the global economy is Iran’s fast return to the world energy market. Of course, such a return is vital for Iran and its economy. Meantime, what should be specifically taken into consideration is a quick but powerful return and not gradual and phased return.
International sanctions slashed Iran’s oil exports to below 1 mb/d. Iran was exporting 2.8 mb/d of oil before the sanctions were imposed. It seems that Iran’s quick and forceful return to oil market would be tough and costly, because revival of oil fields would take time, but this important objective is possible due to the preparation of psychological and hopeful grounds for petroleum industry activists on the one hand, and mobilization of financial resources and national facilities for activating the industry and implementing abandoned development projects for attracting foreign investment after the removal of sanctions, on the other.
Ministry of Petroleum has already announced that all sections of petroleum industry have been mobilized for boosting oil output and exports once the sanctions have been lifted. Other oil producers, particularly those who took Iran’s place during years of sanctions, are expected to resist Iran’s return and throw up stumbling blocks on the way of Iran’s return by resorting to political and psychological methods.
This issue will naturally fail to affect Iran’s serious determination for a strong return to oil market. Iran’s petroleum ministry has vowed to not take into account any hindrance and to push ahead with firm determination. In fact, the oil market and subsequently oil exporting countries will have to adapt themselves with Iran’s oil output and its return to the market. It will not be up to Iran to reconsider its plans to match the conditions and requirements of the oil market to head off further fall in prices.
A letter signed to OPEC secretary general by Iran’s petroleum minister during the last ministerial meeting of the Organization of the Petroleum Exporting Countries seriously unveiled this approach. OPEC and non-OPEC oil producers are expected to understand Iran’s conditions and requirements, and show necessary cooperation for Iran’s effective and low-cost return to the oil market through reducing their production and supply so that oil prices would not keep falling.
The important point is that Iran’s strong return to the oil market will be of help to the oil market security and stability besides contributing to the prosperity of industrial and financial sectors related to the petroleum industry.
With an increase in oil exports to world markets, other sectors of Iran’s petroleum industry will get out of stagnation. Chief among these sectors is National Iranian Tanker Company (NITC) which has the largest fleet in the world. Increased oil production and exports would be key to the return of this fleet to its period of glory. Removal of banking and industrial sanctions imposed on Iran’s petroleum industry and the return of foreign companies to Iran’s oil projects would help the prosperity of these sectors.
Despite concerns by some countries about oil production and supply, the world economy is widely expected to welcome and even support Iran’s planned return to the oil market. As it was said earlier, all objectives of Iran’s nuclear accord with the world powers are not of political and security nature. More strategic objectives like activation of Iran’s economy on the global scene and in particular the trading of Iran’s oil in world markets. This issue will be of help to international stability and security.
Over the past one century, oil has been Iran’s tool of communications with the world economy. When oil flows into Iran’s external trade, other economic potentialities of Iran will become active.
Iran’s economic potentials have remained intact in recent decades due to political challenges. Iran has an 80-million-strong attractive market. Moreover, due to its geographical position, Iran is a reliable transit route for the transfer of goods to Central Asian countries, Caucasus and even South Asia and West Asia. Iran is also among the top ten holders of mineral reserves in the world, not to mention its huge oil deposits. These advantages potentially create opportunities for investment in Iran, but they have scarcely been used so far.
Experts believe that Iran is potentially a haven for foreign investment due to its intact development potential. In their view, the resolution of political challenges will make Iran one of the best destinations for foreign investment in the near future. The factor strengthening this trend is Iran’s huge energy reserves, particularly oil and gas. In addition to high profitability and attractiveness for investment in Iran and supply of low-cost energy for new investment, other sectors have been a trust-building factor and guarantee for the return of foreign investors into Iran, both politically and economically. In fact, Iran’s active presence in the oil market and access to high oil revenues would motivate and encourage foreign investment in Iran, and the global economy will naturally welcome it.
On the other hand, the important thing for the global economy is the active and continuous presence of Iran in the global energy market. Sitting on around 158 billion barrels of oil, Iran is among the largest holders of oil reservoirs in the world. Iran also owns around 18% of the world gas reserves.
In other words, Iran sits atop the world’s largest hydrocarbon reserves. Therefore, without Iran’s oil, global markets are not experiencing realistic conditions and it causes volatility and uncertainty in markets due to psychological impacts.
The world economy could not ignore Iran’s oil and gas reserves and the global economy and oil markets are in the shadow of Iran’s oil reserves. Absence of Iran’s oil in world markets has turned into a specter looming over them, but Iran’s return to markets would stabilize the markets, make oil prices realistic and facilitate profitable investment in the upstream and downstream sectors and help create healthy conditions for rivalry between Iran and other leading oil producers.
In the end, what makes conditions conducive to the return of Iran’s oil to world markets is to help energy supply security and sustainability in the world. The more numerous and the more diverse oil supply sources in the world, the more balanced the market will be. Then, energy supply will be more secure. When the main sources of oil and gas distance themselves from markets for different reasons like war or embargo, oil markets will be exposed to serious threats.
Therefore, a return of Iran’s oil to global markets will be the factor of stability and security for the oil market and world economy.