The re-entry of Iranian crude oil exports into an already well supplied market is being watched closely by Middle East oil producers, but their full re-entry is likely to take "years rather than months," the Arab Petroleum Investment Corp. or Apicorp said Wednesday.
The introduction of significant Iranian barrels could force OPEC to consider re-introducing supply management measures, but this will not be straightforward, the Al Khobar-based investment company said in a research note, "as Iran has repeatedly signaled its desire to re-capture market share and that other OPEC players should create the necessary space."
Apicorp was created by the Organization of Arab Petroleum Exporting Countries as a commercially-focused financial institution to help provide financing options for the Arab energy industry.
Iran's ability to deliver on its production and export targets will therefore be watched carefully by the oil producers on the other side of the Persian Gulf for its impact on oil prices.
Some of Iran's targets for restarting shut-in production are "overtly political and will be difficult to deliver," Apicorp said.
Iranian officials have been bullish about their ability to deliver an additional 500,000 b/d of exports within six months of sanctions being lifted, and as much as 1 million b/d within a year. This would take total production to 3.8 million b/d.
There are a number of factors that lend some credibility to Iran's plans, not least the fact that the oil ministry has been preparing for a post-sanctions recovery since mid-2013, Apicorp said.
"The lifting of restrictions on the import of drilling equipment banned under the sanctions regime may also allow optimization of existing production in a way that is difficult to foresee," it added.
RECOVERY COULD BE SLOW
At the same time, there are factors that could slow the impact of Iran's upstream recovery, such as the condition of surface infrastructure.
The main export system in the Persian Gulf too could be a problem as sanctions have hindered access to spare parts for pumps, compressors and valves.
Attempts to use domestically produced equipment have not been entirely successful, Apicorp said.
There is also the speed with which international oil companies, which Iran hopes will manage new enhanced oil recovery projects at its mature fields, will be able to produce results.
"While preparation for this has been considerable, technical and commercial hold ups are likely to mean the fruits of IOC involvement will not be significant until the end of the decade," Apicorp said.
The report concludes that Iran's returning barrels could actually have a major positive effect for Middle East producers, helping smooth the loss of new oil supply from non-OPEC producers after 2017.
"A rebalancing away from non-OPEC oil to MENA's low-cost reserve base, combined with resurgent price-driven demand growth, will, Apicorp believes, help make room for at least some of Iran's additional barrels," it said.
