Any nuclear deal between Iran and six world powers loosening sanctions against Tehran could flood an oversupplied oil market with more fuel, yet sectors like cement and steel would see a rise in demand as the country works to revitalize its economy.
Officials involved in ongoing negotiations said on Sunday they were close to a deal that would bring sanctions relief in exchange for curbs to Tehran’s atomic program, although no agreement was expected before Monday.
Analysts have focused largely on oil in determining the impact on international commodities markets if sanctions are lifted. The timing of any lifting of the measures that have cut Iran’s crude exports as well as a United Nations Security Council arms embargo and ban on its ballistic missile program have been among the major sticking points on reaching a deal.
But even with a diplomatic agreement this week it would take time for Iran to start exporting large amounts of crude again as the sanctions on exports would first need to be formally lifted and Iran’s crumbling oil infrastructure modernized.
“They can add about 200,000 bpd, which is not a significant volume,” said Nick Sharma, managing director at research & consulting firm IHS, estimating that it would take at least 18 months for Iran to add another million bpd to exports.
Japan’s government-affiliated Institute of Energy Economics said that if there was a deal Iran’s oil output might rise by 700,000-800,000 barrels bpd by the second half of 2016.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC) has some of the world’s biggest oil reserves. It exported almost 3 million barrels per day (bpd) of crude at its peak, before Western sanctions over its alleged ambitions to build a nuclear bomb saw shipments collapse to about a million bpd over the last 2-1/2 years.
A modest increase in available supplies would still add to an estimated 2.6 million barrels of crude being produced each day in excess of daily global demand, threatening to overwhelm on and off-shore storage capacities.
Analysts say a further swell in spot supplies will drag prices back to or below levels seen during the peak of the global financial crisis of 2008/2009.
IRAN NEEDS CEMENT, STEEL AND FOOD
While Iran’s oil potential is already largely priced into the market, analysts say other sectors such as cement, steel and agriculture commodities would also be affected.
“After years of neglect, should sanctions fall away, then their oil exports will be able to fund an infrastructure development plan that will need steel, power and cement,” said Ian Claxton, managing director of Thai ship owner Thoresen Shipping.
“They currently don’t have cement manufacturing capabilities so … bagged or bulk cement combined with increased steel for construction could well be the commodities most affected for bulk shipments with India, Middle East and China as origins,” he added.
Claxton said that Iran would also need to import more agricultural products like rice, wheat, corn and soy meal.
“The need for bulk wheat, corn and rice will increase as local GDP and disposable income increases, again from Thailand, India, the U.S.A. – if all is forgiven – and South America plus the Black Sea,” he said.
Iran also used to be a significant supplier of iron ore to China, although analysts say that due to global oversupply and record low prices that Iran IS unlikely to pursue a large-scale resumption in this sector.
Western powers have long suspected Iran of aiming to build nuclear weapons and using its civilian atomic energy program to cloak its intention – an accusation Iran strongly denies.