STRATEGIC ANALYSIS

Impact of Iran’s Return for the Oil Market and India

May 2016
Volume: 
40
Issue: 
3
Commentaries

As was anticipated, the nuclear sanctions imposed against Iran were finally lifted on January 16, 2016 after it was certified by the International Atomic Energy Agency (IAEA) that Iran had met its obligations under the Joint Comprehensive Plan of Action (JCPOA) reached in July 2015 among six world powers. The deal has not only allowed Iran access to the billions of dollars of assets in international bank accounts that were frozen during the sanctions period, but will also possibly see thousands of barrels of Iranian crude added to its current exports of 2.9 million barrels per day (mb/d), with the possibility of 1 million barrels extra per day (mb/d) by the end of 2016.

The announcement of the end to the sanctions regime imposed on Iran, has reiterated what the markets have been predicting for a while—that any recovery in oil prices will not be taking place till the end of the year at least, if not longer. But more importantly, what will it mean for the oil market in general and for the Persian Gulf oil-exporting states in particular at a time when the oil market is witnessing a 12-year low with prices that have dipped under $30 a barrel? Interestingly, despite the slump, demand has been tepid at best, contributing to the dismal price scenario. Given that the market was over-supplied by around one mb/d already, why did Washington allow Iran to return to the oil market at a time when the US oil sector was adversely affected by the low oil prices?