Iran, Oil and Geopolitics Live on Voice of Russia

February 15, 2014

Iran and the world powers took a step forward in solving a long dispute over Teheran’s nuclear program, alleviating some of the economic sanctions that had been imposed on the country. With oil being its prime export Iran is now gradually starting its return to international trade. OGE Editorial Director Pat Davis Szymczak comments on Iran's re-entry into the global oil market in an interview with Pavel Orlov and Miguel Francis on Voice of Russia. Recorded live on Jan. 21, 2014 in Moscow.

Miguel: Iran and the world powers took a step forward in solving a long dispute over Teheran’s nuclear program, alleviating some of the economic sanctions that had been imposed on the country. With oil being its prime export Iran is now gradually starting its return to international trade. What are the first reactions of the market? Joining us is our very own business correspondent Pavel Orlov.

Pavel: Brent futures eased towards $106 a barrel on Tuesday. Specifically, Brent crude fell 4c to $106.31 a barrel, after dropping to a low of $105.81 in the previous session. At the moment as I can see on Bloomberg the WTI is just gaining quarter of a per cent at $94,6 a barrel, Brent crude is gaining more than 1,3% and actually is very high at a $107,71 a barrel. The renewed oil supply from Iran will clearly put downward pressures on oil prices. Logically, Iranian re-entry would drive the prices down. Is this the general expectation or are there forces that would keep propping the oil prices up?

Patricia: That’s a good question. If you were looking at the equation just in terms of supply and demand the expectation would be that the prices would be driven down. I don’t however believe that would be necessarily happening over the long term. First, you have to look at the fact that during this agreement – this agreement is only for a period of six months – and during that interim agreement the Iranians would be exporting the same million barrels a day that they are currently exporting.

The additional revenue that they are expected to earn – something in the neighborhood of 1.5 billion – would be coming, largely, from petrochemical sales, gold trading and basically a renewed ability to act with foreign financial firms. Now that’s basically looking at the supply and demand factor. The second thing which I believe would affect the situation long-term is the political factor. First of all, the timing of bringing around to the table and this interim 6 month agreement seems to be clearly tied in with the talks in Geneva regarding Syria.

The players who would be affected by the declining oil prices are all involved in that, for example, Russia. Russia has been very significant in the entire Syrian situation and is involved in the Geneva talks. The Russian budget, for instance, in 2014 has been pegged to $101/barrel. Where the oil price goes can be totally influenced by the Saudis and can be