One of the most consequential international agreements signed in decades – the nuclear deal reached with Iran in Vienna last week – may also prove to be a turning point in global energy markets. Once implemented, it brings one of the world's leading holders of oil and gas back into world markets.
Such a shift in energy affairs inevitably brings winners and losers – but even those put at a disadvantage can yet salvage some compensations. So who are the winners?
The Iranian government itself, and its people, of course, should benefit from a release of frozen funds, an increase in oil and petrochemical exports, and the gradual return of foreign investment to the energy sector.
That could help Iran regain its position alongside Saudi Arabia, Russia, the US and Iraq as one of the few truly decisive petroleum players. But over the past decade and more, Iran has been adept at sanctioning itself – at deterring foreign investment through political infighting and unrealistic contractual and price demands. Meanwhile, its economy will still face the headwinds of low oil prices.
Oil consumers will gain from those cheaper prices, probably US$5 to $10 per barrel lower than they would otherwise have been, as about 500,000 to 800,000 barrels per day return to world markets.
In the longer term, gas users may benefit from an expansion of Iranian exports. But gas is much more vulnerable than oil to Iranian policy missteps, and Iran faces a crowded international market. Those best-placed are Turkey, which already buys its gas, and its three likely next customers – Iraq, Oman and Pakistan. The other gas-short GCC countries could also benefit, if they can overcome the political obstacles to dealing with Tehran.
The losers are oil and gas producers, particularly those in a weak financial position or who have failed to diversify their economies.
With the fall in oil prices since last summer, the oil market had already shifted into a new mode. That marked the decisive end of the rising and high price trend that had mostly persisted since 2002.
Now, for the first time since it broke Venezuelan resistance in 1999, Saudi Arabia faces real rivals within Opec – Iran and Iraq, both major reserves holders desperate to increase production for their own domestic financial imperatives. With its output at record levels, Riyadh remains the dominant power, but shale oil and its own rising demand pose further problems.
Venezuela, Iran’s erstwhile ally while then presidents Mahmoud Ahmadinejad and Hugo Chávez were political and economic soulmates, looks particularly vulnerable. The positions of Algeria and Nigeria are not comfortable either. North American shale oil producers, who were showing some signs of revival as prices recovered to above $60 per barrel, face more tough conditions.
Russia and Qatar will suffer a double blow, from lower prices and more competition for their gas and oil sales. But Iran will not challenge Doha’s plum Asian liquefied natural gas markets for years, if ever. And Russia seems already to have moved to forestall Iranian moves into the stagnant European gas market. The eventual easing of the UN arms embargo on Iran also gives partial compensation to the Russians, with the prospect of future weapons sales.
For major oil companies, the impact will be negative, in terms of lower prices, but some – particularly the Europeans, such as Shell, Total and ENI – can offset this by striking new deals with Tehran. After their disappointments in Iraq, Iran will offer the only other accessible, low-cost, giant fields.
Even those disadvantaged must have realised that Iran’s petroleum was not likely to stay on the sidelines forever. For its neighbours, the deal presents grave political and security concerns, but also opportunities in trade and better relations. With efforts on all sides, the nuclear accord can produce many more winners than losers.
Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis.
Follow The National's Business section on Twitter
