Iran sanctions: What is expected next?

Dismantling of Tehran’s nuclear programme and lifting of sanctions can have huge impacts on oil production and prices.

Bushehr nuclear power plant From the Files - Iran Deal
International sanctions on Iran's oil industry were tightened in 2012 over its nuclear programme [Majid Asgaripour/Mehr News Agency/Reuters]

Sunday is officially known as ” implementation day  when  Iran can begin to receive relief from debilitating economic sanctions.

To get here, Iran had to ensure it dismantled about two-thirds of its nuclear centrifuges and export or destroy a large portion of its enriched uranium.  

Under the agreement , non-US countries will now be able to purchase unlimited amounts of crude oil and gas. Iran will also regain access to the international financial system and currency markets.

Suffering economy

The sanctions relief comes at an important time for Iran. T he International Monetary Fund (IMF) recently predicted Iran’s economy would continue to suffer until international sanctions were lifted. That means economic growth in the country is predicted at near zero for the year 2015-16 and inflation is expected to remain high at about 14 percent.

Iran nuclear deal: How both sides are telling the story

“Prospects for 2016/17 are brighter owing to the prospective lifting of economic sanctions,” said the IMF. “Higher oil production, lower costs for trade and financial transactions, and restored access to foreign assets, are expected to lift real GDP to about 4 to 5.5 percent next year.”  

Oil exports

International sanctions on Iran’s oil industry were tightened in 2012 over its nuclear programme.

Last month , Iran said it aims to export an additional 500,000 barrels of oil a day once sanctions are lifted in an effort to reclaim its 2012 share of the oil market.

Oil Minister Bijan Zanganeh told reporters Iran plans to double its crude oil exports after sanctions are lifted. The country will also begin exporting an additional 500,000 barrels of oil a day six months later.

“Our exports will be doubled within a short period of time after the sanctions are lifted,” Zanganeh said. “We have no worries about selling the 500,000. God willing it will be realised, and I should not be concerned about price, others should be. Under no circumstances will Iran concede its market share to others. We don’t seek permission from anyone to use our rights.”

READ MORE:   The oil price, Iran and Saudi’s economy

Iran expects to attract $30bn in  investment in oil and gas fields  after offering new and more attractive contracts, Zanganeh said.

Iran, which has the world’s fourth-largest oil reserves, currently exports 1.1 million barrels of crude oil per day and hopes to get back to its pre-sanctions level of 2.2 million barrels a day. The country’s total production currently stands at 3.1 million barrels per day.

Global oil prices have plunged  by more than half over the last year to about $30 a barrel in recent weeks.

In the wake of falling prices, OPEC – led by Iraq and Saudi Arabia – has increased oil production and Russia’s output has also reached a post-Soviet era peak. As a consequence, global stockpiles have reached a record high.

The IMF said a resurgence in Iranian oil exports in 2016  could push crude prices down by $5-$15 per barrel.

Economic opportunities

Iran’s economy offers considerable economic opportunities for Western companies. The country is home to nearly 80 million people and is the world’s 17th most populous market.

How economic sanctions change the world

According to the British consultancy BMI Research, demand for computers, games machines, and mobile phones will increase from $9.5bn to $13bn by 2020. Anticipating a lifting of sanctions companies – including Hewlett-Packard, General Electric, Apple and Lenovo – have all been exploring retail opportunities in Iran.

Many Iranians currently live with a shortage of basic goods and services, and the country suffers from  double-digit inflation and an unemployment rate of nearly 11 percent.

Source: Al Jazeera