Iran Could Get Five Times More From Oil Exports by Year-End

Updated on
  • Sanctions relief in nuclear deal gives Iran access to cash
  • Iran plans to add 1 million barrels a day of oil sales in 2016

Iran could get more than five times as much cash from oil sales by year-end as the lifting of economic sanctions frees the OPEC member to boost crude exports and attract foreign investment needed to rebuild its energy industry.

The Persian Gulf nation will be able to access all of its revenue from crude sales after the U.S. and five other global powers removed sanctions in return for Iran’s curbing its nuclear program. The fifth-biggest producer in the Organization of Petroleum Exporting Countries had been receiving only $700 million of each month’s oil earnings under an interim agreement, with the rest blocked in foreign bank accounts. Iran is striving to add 1 million barrels to its daily crude production and exports this year amid a global supply glut that has pushed prices 24 percent lower this month.

The lifting of sanctions means Iran can immediately boost oil revenue to about $2.35 billion a month, according to Bloomberg calculations based on the country’s estimated current output of 2.7 million barrels a day and oil at $29 a barrel. Iran also gets access to about $50 billion in liquid assets previously blocked abroad, Treasury Secretary Jacob Lew said in July when the international powers and Iran agreed on the nuclear deal terms.

Iran was OPEC’s second-biggest producer until sanctions were intensified in 2012, and the county is seeking now to regain its former economic prominence. Iran’s financial resources will “increase significantly” with the removal of sanctions, President Hassan Rouhani said Sunday. A surge in Iranian oil output will generate much-needed cash even if it adds to a surplus of supply that has contributed to 12-year lows in crude prices. Benchmark Brent crude fell as much as $1.27 on Monday and was trading at $28.16 a barrel at 6:22 a.m. in London.

Forward Curve

The end of sanctions will help boost Iran’s economy by about 5 percent in the coming Iranian year starting at the end of March, Rouhani said while presenting the government’s draft budget in parliament. The country may have tipped into recession during the current Iranian year due to sanctions, the International Monetary Fund said in December. The inflation rate will slow to around 11.5 percent on average in the coming Iranian year from an average of 15.1 percent in the year ending March, the IMF said.

The forward curve for the price of Brent crude shows that the grade will be selling at about $31 a barrel in June. If Iran succeeds by then in boosting exports by 500,000 barrels a day to a total of 3.2 million, it would generate about $3 billion in the month, based on the price for June-loading cargoes. If the nation increases shipments to 3.7 million barrels a day by the end of 2016, monthly revenue would rise to about $3.9 billion, based on the December forward price for Brent of about $35 a barrel.

The nation currently uses about 1.8 million barrels a day of oil in local refineries. Under sanctions, the only buyers allowed to import Iranian crude were China, India, Japan, South Korea, Turkey and Taiwan. Iran sells oil at a discount to global benchmarks.

Many analysts expect the country to raise production more slowly. Iran will increase crude output by 100,000 barrels a day, or 3.7 percent, in the first month after sanctions are removed and by 400,000 within six months, according to the median estimate of 12 analysts and economists surveyed by Bloomberg.