How Will OPEC respond to a rise in Iran’s oil output?
Iran Matters, Harvard Kennedy School, Belfer Center for Science and International Affairs - January 24, 2014
Prof. Nader Habibi is the Henry J. Leir professor of the economics of the Middle East at the Crown Center
The global market for crude oil will inevitably take notice of how the interim nuclear deal effects Iran’s oil exports. Over the past two years, under continuous pressure from international sanctions, Iran has been unable to find new customers for its oil, while existing buyers were forced to reduce their purchases by 10% to 20% every six months. As a result, Iran’s daily exports declined from 2.5 million barrels per day (b/d) in December 2011 to under one million b/d by November 2013. Accordingly, Iran had to cut back its total production from 3.5 million b/d in December 2011 to 2.7 million b/d in November 2013.
During the past two years, however, additional output by OPEC producers like Iraq and Saudi Arabia has largely replaced the Iran's declining exports on the global market. Due to ongoing tensions between Iran and Saudi Arabia, the latter went as far as actively courting Iran’s oil clients like China, promising to sell them more oil if they reduced purchases from Iran. Non-OPEC producers such as the United States also enjoyed a boost in their oil output during this period, and as a result the oil market remained stable. Contrary to the Tehran’s predictions, declining Iranian exports did not cause a shortage of crude oil, and oil prices suffered only a moderate decline in this period. The spot price of Brent crude oil fell 3% in two years, from an average price of $111 per barrel in 2011 to $108 in 2013. ... [Read the Full Text]