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Insight 14 May 2018

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Report summary

On 8 May 2018, President Trump announced that the US had withdrawn from the JCPOA and indicated that US secondary sanctions will return. One of the effects of the sanctions will be to reduce the size of the market for Iranian crude oil. Many buyers are likely to look for alternative sources of supply – either as a direct reaction to the sanctions, or indirectly as sanctions on the banking sector make oil trade more difficult. Reduced oil exports will have a knock-on impact on investment in Iran's upstream sector. Less revenue will be available to NIOC to invest. Its ageing major oil fields will suffer, and decline rates are likely to trend upwards. Longer-term, billions of dollars of potential foreign investment now hangs in the balance. Over the last two years, NIOC has courted international companies to invest in the upstream sector. Will the lure of long-life production of low-cost barrels balance the additional risk?

Executive summary
- Iran's crude oil exports will fall, but not as much as last time
- Iran could lose a market of up to 500 kb/d
- potentially causing light-heavy crude price differentials to narrow
- Sanctions uncertainty could be a key driver in reducing imports in Europe
- OPEC's June meeting offers time for a response
- Iran's ageing major oil fields will suffer from lower investment
- Legacy crude production will decline faster
- although gas is less likely to be affected
- 5 more item(s)...