There has been much fuss lately as to the huge impact a deal with Iran will have on oil prices globally. I personally see the near-term impact on oil markets likely to be far less significant than most oil analysts predict

2. There has been much fuss lately as to the huge impact a deal with Iran
will have on oil prices globally.
I personally see the near-term impact on oil markets likely to be far less
significant than most oil analysts predict, despite Iran’s large natural gas
and oil reserves.
The bottom line is that a deal with Iran would likely add only about
500,000 barrels/day to the 90-million-barrel daily oil market over the next
12 months. This would be a non-trivial amount, but clearly not a “game
changer”.
The baseline is for prices to return to about $70 for a barrel of Brent
Crude in 2016.
Oil Geopolitics and Iran

3. Additional supply from Iran would knock roughly $5/barrel off
expectations – or less than one quarter of a standard deviation. Said
another way, additional Iranian output could move prices lower, but many
other factors, such as changes in global GDP or the return of Libyan oil,
could prove more meaningful over the next year.
What’s more, recent trading suggests the market has already priced in
much of this risk.
Over the longer term, I believe an increase in Iranian output could be for
sure significant. With investment and time, Iran could meet a greater
share of global demand for oil and liquefied natural gas (LNG). It also
could ship natural gas to Europe via pipeline, challenging Russia’s
dominance.
The details of the contracts Iran signs with international oil companies will
be telling.

4. Depending on the terms offered to Western companies, other oil
producing nations – Iraq, in particular – could feel the pressure. Increased
competition for investment would be a material signal that lower prices
will endure longer.
I still though believe that the key factor in the global geopolitical game of
oil will be China not Iran.
China is today the second largest importer of oil in the world and its
appetite for oil is all but insatiable, growing at 8 percent a year. They
decided to go with cars instead of sticking with mass transit. Plus,
factories that produce cars can easily be converted to military needs.
I believe within twenty years they’ll have more cars than the U.S. and that
same year they’ll be importing just as much oil as we do. So here’s the
deal.

5. They don’t have it. Want to guess where they get it from? Iran. They
signed a deal saying if Iran would give them lots of oil, China in return
would block any American effort to get the United Nations Security
Council to do anything significant about its nuclear program.
They’ve been doing a lot of deals with each other ever since. Oh yeah,
these two countries are very cozy indeed. Anyway, China gets most of its
oil from Iran. And they don’t just need oil—they need “cheap oil” because
they sell the least expensive gasoline in the world. I think that’s to keep
everybody happy driving all those new cars.
Bottom Line: Iran’s agreement with major world powers to curtail its
nuclear program in exchange for the lifting of economic sanctions opens
up the world’s fourth-largest oil reserves, second-largest natural gas
reserves and an 80 million population to multinationals.

6. But the strict, decades-old U.S. restrictions on doing business with Tehran,
which predate the nuclear crisis and relate to other concerns such as
terrorism support and human rights abuses, will remain in place.
What will be particularly difficult for American companies is if they are
the only ones that are prohibited whereas the rest of the world will be
trading. Problematic because every time you’re at a disadvantage relative
to your foreign counterparts, you lose market share.
Thank You,
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