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Iran's petrochemicals output can bring revenue of $70 billion

16 December 2015 18:40 (UTC+04:00)
Iran's petrochemicals output can bring revenue of $70 billion

By Sara Rajabova

The International Atomic Energy Agency’s decision to close a case on the so-called possible military dimensions (PMD) of Iran’s civil nuclear program gives ground for soonest removal of the international sanctions on the country.

IAEA Board of Governors unanimously voted on December 15 in favor of the resolution to close Iran’s file. This resolution opens the way for Iran and six world powers (UNSC permanent members plus Germany) to honor their commitments in accordance with the Joint Comprehensive Plan of Action, which envisage removal of economic and financial bans in return for the Islamic Republic’s limiting its nuclear activities.

Shortly before the adoption of the resolution, Iranian official voiced expectation on lifting of sanctions in three weeks after IAEA’s closing of Iran’s PMD case.

Going even further, Iran’s Petroleum Minister Bijan Zangeneh announced last week that oil sanctions against Iran will be lifted in the “next few days”. He said lifting of sanctions will enable the country to fulfill its 20-year vision plan, including its target to produce $70 billion of petrochemicals a year at current prices.

Commenting on the issue, Kamran Dadkhah, a professor of economics at Northeastern University in Boston, Massachusetts told AzerNews that lifting of sanction will increase the country’s capabilities to produce petrochemicals.

“It is estimated that next year’s revenues will be $27 billion. But it should be noted that at present Iran has 67 unfinished petrochemical projects. After sanctions are lifted, international capital and technology could increase Iran’s capabilities to produce petrochemicals and over time $70 billion revenues could be achieved,” the expert said.

He, however, noted that Iran has many untapped resources that could be utilized to achieve this goal, adding this is a long run goal.

By holding 157 billion barrels of recoverable crude oil reserves, Iran possesses the world’s fourth largest reserves of crude oil. Over the past 36 years the Iranian economy has suffered from the lack of investment and infusion of current technology in its industries, which is more evident in the oil and gas sectors.

Iranian oil production has fallen by over 1m bpd since the imposition of the latest round of sanctions in early 2012. The Islamic Republic produced 2.8 million barrels a day in July, according to the Bloomberg data.

Iran tries to attract customers with lower oil prices

Iran has recently announced that it does not intend to stop oil production even if the prices fall below $30 barrel and could sell oil at these prices.

Iran is prepared for the “worst scenario” as oil prices continue the downward spiral amid global supply glut. Currently, the global price for Brent oil is nearly $38, while prices for WTI oil stand at $37.

However, it raises question in what extent, this situation could be beneficial for the Islamic Republic.

Dadkhah considers that Iran attempts to regain its share in the oil market after losing its position due to the sanctions. He said Iran is seeking to attract more customers with selling its oil to lower prices.

“In the past 35 years and especially after toughening sanctions, Iran has lost its share of the international oil market. Thus, it would be natural for Iran to try to regain its share. Lowering the price is a sure way to attract customers. At present the oil prices are falling due to increased supply and a forecast of stagnant demand,” the expert said.

He, however, noted that Iran’s additional output over the next year would be less than a million barrels per day. “Therefore, while Iran’s additional supply of oil will be a factor in lowering the price of oil, its effect will not be substantial.”

The Islamic Republic plans to produce around 500,000 barrels per day. Zangeneh said in the coming months it will again be increased by 500,000 to reach one million barrels per day.

OPEC will not make room for Iran

Iran is seeking to regain its position in world markets, and urge OPEC members to cooperate in this matter. Iran wants to restore its export quota in OPEC.

However, the cartel members are not willing to make room for Iran to restore its previous positions. They ignored Tehran’s repeated calls to cut export quota, which stands at 30 million barrels per day.

Tehran once was OPEC’s second-biggest producer and now stands at the fourth place.

Dadkhah supposed that OPEC members will not make room for Iran to regain its previous share.

“OPEC has never had the power and ability to enforce quotas; indeed, many have exaggerated its power to control oil supply. In the past, almost all countries have produced and exported more than their agreed quotas,” the expert said.

He went on to say that all the member countries need the money from their oil export especially now that the price of oil has fallen to less than $40 per barrel.

“But more important, politically and through proxies Iran and Saudi Arabia are at war in the region particularly in Syria and Yemen. Thus, both countries (as well as their allies) believe that by increasing their market share they are advancing their interest against the other side,” Dadkhah said.

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Sara Rajabova is AzerNews’ staff journalist, follow her on Twitter: @SaraRajabova

Follow us on Twitter @AzerNewsAz

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