Moody's: Production Challenges Prevent Iran's Return to Global Oil Markets

A credit rating agency says that Iran's return to the global oil market will further saturate the market, although the country faces challenges in increasing oil production. Moody's credit agency, in a report published on Monday, March 3, predicted that Iran will increase its oil exports to global markets by more than 500,000 barrels per day in 2016, which will have a significant impact on prices. Meanwhile, on February 16, Russia and Saudi Arabia agreed to halt their production at January levels, but Iran has not yet joined this agreement. Nevertheless, Iran still faces serious obstacles to increasing production. The Moody's report states that 'Iran faces technical and political barriers to increasing production.' To boost production, Iran needs to attract customers again, invest in improving production facilities in oil fields, and resolve some political risk factors. Vahid Sheikh, a Moody's analyst, states that Iran will try to increase exports to China, but competition in the region with Saudi Arabia will hinder this. Saudi Arabia is currently the largest oil exporter to China. 'China is likely to keep its oil imports at current levels to avoid damaging its relations with both countries (Iran and Saudi Arabia).' Another barrier for Iran is the outdated infrastructure of its oil industry. Experts say the country needs $150 to $200 billion in investment to update its infrastructure. Sheikh adds, 'Many companies are currently unable to invest because low oil prices have reduced their revenues. These companies need to cut their costs at least in 2016.' Iran will try to regain its share in supplying oil to Spanish and Italian refineries, which are also buyers of Russian oil. Iran also hopes to export more oil to Asia, especially China. While Saudi Arabia is the largest supplier of oil to China, China is also Iran's largest trading partner and continued to buy oil from Iran after the U.S. intensified nuclear sanctions against Iran in December 2011 to limit Iran's oil exports. In any case, Iran's ability to increase oil exports to global markets depends on its ability to find new customers and the needs of its current customers. Iran cannot rely solely on China. Additionally, U.S. oil companies are prohibited from investing in Iran. The report adds that the Iranian parliamentary elections scheduled for this month will determine whether hardliners or reformists will take power. In this context, Iran's promise to increase oil production to 4.7 million barrels per day has slightly raised oil prices after the Doha and Tehran meetings. Iran has once again rejected the Doha agreement to keep oil production steady.