Manama: Oil prices are only set to tumble further now that a nuclear deal has been struck with Iran, an analyst has warned.
Energy expert and researcher Leheb Abdul Wahab told the GDN that lifting sanctions on a country with one of the world’s largest proven oil reserves could prove to be a mistake.
Last month, the US and five other world powers struck an historic deal with Iran over its nuclear programme.
In return for the lifting of economic sanctions, Iran agreed to put in place restrictions on its capability to create weapons-grade radioactive materials.
However, Mr Wahab pointed out that the deal has come at a bad time for oil prices.
“The oil market is already saturated and lifting sanctions on Iran will mean that it will go back to its pre-sanction state, in full production within six months,” he said.
“At the moment, Iran produces 3.7 million barrels of oil per day, it consumes 2m and exports around 1.7m.
“However, the lifting of sanctions means that it can increase production by around another half a million barrels per day – further adding insult to injury.
“Prices have plummeted from $115 per barrel in June 2004 to $65 per barrel lately and the market is already saturated with a surplus of around 1.2m to 2m barrels per day.
“Having Iran onboard will only exasperate that situation.”
A significant increase in US oil production tied with a declining demand for oil in emerging economies has largely driven the tumbling price, according to analysts.
Bahrain’s own oil production of around 45,000 to 50,000 barrels per day pales in comparison with its larger neighbours – but the falling price of oil has still affected the country’s budget, with the government seeing the need to cut spending and subsidies in order to balance the books.
However, Mr Wahab does see some benefits for Bahrain from the Iran deal, mostly in the form of a “trickle-down effect” from neighbouring countries.
“One plus of the nuclear agreement to the Iranian economy is that its assets of close to $100 billion will be unfrozen, which will attract lots of investment and business with the GCC,” he said.
“The main beneficiary will be the UAE and Dubai in particular, but this will trickle down indirectly to the economy of Bahrain.
“I am optimistic that the deal will curtail the development of an Iranian nuclear weapon and at the same time benefit the regional economy and regional investments in the long run.”
The Iran deal, Mr Wahab concluded, could be a “blessing in disguise for the GCC”.
“The expected dip in oil prices may in fact come as a panacea, leading to conservation in consumption that will also lead to GCC governments lifting subsidies on oil products,” he said.
raji@gdn.com.bh
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