What an Iran Nuclear deal could spell for Nigeria

With a preliminary framework nuclear deal already agreed between the p5+1 countries (the five permanent United Nations Security Council members plus Germany) and Iran, a full and comprehensive agreement, though still some distance away, is closer than ever to becoming a reality.

If the deal (which is meant to put Iran’s nuclear program in check) is reached, sanctions imposed on the country will be lifted, and will lead to the opening up of the 80 million-strong economy, which is the 18th largest in the world, larger than Spain and Canada, according to the Economist.

The biggest and most significant liberation will occur in its oil and gas sector, which is the fourth largest in the world, holding 10 percent of the world’s total proven reserves (about 150 billion barrels) and 15 percent of the world’s gas reserves.

Due to the sheer size of its market share, Iran is considered as one of the 6 ‘energy super powers’, able to influence world markets and global politics to its advantage by restricting its supply.

To understand the scale, even if no new oil was found, Iran’s current reserves could last for 98 years! The country is also capable of producing 6 million barrels per day, three times larger than Nigeria’s historic peak production of 2 million barrels a day.

With the lifting of sanctions, Iran will become one of the biggest global prospects for foreign investment, most especially its oil and gas sector. Iran, for its part, sorely needs the foreign money to catch up to the rest of the world. With its current technology, it is only able to extract between 20 – 25 percent of its oil-in-place (the total oil content in its reservoirs).

China is taking an early lead in positioning itself for an Iran resurgence. Other western oil majors are following closely behind, paying full attention to developments in Switzerland. 

Iran already has a huge stockpile of oil, which had to be stored away following the ceasure of its exports trade partners. A lifting of the sanctions (following its compliance with agreement terms) could lead to an instant uptick of 500,000 barrels per day of oil in the world supply, to be increased to 1 million barrels 2 months later. Over time 35 million barrels will find its way into the market, sending prices south in the process.

The increase in oversupply conditions will lead to an extension of the “market evening” period, which was initially expected to take until year-end to reach. With Iran coming into the picture, the oversupply will now take up to 12 months to eradicate

The better the prospects of an Iran deal appears, the larger the downside pressure for the price of oil. With the Prices ending the week at $57 a barrel in the light of these developments, a ceiling around that price could pretty much have been reached. There is little incentive for market prices to rise above that.

To reduce the downward pressure on prices which will affect all the players, Iran is hoping that OPEC will ‘coordinate itself’ and help to manage prices by accommodating its output.

This development only serves to remind the Nigerian government that a leaner purse will be the norm going forward and that plans to expand revenue heads should be expedited.

With a record of struggling to attain it’s budgeted output level, the country’s oil and gas sector will have to be pruned in order to get rid of blockades to efficiency, in addition to finding other revenue heads to exploit. Else, its struggle will only be compounded.

Expectations are high for the new government coming into effect in May 29. Reforms around oil and gas will be a milestone achievement for the sector, which has been riddled with leakages and theft. 

Edozie Ifebi