Why OPEC deal is a Double-Edged Sword for Iran

Beyond the optics and the politics, the OPEC deal presents clear economic advantages for Iran. The accord allows for a modest increase in Iranian oil output. With current production at 3.7 mbpd, Iran does not have to cut production but can slightly raise its output to almost 3.8 mbpd while several other OPEC members will need to cut production. While expanding its output and market share, Tehran will also likely be able to take in more revenue per barrel as the Nov. 30 deal has sent oil prices up by 10%.

The deal also enables Iran to continue inviting foreign companies to invest in its energy sector. Since the lifting of nuclear-related sanctions in January, Western energy companies have begun trickling back into the country. A multibillion-dollar preliminary agreement has been reached with a consortium led by France’s Total.

Several memoranda of understandings have been signed, including with Germany’s Wintershall, Holland’s Schlumberger and Norway’s DNO. From Iran’s perspective, these are only the first steps toward more international cooperation as the country seeks investment totaling $150 billion in its energy sector.

Had Iran agreed to reduce output to achieve a deal in Vienna, operations would have needed to be scaled down or work at some of the fields currently in production effectively halted. This would have reduced the scope for engagement at those fields in Iran that have already been highly processed and require advanced technologies to maintain output levels.

However, while the OPEC deal will have tangible positive effects, Iran’s overall outlook will not be greatly affected by it, particularly because it’s far from likely that the accord will fundamentally transform global energy dynamics.

With the exception of Angola and Iran, the reference production quotas of OPEC members were set at the output levels in October. Comparatively high production levels are now the benchmark, since many cartel members have substantially increased output in recent years. Thus, while indeed cutting production, these producers are in the grander scheme of things merely scaling back some of the output that they have added in recent years.

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