Iran oil: Experts give PMB 6months to develop sustainable economic strategy

OREDOLA ADEOLA |

Following Iran’s return to oil exportation after reaching a historic agreement with six global powers, on its nuclear programme that would pave way for the lifting of the western sanction on its country last Tuesday, experts in the oil and gas sectors have charged President MohammaduBuhari, to develop six months sustainable strategy as a measure to mitigate the impact of further oil price declines once Iranian supply hits the market.

The sanction which was imposed on that country in 2012 had limited Iran’s oil exports, costing that country over $5billion monthly. It currently holds the fourth largest proven oil reserve and 13 percent of OPEC reserve in the world estimated at 157.8 billion barrels, it also account for 10 percent of the world’s total proven petroleum reserves.

They forecast that Iran would be able to raise crude oil output by 250,000 to 500,000 bpd by the end of this year and by up to 750,000 bpd by mid-2016. According to them, Iran’s initial increase would be enough to pull international oil prices down further as the market is already producing around 2.5 million barrels per day above demand.

Professor Tam David West, a former Minister of Petroleum Resources, said that Iran’s return would constitutefurther decline in the global price of global oil. According to him, successive administrations have refused to plan the economy as a measure to guard against possible negative impact.

He however confirmed that the impact would be addressed as the present administration has restated its commitment to diversify the economy to grow other non-oil sectors. According the former petroleum minister, Nigeria had survived such glut in 1984 during the military dispensation of the Buhari, adding that the price decline will be minimal of the present administration continues to block leakages stimulated by corruption.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, in his reaction alsonoted that Iran would be moving to conclude negotiations to dispose40 million barrels of crude oil in its floating storage.He said the sale would be on a spot basis and could be heavily discounted to penetrate the highly competitive market in Asia.

Oni said, “I suspect the top targets will be India and Indonesia, who are also top buyers from Nigeria. These two countries are heavy buyers of Nigerian spot cargoes, which are having a bad time in the market so far in 2015.”

According to him, if the country’s exports resume, another few hundred thousand barrels may hit the market on a consistent basis. He added that the development could significantly displace Nigeria’s August/September cargoes. Adding that the impact could be felt at the long term as some Nigerian’s spot cargoesmay be knocked out of Asia market.

Oni said the situationcould impact negatively on revenues in the second half of the year could mean Nigeria would have to accept further discounts on its crude oil cargoes to find markets for them. He also charged the present administration to further consider other major sectors that could reduce the impact on the economy.

Mr. Yusuf Muda, Director General, Lagos Chambers of Commerce and Industry, LCCI, also urged the federal government to be proactive in developing other critical sectors as there is no doubt that the lifting of western sanction on Iran, would negatively impact the economy. He noted that the price decline may hurt the country’s economy against the backdrop of decline reserve, rising exchange rate, and dislocation of the economy. He added that the development would further worsen the country’s economy.

He urged the Federal Government needs to ensure quality control of resources management within the space of months available for Iran to negotiate its stake in the global oil industry.  He also needs to ensure better compliance by relevant agencies in the area of tax recovery. At this critical stage, the government must work at ensuring that other sectors are given adequate attention. This is the best time to diversify our economy.’’ the LCCI DG said.

Ugodre Obi-Chukwu, financial analysts, said that with the close proximity of Iran to India which is currently Nigeria’s biggest buyer of crude, India may consider it more economical to patronize Iran than buy from Nigeria.Iran will pump about 6 million barrels of crude a day into an already over glutted crude oil market that may further decline the crude prices lower.

He said, ‘‘The Federal Government must immediately lock medium to long term contracts with countries that need crude oil as part of measure to secure future income streams. On the long term, Nigeria has no choice but to diversify from oil.

He however urged the government to create the right incentives to enable gas companies in the country, supply the hugely needed gas required to increase power generation. This according to him will provide a major economic boost for the production sector of the economic.