What are the economic implications of the United States (U.S.) brokered Iranian nuclear arms deal for Nigeria?
This is the question being asked in business circles as Iran, a major oil exporter, is set to return to business after years of trade sanctions.
The sanctions may be lifted with the signing of the nuclear arms deal in Austria, Vienna.
It is likely to impact on the price of oil, which is ramping up from less than $50 per barrel.
Iran’s return to business will be a big challenge for Nigeria, which depends on revenue from oil for over 85 per cent of its foreign exchange, budget implementation and other economic activities.
The sanctions led to restrictions on trade and the freezing in foreign banks of $150 billion of Iranian oil revenue. The country also suffered substantial drop in oil production and sales. Iran has about 158 billion barrels of crude oil, the fourth-largest reserves in the world, and was producing four million barrels of oil per day in 2008, making it world’s second largest exporter after Saudi Arabia.
But, due to the sanctions, Iran’s oil exports dropped from 2.6 million barrels per day in 2011 to 1.4 million barrels per day in 2014, with sales mainly to China, India, Japan, South Korea and Turkey. But the sanctions enable it to save the oil it could not export in massive floating tankers off its coast. It is estimated that Iran has 30 to 37 million barrels in storage.
Reports says the sanctions may take six months or more to be lifted, but if Iran decides to quickly recover lost ground by pumping large quantity of oil into the market, the price of crude will fall to a new low. With the U.S. determined to be self-sufficient in oil production and consumption, the oil producers’ market will shift to Asia.
Nigeria depends on China, India, Japan for export of its oil and gas. If Iran pumps additional one million barrels per day into the same market, things may become difficult for Nigeria.
The International Energy Agency (IEA) believes that Iran may not unload its stored oil at once since that could cause prices to crash. But IEA noted that Iran could sell some 180,000 barrels per day for six months.
The agency said Iran could get back to producing four million barrels of oil per day by the end of this decade. Iran’s Oil Minister Bijan Namdar Zangeneh is pushing for his country to regain its spot as the world’s number two oil exporter behind Saudi Arabia.
IEA said Iran might try to bolster production in some of its existing fields, adding that it will be able to increase oil production from its current level of 2.8 million barrels per day to around 3.5 million within months of rejoining the market.
Consumption in China has dropped and India, another major buyer of Nigerian crude, said its output is increasing. Nigeria will walk a tight rope if Iran returns to business.
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