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Iran’s Oil Deal and the Struggle Ahead

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Iran Oil

The Iran nuclear deal negotiated by the 5 permanent members of the UN Security Council, US, UK, Russia, China, and France plus Germany defuses long standing tension between Iran and the West, potentially changing the political landscape of the Middle East. But what about Iran’s oil and the impact on the economic landscape?

For years Iran’s economy has been crippled by US sanctions, and this includes its oil production. Iran has the 4th largest oil reserves in the world, coming in at an estimated 158 billion barrels, but lack of investment has led to a serious decline in production capacity. In 2008 Iran’s oil fields produced 4 million barrels of oil a day, in 2015 it’s down to 2.8 million barrels. Today its markets have diminished with exports going mostly to China, India, Japan, South Korea, and Turkey.

The question now is how much, if any, will Iran’s resurgence impact oil prices? There are two issues – how much they currently have in storage and what they can ramp up in terms of production. Iran does indeed have oil sitting there – stored mostly in tankers off the coast.  However Citigroup’s head of commodities research Edward Morse described the amount of oil in tankers as a bit misleading. “Of that 40 million barrels or so roughly two thirds is either condensate or condensate blended crude oil. The condensate can be exported under the sanctions regime, so the question is why has it not been exported, and the answer is almost certainly that it is so high in sulphur content that no refinery anywhere in the world wants to take it on, except at a very steep discount. So I’d say two thirds of that 40 million barrels is not really overhanging the market, only one third is.”

So we are talking 13 million barrels, which is hardly going to have a dramatic initial impact. It will also be 6 months before sanctions are realistically lifted. Iran will be unlikely to want to unload it all at once and crash prices. It’s possible other countries may also increase their production to hold market share which will lead to the price being driven down.

The International Energy Agency (IEA) estimates that Iran could potentially increase its product to 3.5 million barrels per day “within months of sanctions being lifted.” Others such as Richard Nephew (who served as lead sanctions expert for the US team negotiating with Iran) are less sure. He describes Iran’s oil producing infrastructure as plagued by “fatigued fields and antiquated equipment.” Some estimate the cost of getting Iran’s production back to pre-sanction levels as between $50 billion and $100 billion – which will need to come from foreign investment. This could take years, as high in investors’ minds will be the risk of the nuclear deal falling over and sanctions being reimposed.

Iran wants to recover its position as the number 2 oil producer in the world after Saudi Arabia, and this could conceivably be good too for the West – with oil prices being pushed down, but the bottom line is any dramatic changes are many years, some might argue decades off. In the short term the impact of the nuclear deal is simply this: prices are unlikely to increase. According to Thomas Pugh, commodities economist at consultants Capital Economics, “the return of Iranian oil exports over the next year is one factor likely to keep oil prices low.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Nigeria Receives £4.2 Million Looted By James Ibori

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James Ibori

The government of the United Kingdom has repatriated the sum of £4.2million that was looted by associates and family members of the convicted former governor of Delta State, James Ibori.

The Attorney-General of the Federation and Minister of Justice, Mr. Abubakar Malami, SAN, on Tuesday confirmed the receipt of the looted fund in a statement he made available to newsmen in Abuja.

In the statement signed by Malami Special Assistant on Media and Public Relations, Dr. Umar Gwandu, the Minister of Justice disclosed that the naira equivalent of the amount was credited into the designated Federal Government account on May 10, 2021.

The AGF had earlier signed a Memorandum of Understanding for the repatriation of the loot fund on behalf of the Federal Government of Nigeria.

According to him, “the development was a demonstration of the recognition of reputation Nigeria earns through records of management of recovered stolen Nigerian stolen in the execution of public oriented projects”.

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Economy

AfDB, European Bank To Bridge $2.5tn Africa’s Financing Gap

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AfDB

The African Development Bank Group and the European Bank for Reconstruction and Development signed a Memorandum of Understanding on Monday to promote sustainable private sector development in Africa.

In a statement issued by its Communication and External Relations Department, the AfDB said, “The MoU will help catalyse new sources of financing to help bridge the $2.5tn annual financing gap for development in Africa.

“This gap requires that development finance institutions work in partnership.”

The bank stated that under this partnership, the AfDB and the EBRD would capitalise on their respective

expertise and experience, with a particular focus on climate change, green and resilient infrastructure and capital markets development.

“They will also work on improving business environments, bolstering the real economy and mobilising private sector investment,” the AfDB stated.

It observed that COVID-19 was threatening progress made towards the United Nations Sustainable Development Goals and was exacerbating the debt vulnerability of many African countries.

The bank stated that sustainable private sector development would be key to recovery and prosperity across the continent.

AfDB’s President, Akinwumi Adesina, after signing the memorandum with his counterpart, EBRD President,

Odile Renaud-Basso, was quoted as saying, “The new partnership agreement between our two institutions will pave the way for us to do more together, especially in supporting the growth of Africa’s private sector.

“The impact of COVID-19 on government resources is huge and we need to mobilise more private resources to help African countries build back stronger.”

On his part, Renaud-Basso, said, “The COVID-19 crisis has made the need for better and ever closer collective action even more urgent.

“Collaboration between the EBRD and the African Development Bank has grown from strength to strength over the years in the region.”

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Economy

Despite Rising Debt Profile, President Buhari Seeks New N2.342T External Loan

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Muhammadu Buhari

President Muhammadu Buhari, on Tuesday, urged the Senate to approve a new external loan of N2,343,387,942,848.00, about $6.183billion, for the Federal Government to finance the 2021 budget deficit.

Senate President Ahmad Lawan read Buhari’s letter of request on the floor of the Senate at plenary.

Last Month, Investorsking recalled that there was a controversy when Edo State Governor, Godwin Obaseki had raised concerns over the financial trouble Nigeria might find herself due to the continuous rising debt profile.

In a recent report carried out by PWC, it was reported that:

“Actual debt servicing cost in 2020 stood at N3.27 trillion and represented about 10 percent over the budgeted amount of N2.95 trillion. This puts the debt-to-revenue ratio at approximately 83 percent, nearly double the 46 percent that was budgeted.

“This implies that about N83 out of every N100 the FG earned was used to settle interest payments for outstanding domestic and foreign debts within the reference period. In 2021, the FG plans to spend N3.32 trillion to service its outstanding debt. This is slightly higher than the N2.95 trillion budgeted in 2020”.

According to DMO Nigeria’s total public debt as at December 31, 2020, was N32.915 Trillion.

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