Iran election turmoil bad news for oil sector

Political uncertainty and unrest in the wake of Iran’s disputed presidential election are casting a deeper pall on the country’s prospects of a near-term economic recovery, with the vital oil sector likely to witness a stasis it can ill afford amid faltering production and investments.

Under the best of circumstances, President Mahmoud Ahmadinejad may have been able to seize upon President Barack Obama’s overtures to Iran and gradually bring about an end to the U.S.-led international isolation the country’s oil sector has endured.
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Compounding these problems is Iran’s continuing battle with declining oil output — an annual fall of between 4 to 8 percent, or roughly 200,000 to 350,000 barrels per day, according to analysts. The International Monetary Fund last year said Iran needs roughly $90 per barrel to stay in the black in terms of its budget — one of the highest levels among the Organization of the Petroleum Exporting Countries member states.

Rounding off its litany of troubles is that its new export projects are riddled with delays and a lack of gas treatment facilities to cope with the new output means that production is being burned off instead of sold.

To boost economic growth, Iran needs to compensate for that decline through investments and technology, the two main elements it has been unable to secure enough of because of the sanctions.

“The political situation has brought the country to a standstill,” said Raja Kiwan, a Dubai-based analyst with consultancy PFC Energy. “We can all see that it’s a temporary situation, but it does not do the country any favors at a time when its already reeling from low oil prices.”

Business Week