Sanctions on Iran Leave OPEC’s Production Balance Uncertain

Iran

Sanctions against Iran in the oil production industry are making future market predictions just that much more complex. Near the end of November, President Obama made his intentions clear to continue sanctions against the country while negotiations and prevention measures are taken with its nuclear weapons program.

The president reports that work on Iran’s plutonium reaction has ceased, and that the U.S. “will refrain from imposing new sanctions, and will allow the Iranian government access to a potion of the revenue that they have been denied through these sanctions” — according to a White House press release.

“The broader architecture of sanctions will remain in place and we will continue to enforce them vigorously,” said Obama, “If Iran does not fully meet its commitment during this six-month phase, we will turn off the relief and ratchet up the pressure.”

What this means that, in the short run, Pakistan is unable to buy Iran’s gas for the moment. While the Organization of the Petroleum Exporting Countries (or, OPEC) plans to keep the oil output in balance with demand, this will become more a challenge with shifting political relations amongst global producers.

According to Market Watch, Libya, Iraq, and Iran will each throw a wrench in production division between petroleum producing countries when they rejoin their ranks. “If there is a resolution to Libya’s problems, it will add another million barrels per day to the market and someone within OPEC will need to cut by that amount,” energy economist, James Williams, said in a Monday report — according to Market Watch.

Williams points out that the same issue will come up should sanctions against Iran’s be ended. “Basically, OPEC has to come up with a strategy that assigns quotas to individual members. Setting a goal for all of OPEC is the easy part, but OPEC has not had to wrangle over individual member quotas for five years,” said Williams. Wednesday’s OPEC meeting will likely deal with such eventualities — or schedule a future date do negotiate specifics.

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