With deadline of Jun 30’15 for the conclusion of Iranian nuclear deal fast approaching there are concerns within the global community as to how things would turn out. In addition to this, there are apprehensions from Iran that if the deal is struck successfully how things would pan out with respect to different sanctions imposed on it. In this regards, the US and its negotiating partners (France, Germany, Russia, UK and China) have so far been on a different wavelength vs. their Iranian counterparts. This is mainly due to Iranian leaders’ demand for an immediate removal of various sanctions imposed on the country. It is understood that the western powers prefer to see Iran initiating rollback of its nuclear program rather than immediately rewarding the country by removing sanctions. With currently things at loggerhead, the discussions are likely to move beyond the aforementioned deadline with the Iranian president himself stating that such matters should not be time barred. If struck successfully, this deal would enable Iran to pump increased quantities of oil into the international market, which in tandem is likely to spark another round of market share war where oil prices at US$60-65/bbl levels might prove to be more of a ceiling than a floor. Every US$5 fall in oil prices negatively impacts annualized earnings of POL, OGDC and PPL by 5.7%, 4.9% and 3.3%, respectively, On the positive side, the same decrease in oil prices shaves of Pakistan’s CAD by 15-20bps.

Iran’s historical high stake: During the early 70’s, Iran ranked second to KSA (Kingdom of Saudi Arabia) as far as OPEC market share is concerned (Iran at 20.3% vs. KSA’s 27.5%) where the former exported 5.7mn bopd oil against the Kingdom’s 7.7mn bopd. However, by late 70’s the country entered a phase of civil war (Iranian Revolution) due to which its market share in OPEC dropped to 10.2% while the same for the Kingdom rose by 5.6pts to 33.1%. Same remained the fate during the earlier part of Iran-Iraq war, which lasted for 8yrs where 2.7pts drop in Iran’s market share to 7.5% was picked up by KSA. During the past 4yrs, Iran’s market share has averaged at 10.3% where as KSA’s market share in OPEC has hovered around 29.8% mark.

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Iran to flex its muscles in OPEC? Having the fourth highest oil reserves at 157.8bn bbls, Iran has facilities available to immediately increase its own and OPEC’s output by somewhere around 1.0mn bbls from current 2.85mn bbls and 30.9mn bbls, respectively. In this regard, we feel that another round of market share war is right around the corner, which would bring further volatility in the International oil prices. And clearly with no love-loss between the two countries, KSA will fight back by pumping more oil in the international market with an aim to maintain its market share, we foresee.

… And benefits for Pakistan? With the present gov’t more inclined towards  the Kingdom than Iran, we believe removal of sanctions on Iran is not likely to be a major event for Pakistan. That said, this event will provide Pakistan with an opportunity to expedite work on the outstanding Iran-Pakistan gas pipeline, a necessity for the energy deficit country Every US$5 fall in oil prices negatively impacts annualized earnings of POL, OGDC and PPL by 5.7%, 4.9% and 3.3%, respectively, On the positive side, the same decrease in oil prices shaves of Pakistan’s CAD by 15-20bps.

Written by Asad Siddiqui

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