Industry trends: Iran, Yemen contributing to oil market turmoil

Iran’s potential access to world markets may drive oil prices down while conflicts in Yemen are speculative and have no real bearing on the international oil market.

By Eric R. Eissler May 1, 2015

Oil prices have recovered somewhat since the start of 2015 but it is still a dire time for unconventional producers. Companies in the U.S. have started to downsize by reducing staff, putting projects on hold and halting explorations. Sure, the market is uncertain and many are awaiting prices to rise again. However, a potential roadblock lies ahead against prices and that hindrance is the lifting of sanctions against Iran.

While the country does sell its oil and gas to nations that do not hold sanctions against it, lifted sanctions would give Iran access to the rest of the world markets and could in turn introduce an extra 1 million barrels of oil per day (bopd) to the already 2-million-bopd supply glut that is hampering oil prices. On the already reached agreements between the U.S. and Iran the Brent prices slid 4%. This is troubling for the region as well as the unconventional producers in North America. 

Yemen’s lynchpin to remain in place

The geopolitics of the Middle East has major repercussions on the price of oil, as it is the major producing region of the world. Saudi Arabia and Iran are old enemies and Saudi Arabia does not want Iran to gain any influence in the region. In the Yemen conflict, each country supports opposite factions in such a way that it resembles a proxy war against each other. Neither one wants the other to gain influence in the country. While Yemen is not a major oil producer and its reserves of 4 billion barrels of oil are predicted to last about nine years, the country relies on assistance from international oil companies with production-sharing agreements to extract the said oil. Moreover, with declining production and frequent attacks on infrastructure, exports are not really an option. Given that information, the country really has no bearing on the international supply. It is just speculation on a jittery market that has prices rising slightly.

The only way this conflict could drastically affect oil prices is if the conflict spreads to neighboring Oman and Saudi Arabia. The likelihood of that happening is low.

This is a reminder that goes to show just how the oil and gas industry is truly international and that the events on one region of the world have consequences on the rest of the world.

– Eric R. Eissler is the editor-in-chief of Oil & Gas Engineering, CFE Media, eeissler@cfemedia.com 

Original content can be found at Control Engineering.