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Expected termination of sanctions against Iran to add to global oil glut

FOLLOWING the recent Iranian nuclear agreement, the EU and the US are expected to drop economic sanctions if Iran does what is required under the terms of the accord, reports London's Tanker Operator.

Iran said it would endeavour to return exports to pre-sanction levels if and when the embargo is lifted. Tehran said it could increase production immediately by 500,000 barrels per day and then by the same amount six months later.

IHS Energy said low oil prices will persist throughout 2015 only rising "near balance" in late 2016, though Iranian barrels would extend oversupply longer.

A test of the deal comes on October 15 after which the International Atomic Energy Agency (IAEA) will report to the major powers by December 15.

In an assessment by IHS Maritime, the consultancy said that once sanctions are lifted, Iran could export 100,000 barrels per day within two to three months increasing to about 500,000 barrels per day in 2016.

The Middle East sour crude oil market will remain under pressure from a large supply overhang, but stronger demand growth globally and a potential reduction of US crude oil production could provide support, before the Iranian impact is considered.

The Iranian fleet includes 37 very large crude carriers (5.8 per cent of the global VLCC fleet), 12 Suezmaxes and five Aframaxes. Most of the vessels are not trading.

They will need to regain compliance with international standards if they are to enter the mainstream spot markets, said the report.

As for insurance, the ban will be lifted as a result of the agreement reached, the Japan Ship Owners' Mutual Protection & Indemnity Association said.

Japan, a major importer of Iranian oil, introduced a supplementary insurance scheme in June 2012 to enable crude imports from Iran in the wake of a ban by the EU on P&I cover for tankers carrying Iranian oil.

But the UK P&I Club has advised operators to proceed with extreme caution and continue to seek independent advice before committing to trade contracts with Iranian interests.