Over the past decade, tight supply-demand conditions in the global oil market limited the willingness of Western nations to deal assertively with the Iranian nuclear program. This dynamic began to change in 2012, when relatively low global oil demand growth and strong increases in non-OPEC liquids production created an opportunity for the international community to tighten sanctions targeting Iran’s oil sector. As a result of stronger sanctions implemented by the United States and many of its European allies, Iran’s oil production fell to 3.0 million barrels per day (mbd)—its lowest level since 1989.
The coming months will provide a critical, temporary window in which oil markets will support further action. Surging non-OPEC oil production, combined with weak oil demand growth in the United States and Europe, can enable the global market to absorb the remainder of Iran’s 1.0-1.5 mbd of crude oil exports through additional sanctions or other means. The International Energy Agency currently expects the ‘call on OPEC’ crude production to drop levels last seen in 2009, while spare production in Saudi Arabia should average at least 2.5 mbd through 2013.
However, this opportunity will not last indefinitely. The first nine months of 2013 will provide the best opportunity for action, as oil markets tighten towards the end of the year to accommodate increasing demand growth from emerging markets. In Decision Point, SAFE and Roubini outline clear recommendations for policymakers to enable the U.S. and its allies to remove Iranian supplies from the market while minimizing volatility and price spikes. While significant challenges and costs are associated with decisive action to persuade Iran to abandon its nuclear program, these must be considered against the costs of inaction: the presence of a nuclear Iran in a Middle East region already fraught with instability will likely lead to long-term risks to oil markets and costs for the United States and global economy.
1111 19th Street, NW #406, Washington, DC 20036