Lombard Odier: the re-opening of Iran could be a “gold rush”
Pascal Menges, manager of the Lombard Odier Global Energy Fund, reacts to Iran nuclear deal.
The current deal will have to go through the US Congress, the UN and the European Union. The deadline for lifting sanctions is the 15 December 2015. We therefore expect Iran to be back in the oil market in 2016.
There is currently a debate around the ability of Iran to restore production quickly to pre-sanction levels.
However, we think that Iran’s re-insertion into the oil market is manageable in 2016 for different reasons: China is starting up phase 2 of building its Strategy Petroleum Reserves, demand should be still expanding by more than 1% (excluding any China hard landing or Greek’s systemic-led risk), US oil producers should still be in a reeling mode, and production outside US and OPEC will remain under strong pressure.
Another near term impact: these developments will be positive for Mediterranean refiners in particular in Turkey.
On the medium term, the re-opening of Iran could be a “gold rush” for oil services companies and integrated oil companies. Iran has already announced its willingness to propose attractive new fiscal contracts.
However, this rush is likely to be tempered by the fact that companies’ boards will have to be re-assured that Iranians will stick to this agreement over time.
In addition, the Iran’s Revolutionary Guards may still be perceived as a source of geopolitical risk that warrants caution from investors.