American Oil and Gas Reporter - August 2015 - 38

Iranian Nuclear Treaty

Iran's Re-Entry Into Market Worrying
By Corinne Westeman

WASHINGTON-Outlooks are mixed
on what the nuclear pact reached in July by
world powers and Iran will mean to the U.S.
oil and gas industry. While analysts agree
that the possibility of additional Iranian barrels flowing into an oversupplied world
crude oil market doesn't bode well for
prices, they note there are a number of
bridges that must be crossed first, meaning
it likely will be next year before Iran can
resume exporting substantial volumes.
And perhaps most significant for domestic producers, they say, is the extra
leverage the Iranian deal may provide them
to push Congress and the administration
to lift the U.S. crude oil export ban.
Andrew D. Weissman, counsel at
Haynes and Boone in Washington, who
practices in energy and natural resources,
says Congress will have 60 days from the
signing, or until mid-September, to vote
on the terms of the agreement. This approval process likely will involve hearings
with Secretary of State John Kerry testifying on the exact details of the Iranian
agreement, he says.
According to Weissman, if more than
half of Congress votes against the deal,
then the president could still veto, which
President Obama has said he would do. It
then would take a two-thirds vote in both
congressional houses to block the president from implementing the agreement,
Weissman explains.
"Both sides (political parties) have
major reservations about this deal, so we
will have to see what happens," Weissman
described in July. "Many Republican
presidential candidates have stated their
reservations. Some, however, have still left
a little 'wiggle room' if (the agreement)
passes. And because the public seems to
support lifting the sanctions, some Democratic members of Congress may not
want to push against it too hard."
Weissman says, politically, the deal's
fate boils down to two questions: "How
many votes are against it?" and "How far
is the opposition willing to push back?"
Thus, the most likely scenario, he
opines, is that Congress won't block the
agreement from being implemented, or at
least won't be able to muster the two-thirds
vote required to override a presidential veto.
"There are legitimate national security concerns about this deal-major implications to our country and our allies in that
region," Weissman emphasizes. "The
people and Congress want to know
38 THE AMERICAN OIL & GAS REPORTER

whether Iran's cooperation is verifiable,
and whether it will be capable of developing nuclear weapons in 10 years.
"Everyone will be asking (whether) the
United States should let Iran recover financially so that it can achieve objectives that
are contrary to those of the United States,"
he ponders.
Before economic sanctions can be
lifted, Weissman clarifies, Iran has to prove
it is complying with the deal's initial requirements. Consequently, the very earliest oil sale restrictions could be lifted
would be December, but it likely will be
in 2016, he says.
And Venable LLP Partner D.E. Wilson,
former acting general counsel at the Department of Treasury, reminds that sanctions against Iran could come back into
place. The agreement contains a "sanctions
snap back" that places responsibility on
Iran to disprove allegations it is not following the terms, including a very short time
frame for inspection and review of alleged
violations, he says.

A Substantial Possibility
The best news for domestic producers,
Weissman suggests, lies in factoring the
Iranian deal into the probability of Congress lifting the U.S. crude oil export ban.
He says proponents likely will make the
case for lifting the ban during the 60-day
treaty review period.
"It has created a fairly substantial possibility that the United States could begin
exporting crude again," he comments. "It
probably won't be immediate. I expect it
may take two or three years, and probably right after an election cycle. But
there has been a definite shift in political
momentum to lift the ban."
That is the emphasis to the Independent Petroleum Association of America's
response to the agreement announcement. President Barry Russell says the deal
"will put America's oil producers at a competitive disadvantage on the global marketplace," and advocates for the federal
government to level the playing field by
lifting the export ban.
"As soon as Iran is permitted to export
its surplus oil on the world market, why
can't we allow our own companies to do
the same with their American-made surplus of crude oil?" he asks.
Russell says he sent a letter to President
Obama in July on IPAA's behalf, urging
further administrative leadership on lifting the "outdated" restrictions on U.S.
crude oil exports. The association has been

working with congressional members
over the past few years to pass a bill that
would lift the export ban, he confirms.
"With no opportunity to export their
crude oil surpluses to the world marketplace, American producers-companies
that have been one of the most significant
factors in America's economic recovery-are
forced to sell their product at a significant
discount, store their crude supplies, or
slow production by laying down rigs and
laying off American workers," Russell
states, "The U.S. economy already is starting to see the effects of that."
Fuzzy Crystal Ball
As for the treaty's effect on crude oil
prices, the crystal ball was a bit hazy in
July, Weissman allows. In June, he recalls,
the U.S. Energy Information Administration increased its estimates of U.S. oil production for next year. At the same time,
global production experienced an unexpected increase, mostly from a few OPEC
countries, and it may take all of 2016 for
demand to catch up with those extra barrels, Weissman says.
If the deal is ratified by the United States,
there is a near certainty that Iran will release
40 million barrels of oil from floating storage and will ramp up its production significantly in 2016, Weissman says.
On top of that, he poses, other Gulf
states fearful of a resurgent Iran could
flood the market to keep prices low and
slow Iran's financial recovery and ability to develop nuclear weapons.
"The agreement, at a minimum, greatly reduces the possibility of Saudi Arabia,
Kuwait or the United Arab Emirates cutting back production in the next year or
two," Weissman concludes. "And it leaves
open the possibility of Saudi Arabia increasing its production even further.
"It really puts an exclamation
point-maybe even several-on the risks that
prices will go lower again," he continues.
"I think this last part of it, regarding the
behavior of these Gulf states, may be the
most important piece of it."
Signal From Noise
Jamie Webster, IHS Energy's senior director for crude oil markets, points to possible differences between Iran's actual production capability and its announced intentions, which he says sent analysts
combing through data to find an idea of
Iran's strategy. "Is Iran going to release all
its floating crude oil reserves at once?" he
asks. "Or is it going to be steadier and less

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