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Iran’s Ability to Export More Crude Oil Will Reduce U.S. Production – EIA

“Tehran will not hesitate to increase its oil output once anti-Iran sanctions are lifted and would not wait for the permission from OPEC to increase its production.” – Bijan Namdar Zanganeh

Those comments were delivered to the 167th Meeting of the Organization of Petroleum Exporting Countries (OPEC) on June 8 by Iran’s Minister of Petroleum prior to the P5+1 reaching an agreement with Iran on their nuclear capabilities.

And it appears that Iran is making good on that promise.

According to the Wall Street Journal, Iran’s deputy petroleum minister recently stated that his “country’s oil exports would reach 2.3 million barrels, compared with around 1.2 million barrels a day today. “We are like a pilot on the runway ready to take off. This is how the whole country is right now…” Bloomberg also reported that Iran plans to regain its market share from pre-sanction levels, regardless of price.

Last week, the U.S. Energy Information Administration (EIA) published an analysis that, according to its estimates, projects that Iran will increase its crude oil production by about 600,000 barrels per day by the end of 2016, if the agreement is implemented.

Iran Oil Exports EIA

In this same analysis, EIA also projects that a 600,000 bbl/d increase in Iranian crude production will reduce U.S. production by about 400,000 bbl/d – directly impacting U.S. jobs and the domestic oil supply chain:

  • These additional Iranian volumes are expected to put downward pressure on global oil prices in 2016, as Saudi Arabia and the rest of producers in the Organization of the Petroleum Exporting Countries (OPEC) are not expected to make production cuts to accommodate additional Iranian volumes in a well-supplied global oil market.
  • Lower world oil prices in 2016 likely will result in lower non-OPEC production and slightly higher consumption, largely offsetting the higher Iranian production. Non-OPEC producers are expected to see their output fall as a result of high inventory builds and lower prices. In particular, EIA’s outlook for U.S. crude oil production was revised downward by about 400,000 b/d in 2016. (emphasis added).

Domestic oil producers and our overall economy could be negatively impacted – through a reduction in crude oil production – when Iran begins to increase its exports. Allowing Iran to become a major oil exporter, while U.S. crude remains stranded will not only negatively impact the U.S. economy, but it will also enhance Iran’s geopolitical position in the world while depriving the U.S. of an important diplomatic and foreign policy tool that could be used to aid allies and trading partners across Europe, the Middle East and Asia.

Two ways to offset this unintended consequence are for the President to lift the crude oil export ban administratively or for Congress to repeal the ban legislatively.

Many foreign policy and national security experts and think tanks from across the political spectrum agree. Below is a snapshot of what they’re saying about crude oil exports:

  • Leon Panetta, former Secretary of Defense, and Stephen Hadley, former National Security Advisor: “Too often foreign-policy debates in America focus on issues such as how much military power should be deployed to the Middle East, whether the U.S. should provide arms to the Ukrainians, or what tougher economic sanctions should be imposed on Iran. Ignored is a powerful, nonlethal tool: America’s abundance of oil and natural gas. The U.S. remains the great arsenal of democracy. It should also be the great arsenal of energy.” (Wall Street Journal, 5/19/15)
  • William Cohen, former Secretary of Defense: “A prudent way to support the continued expansion of the U.S. energy sector and our domestic energy security is to level the playing field by relaxing restrictions on American crude oil and LNG exports… For the first time in a half century, President Obama has the opportunity to re-write the energy balance of power in our favor and solidify his legacy on trade. President Obama is the only U.S. president in decades who has had the tool of energy abundance at his disposal; he should use it.” (Time, 5/27/15)
  • Michèle Flournoy, CEO and Co-Founder Center for a New American Security and former Under Secretary of Defense for Policy: “Lifting oil export restrictions will yield a variety of security dividends to the United States. First and foremost, allowing crude exports would further strengthen our economy – the foundation of our national security…Shoring up the United States’ economic position would, in turn, strengthen our ability to play a much needed leadership role in international security and economic affairs. And we should not underestimate the degree to which becoming an exporter could impact perceptions of the United States as a vital global power, helping to discredit erroneous narratives of U.S. decline.” (Congressional testimony, 7/28/15)
  • Carlos Pascual, former State Department official: “The ban [is] hurting Washington’s credibility on the international stage, particularly on related issues such as free trade, sanctions on Iran and even climate change. “If the basic point is to say to countries that we have to (work) together to put global interests and concerns above short-term domestic action. The only way to maintain credibility is if you do it yourself.” (Reuters, 1/29/15)
  • Robert McNally, President and founder of The Rapidan Group and former Sr. Director for International Energy on the National Security Council: “The U.S. energy boom is a national security and foreign policy blessing. Our ability and will to export energy strengthens our global influence;  eassures allies while giving them leverage with major producers like Russia; bolsters free trade, especially for strategic commodities; and reinforces efforts to dissuade Tehran from developing a nuclear weapons capability. As our energy circumstances have changed, so too should our energy policy. (Congressional testimony, 6/23/15)
  • David Gordon, Sr. Advisor at Eurasia Group and former Director of Policy Planning at the State Department: “Expanding our energy exports will further strengthen the U.S. trade account, reduce our international indebtedness, and thus enhance the stature and ability of the United States to lead on international economic, strategic and defense matters. In an era of budget austerity, war fatigue, proliferating security challenges, and the expanding use of economic sanctions, a strong U.S. economy expands policy options beyond the more conventional diplomatic and military choices. It creates an opportunity to hone smarter and more creative tools to advance our national interests in the international arena.” (Congressional testimony, 6/23/15)
  • Elizabeth Rosenberg, Sr. Fellow at the Center for a New American Security and former Sr.Advisor at the U.S. Department of the Treasury: “For our European allies, the presence of more U.S. oil in the market will offer more supply options. This will mean that European consumers look less to Russia, from which they receive roughly 40% of their oil supplies and which has a history of coercive energy supply policies.” (Congressional testimony, 1/19/15)
  • Atlantic Council’s Global Energy Center:Repealing the ban will allow the United States to harness its vast natural resources to advance its foreign policy priorities in three ways. First, it will provide greater stability to global oil markets and reduce the price volatility. Second, it will limit the geopolitical influence of other major crude producers, including US adversaries. And third, it will demonstrate the United States’ commitment to free trade and open markets at a critical juncture.” (Atlantic Council- Global Energy Center, 5/4/15)
  • Brookings: “We recommend that the U.S. reconsider and modernize its energy policy by lifting the ban on crude oil exports entirely and immediately. It is evident to us, based on our policy deliberations and the extensive macroeconomic modeling of the U.S. economy, and the global oil market research we have commissioned, that the greater U.S. exports of crude oil, the greater the economic and energy security benefit to the country. In addition to the parochial benefits to the nation, as a leader in world trade circles, where the U.S. is a consistent advocate for open markets and transparency, continued restrictions on crude oil exports have the potential to tarnish the U.S. global standing and hinder its pursuit of strengthening energy security.” (Brookings Report: Changing Markets Economic Opportunities from Lifting the U.S. Ban on Crude Oil Exports, 9/2015)
  • Council on Foreign Relations: “Liberalizing the crude oil export regime would advance U.S. foreign policy. It would demonstrate Washington’s commitment to free and fair trade, even in a politically sensitive sector, bolstering its negotiating position on other trade issues. It would also avoid putting Washington at odds with allies that would like to source their oil from the United States. If the United States were to become a major crude exporter, its leverage as an oil trade partner would grow significantly.” (Council on Foreign Relations, 7/2013)

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