What impact could the lifting of economic sanctions on Iran have on Africa's major oil exporters?
As Iran ordered a ramping up of production by 500,000 on Monday, Persian tankers were already filling their hulls with millions of barrels of low-sulphur crude, destined mostly for European markets. Although there are some factors restricting the accessibility of Iranian crude to foreign markets, especially given that U.S. institutions are still barred from Iranian oil transactions, Iran will want to regain market share it has either lost, or never had access to. This will most likely translate to more supply of high-quality hydrocarbons and downside pressure on prices.
Iran has not had much in the way of investments into its oil infrastructure since the 1970s, and the lifting of sanctions will attract European investors to Iran, a country seen as relatively more stable, with lower production costs compared to African oil Exporting countries. This will take the shine off of a lot a potential African exploration projects, as well development in capacity-building and infrastructure. African oil exporting countries have already been squeezed out of the market, either by the collapse in prices, or via internal security or political issues.
In the case of Nigeria, Africa’s largest producer in 2014, offshore oil developments are costly and infrastructure, even in the lower Niger Delta region, is inadequate and compromised by local militant groups. Iran’s entry into the market with its competitive high-grade hydrocarbons will take the already diminished shine out of investment in Nigeria and other African crude exporting countries.
For these countries, falling export revenues have already occurred and government coffers and, consequently, public expenditure, deficits, debt and borrowing costs have also suffered, and now oil-related investment is beginning to following suit. As late as mid-2015, for example, Mozambique and Tanzania attracted attention from investors interested in these countries’ enormous natural gas reserves. Anadarko Petroleum made significant headway in developing Mozambique’s natural gas exporting capacity, however, amid tumbling share value thanks to speculations over a protracted rut in energy prices, Anadarko decided to postpone important gas field development decisions, fueling concerns over the LNG viability in Mozambique.
Mozambique is just one example of how the new developments in global energy markets could further exacerbate situations in African countries. As risks to the outlook of hydrocarbons remain heavily weighted on the downside, more companies will begin to scale back investment in Africa, making such developments more reliant on public money, which is harder to come by given the financial markets recent disdain for emerging market debt.
However, there is always a silver lining. Although many African countries are exporters of crude, refined petroleum is still imported, as is the case in Nigeria. Lower prices will give consumers and businesses a boost in these countries and could help with non-oil-related investment. Tanzania and Mozambique won’t come online as LNG exporters until after 2020, and it is difficult to say what the situation will be in five years, but natural gas’ advantage over dirtier fuels could cause its demand to increase beyond that of dirty fuels in the longer term.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: January 20, 2016
TagsPalladium United States Australia MENA Base Metals Africa Major Economies Japan Resource Curse Political Risk Company News Canadian Economy Infographic chile Exchange Rate Economic Growth (GDP) Eastern Europe Banking Sector centralbanks Cannabis digitalcurrencies Housing Market Economic Debt Unemployment rate Spain UK Bitcoin Inflation election Vietnam Colombia Draghi CIS Countries Turkey Agricultural Commodities Base Metals Commodities China Energy Commodities Cryptocurrency United Kingdom Canada precious metals Economists Gold Lagarde Eurozone Israel Central America Sub-Saharan Africa Greece GDP Nordic Economies France Commodities interview economic growth public debt Healthcare TPS Asia South Africa Asian Financial Crisis Euro Area Portugal Precious Metals Commodities Budget deficit USA IMF scotiabank Asean Italy Consensus Forecast Tunisia Mexico Economic Crisis India Emerging Markets Latin America Forex TPP Copper Russia Nigeria Brexit Venezuela Germany Argentina Oil Costa Rica; GDP; Budget Investment Trade G7 Iran OPEC European Union Ukraine oil prices Brazil Exports
We are happy to announce that ING, Goldman Sachs, Moody's Analytics, E2 Economia, Citi, Banco Itaú, HSBC, TD Securi… https://t.co/DRJQc0j00k
2 days ago
Asia will be the best-performing world region economically in 2022, with India, the Philippines and Vietnam expecte… https://t.co/45botJr7G3
3 days ago
Congratulations to Oxford Economics, Fitch Solutions, JP Morgan, EIU, EFG Hermes and Econometrix for being awarded… https://t.co/qqQGL5fbov
3 days ago
Congratulations to National Bank of Kuwait, J.P. Morgan, Euromonitor International, Oxford Economics, Economist Int… https://t.co/UC9x9jxCeH
3 days ago
Congratulations to Fitch Ratings, J.P. Morgan, Halyk Finance, Oxford Economics, and Renaissance Capital for being a… https://t.co/LgTFiuaz6w
4 days ago