Crude prices dropped below $28 a barrel earlier this week due to the expected rise in Iranian exports after the sanction against Tehran was lifted.

The group of P5+1 decided to revoke the international sanctions that disable Iran in exporting approximately 2 million barrels per day (bpd), as part of the landmark nuclear accord reached between Iran and six world powers. Prior to the sanction, Iran exported 2.3 million bpd, which fell to one million in 2011 and 2012.

As a member of OPEC (Organization of the Petroleum Exporting Countries), Iran issued an order to increase their production by 500,000 bpd. Currently, the country has at least a dozen very large crude carrying super-tankers in-place to export to potential buyers.

However, investors fear that the lifting of the sanction could worsen the already existing oversupply of crude worldwide, especially in the United States. Since Iran’s sanction has been lifted, other OPEC members will now be able to export oil across the already weak markets, which are currently plagued by an energy supply surplus.

Even with a surplus of crude worldwide, extraction of fossil fuel is still very much ongoing in the top producing nations in the Middle East, including Iran and Iraq.

At the minute, global oil companies are planning to cut investments and projects to safeguard their future, due to declining price of crude.

“Companies want to reduce their range of activity and pick those with the highest returns on capital,” said Brendan Warn, oil and gas equity analyst.

But, construction and rehabilitation of gas pipes and gas treatment plants are still visible in West Qurna and other Middle Eastern territories. Oil and gas solution companies have been utilising local workers to help the regions provide stable maintenance support staff as well as building good relations with the country due to the high percentage of local labour employed by said oil and gas companies.

“We have established a strong network of relationships with local construction companies. These factors along with our dedication to HSE, ethics and compliance, and security have given us a successful track record of utilising local capabilities and managing the risks of working in challenging locations,” said Cyrus Ahsani, CEO of one of the top oil and gas solutions in the Middle East.

It’s not all bad though as OPEC members expect to see the price of crude regain its footing in the market this year, as they forecast the non-OPEC producers to have difficulty in sustaining production over the next six months due to the continuing low oil price.

“With market participants likely opting for the worst outcome, which would swell the global oversupply even further, lower prices are required to shut-in production from non-OPEC countries, particularly the U.S. These adjustments are likely to (contribute to) even more company defaults related to oil, as well as less investment spending across the oil sector,” said UBS analysts Giovanni Staunovo and Dominic Schnider to CNBC.

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“Iran has been in sanctions condition for the past 12 years, and Russia is sanctioned too; so we have some joint interests to discuss. I look over the Iranian market and we know Iran has great experiences in working in these sanctions conditions which is much favored by Russia,” Sergey Lasutenko said in an interview with IransView’s Mojtaba Mousavi.

He said Iran and Russia are two of the biggest oil and gas countries in the world; adding Iran has great oil and gas reserves as Russia does and both countries have some big experiences in exploration and production of crude oil and other hydrocarbon products.

“We have some very close views on the market. The idea is to unify our forces. It is work of professionals to promote these ideas but the potentials in political and economical situations are very big. I think it will be very fruitful to cooperate,” he added.

He said Gazprom does not have many activities in Iran at the moment but it will be doing major projects in the near future.

“In the field of exploration, we can cooperate with Iran. Iran has a lot of experiences in constructing some machines and tools for drilling under the sanctions,” he said.  

He added Gazprom is estimating the Iranian market to estimate the Iranian forcibility and work of equipment production.

“We have technologies and Iran has its own. We have a great experience in offshore works. Gazprom is very good at sea drilling. We know that Iran has two seas: the Persian Gulf and the Caspian Sea; the Persian Gulf is very rich with gas and oil reserves and we can cooperate in the field.”

Iran and Russia are much closer than Iran and the US, he said, adding Tehran and Moscow have some platform to discuss in the oil and gas sectors.

Both Iran and Russia have great experience in drilling. Russia’s Gazprom has the biggest pipeline systems in the world, he said.

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While the International Energy Agency reported decline in Iran’s oil export, Ali Majedi, Iran’s deputy oil minister for international affairs and trade said Iran will give up efforts to boost oil exports.

Global imports of Iranian crude in April averaged 1.11 million barrels per day (bpd), the Paris-based IEA said in its monthly Oil Market Report released on Thursday, down 180,000 bpd from March.

US says under an interim deal signed in November between Iran and the P5+1, Iranian Iran should hold its oil exports to an average of 1 million bpd, but otherwise Iranian oil Minister says the Geneva deal does not ban Iran from increasing oil production and the country “will use every possibility to increase the amount of oil exports.”

“[We] will not wait wait for America’s permission,” Bijan Zanganeh said on April 7, 2014, according to the oil ministry news service SHANA.

While in Vienna, delegations from Iran and the P5+1 are trying to draft a final nuclear deal, the Iranian deputy oil minister reiterated that the country will accept a limitation on its oil export.

“We should not give up our efforts [to sell more oil]. (…) the P5+1 imposed an oil export cap but we are committed to our interests,” Majedi said on Friday in an interview with Iranian news site Parsnews.

“They may ask other countries to not buy Iranian oil but they cannot threaten us to [limit] our oil export. If any foreign country wanted to buy more oil, we definitely welcome the request,” he said.

China and India, two main customers of Iranian oil have said they see no reason to conform to arbitrary sanctions applied unilaterally by the US.

The United States also had to grant exemptions from sanctions to 10 European countries and Japan last year as the oil market needed high quality Iranian oil.

Iran has the world’s fourth largest oil reserves and is second only to Russia in reserves of natural gas.

Oil exports believe a prolonged oil embargo against Iran will put the United States and Europe in a worse financial position than they were before the sanctions, mostly because of a spike in oil prices and lack of adequate sources of backup oil supply.

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In London, the price of a barrel of European benchmark Brent closed at $116.73, up 21 cents from Tuesday.

New York’s main contract, West Texas Intermediate (WTI) for delivery in March, closed at $96.62 on the New York Mercantile Exchange.

“The main mover this morning was the new US sanctions,” said Rich Ilczyszyn at iiTrader.

“The market sold off pretty good this [Wednesday] morning and, on that story, came all the way back,” the analyst added.

 On Wednesday, the US Treasury Department announced new sanctions targeting Iranian oil revenue. The sanctions prevent Iran from gaining access to earnings garnered from its crude exports.

  The sanctions require the importing countries to keep their payments at home and only release them in return for purchases of goods from them by Iran, to effectively lock up Iranian oil revenue overseas.

Iran responded by condemning the measures as yet another act of hostility from the US government.

The US has spearheaded several rounds of Western sanctions against Iran in recent years, based on the unfounded accusation that Iran is pursuing non-civilian objectives in its nuclear energy program.

Iran rejects the allegations, arguing that as a committed signatory to the nuclear Non-Proliferation Treaty (NPT) and a member of the International Atomic Energy Agency (IAEA), it has the right to use nuclear technology for peaceful purposes.

In addition, the IAEA has conducted numerous inspections of Iran’s nuclear facilities but has never found any evidence showing that Iran’s civilian nuclear program has been diverted to nuclear weapons production.

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