Iran More Likely to Join Oil-Cap Group After Election, IIF Says

(Bloomberg) -- The rise of moderates in Iran’s elections has increased the odds of the nation joining an oil-producer coalition to freeze output and bolster global crude prices, the Institute for International Finance said.

President Hassan Rouhani’s reformist allies, who made significant gains in the parliament and a top clerical body last month, will advocate a compromise with Russia and some members of the Organization of Petroleum Exporting Countries, the Washington-based group said in a report. Such a move would lift Brent crude to $50 a barrel by the year’s end, according to IIF. It has sold for an average $40.88 in the past six months.

“The revenue from oil for Iran would be much higher even if they agree on freezing production at the current level rather than having no agreement which would keep oil prices low,” said Garbis Iradian, chief economist for Africa and Middle East at IIF. Moderates have more influence now than hardliners who oppose “foreigners’ looting of natural resources,” he said.

Global oil markets will see a re-balance if Iran could reach a compromise deal with the coalition led by Russia and Saudi Arabia at talks this month on a proposed accord to freeze oil output. Limiting production would reduce the global oversupply that has pushed Brent crude prices down by more than 40 percent from last year’s high in May, pummeling economies, markets and companies worldwide.

Bargaining Power

Iran has more negotiating power now than it did when Saudi Arabia, Russia, Venezuela and Qatar agreed to freeze production at January levels, Iradian said. It was in Iran’s interest to delay talks until it had enough time to recover from sanctions lifted in January and restore output closer to its pre-sanctions level of 3.6 million barrels a day, he said.

Higher oil prices will help Rouhani secure a revenue stream that will finance Iran’s infrastructure deficiencies. The government is struggling to attract $50 billion in foreign investment to overhaul the country’s energy industry. International firms remain hesitant to invest as the U.S. has maintained some restrictions and concern remains that sanctions may be re-imposed.

Recent election results also do not ensure a completely free hand for Rouhani to carry out reforms that would attract more foreigners. Many laws and decrees still need to be approved by the Guardian Council, a body of jurists and clerics close to the supreme leader Ayatollah Ali Khamenei.

To contact the reporter on this story: Sangwon Yoon in New York at syoon32@bloomberg.net To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Richard Richtmyer

Copyright 2016 Bloomberg News.

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