Iran made a statement when the country issued official selling prices for June contracts of heavy crude oil sold to Asia. The most recent pricing information unveiled by Iran is the largest discount to Saudi and Iraqi oil since 2007. The Iranian announcement was just a few days after Saudi Arabia announced a price increase for their June contracts to Asia. The discount marks the third time in five months that Iran has changed pricing methodology. Tehran typically adjusts its crude price formulas to Asia at the beginning of each quarter following negotiations with its clients. However, this year it has changed at least some of its crude pricing formulas in March, April and June.

The motivation behind these actions aren’t difficult to discern. Sanctions placed on Iran essentially removed a large portion of Iranian crude from the world market for a number of years. After receiving relief from the sanctions, Iran has made a priority out of reestablishing themselves as a player in the world oil market. By reducing oil pricing to one of their largest markets, Iran hopes to garner increased market share and compete with Saudi Arabia and Iraq.

The changes in pricing policy have already shown to be effective. Reuter’s reported that Iranian exports to Asia increased in March 2016 by 50% on a year over year basis over March 2015.  Iran is hungry for oil revenue as, and any and all increases are welcomed in Tehran.

The potential is for this to turn into a chess match for market share by playing a game of ‘oil price chicken’ within the Middle East, it’s a game of oil barrels and pricing. To the winner, the Asian market and the contracts that go along with it. China is the largest consumer in this market, but projections have speculated that India could be the next frontier of oil consumption growth over the next twenty-five years.

Expected to be released in July, Iran is in the final stages of configuring their oil investment contract. Iran’s goal is to solicit foreign investment and oil and gas companies to ramp up infrastructure in the country to pump more oil. With increased investment, more crude is sure to flow form the Iranian fields, and production targets will become more attainable. With increased interest form the Asian market for Iranian crude, Tehran is positioning themselves for short term market share growth, and long term gains when production increases.


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