Australia has a vital interest in what is happening in the Iranian nuclear talks. Iran desperately needs to have the embargoes removed from its oil exports because the country is being impoverished.
If Iran succeeds in gaining relief then there will be a substantial rise in the amount of oil in the market. At the same time, as we see from the latest BHP reports, oil recovery from American shale deposits is improving as better fracking technology lifts production. The US is on track to become the world’s largest oil producer before the end of the decade.
Oil prices will remain relatively high while there are so many disturbances in the Middle East. Nevertheless what is surprising traditional oil observers is that, despite the spread of civil wars in the Middle East, oil prices have been weakening.
But if peace ever broke out in Syria, and that peace spread to Iraq, then the substantial new Iraq oil reserves and production capacity would almost certainly come onto the market.
Earlier this year Iraq announced it had made its first new oil find in 30 years – at Mayan, about 350 kilometres south of Baghdad near the Iranian border. To date most of the new oil reserves in Iraq have been developments in known fields, usually in the country's autonomous Kurdistan region where there are jurisdictional disputes with the central Iraq government.
Currently Iraq produces about three million barrels of oil per day but the Kurdistan developments will enable it to rise to six million barrels per day, provided it can attract the money to develop the fields and associated infrastructure.
Australia is now a high-cost producer of LNG. The price of LNG is closely related to the oil price so any weakness in oil will be reflected in our LNG export revenue.
Unfortunately the new LNG projects in WA and Queensland have run substantially over budget and in the case of Queensland there are gas supply issues. That means Australia is very vulnerable to any fall in oil prices that is triggered by lifting the Iran embargo and/or peace in the Middle East.