Iran and Russia are reportedly negotiating Russia’s purchases of Iranian oil, at approx. 0.5 MM bpd. Against the 2013 indicators, when Iranian export totaled to just 1 MM bpd, this figure looks impressive. But the transaction may concern not only existing but also future output.

Iran has significant output increase potential. The country is known to have supplied approx. 2.5 MM pbd of the “black gold” to the global market, when economic sanctions were introduced in 2011.

Though relaxation of sanctions was a formal pretext for the supply increase, delay with commissioning of the Kashagan field in Kazakhstan is a stronger reason. It is an immense field with potential reserves of up to 10 bln tons. Pilot operation of the field began last year; 10 mln tons/ year were to be produced there in 2014/2015. But unforeseeable pipeline problems caused by high hydrogen sulfide content in products may delay production start by several years.

Iran is likely to make up for the emerging mid-term supply shortage. Of course, Iran is disinterested in price collapse; so an association with another major manufacturer may be the most efficient tool to mitigate the arising risks. And Russia is the most obvious choice here.