Sanctions May Cut Iran's Oil Output by 15%

Iran's oil production could fall almost 15 percent this year due to reduced foreign investment, the U.S. Energy Information Administration (EIA) said in a report highlighting the growing strain on Tehran's oil sector even before factoring in the effect of new sanctions.

The EIA estimated Iran's oil output would fall about 500,000 barrels per day by the end of 2012, declining from 3.55 million bpd at the end of last year, as many foreign companies have been forced out of the country by existing restrictions.

"Iran's decline in output began to accelerate during the last quarter of 2011 and has continued. (The) EIA believes that the acceleration reflects a lack of investment, which is needed to offset natural production declines," the statistical arm of the U.S. Department of Energy said in its monthly Short Term Energy Outlook.

"A number of foreign companies that were investing in Iran's upstream have halted their activities as a result of previous sanctions against Iran."

The forecast did not include the potential impact of recent European Union and U.S. sanctions that take effect in July and June and are expected to curtail exports from the OPEC nation. The EIA said "it is too early to assess Iran's ability to place its supply elsewhere".

EIA figures show Iran's oil production has already fallen sharply from last year, averaging 3.42 million bpd in the first three months of 2012 compared with 3.7 million bpd in the same quarter last year.

Analysts at JPMorgan last week forecast Iran's crude oil sales could fall as much as 1 million bpd by July as Tehran's customers seek alternative supplies.

The United States has been leaning on countries to reduce their imports of Iranian crude as part of broad-based sanctions aimed at pressuring Tehran to curb its nuclear program, which the West suspects is a cover to develop atomic weapons but which Iran says is purely civilian.

Countries risk being cut off from the U.S. financial system unless they can show they have taken steps to reduce substantially their reliance on Iranian oil, though some traders and analysts have questioned Washington's willingness to target China and India, Iran's two largest oil customers.

So far, the United States has given waivers to Japan and 10 EU countries that have cut back on purchases.

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