Iran entering oil market may trigger geo-political tensions: IEA

After International Energy Agency (IEA) warned on Wednesday that the oil market could 'drown in oversupply'. Brent has dropped to 28 USD per barrel mark on Thursday.On the sidelines of the World Economic Forum at Davos, CNBC-TV18's Menaka Doshi interviews Fatih Birol, Executive Director, IEA. He is of the opinion that Iran's entery into the market can increase the oil supply beyond expectations, triggering further complications in a low demand market. Birol says Iran's production will compensate for the decline in the US output and may lead to geo-political tensions among major oil producers. This would further pull down the prices, contrary to what happened during the middle-east oil crisis."If there is no policy action taken by the Organization of the Petroleum Exporting Countries (OPEC), we will see a downward pricing pressure throughout 2016," he says, adding, this would be beneficial for India.On China, he says, the country will continue to buy oil despite a slowing economy, which is shifting from heavy (manufacturing) to service-oriented sectors. Below is the verbatim transcript of Fatih Birol's interview with Menaka Doshi on CNBC-TV18.

Q: Iran has estimated that it can increase production by about 500 million barrels per day. The International Energy Agency says it could be 300,000 million barrels per day. How do you see Iran versus Saudi Arabia battle or faceoff play out over the next few months?

A: We think Iran can increase the production by about 300,000 barrels per day immediately and plus an additional 200,000 barrels per day, about 500,000 barrels per day, which is more or less equal to what they expect in North America, US production to decline. It will compensate with each other. However, we will see immediate geopolitical tensions among major producers. They would like to have a greater market share and they increase the production and this unlike in the past, this tension pushes the prices down. In the past when there was a geopolitical tension in the Middle East, prices went up. Now that the geopolitical tension in the Middle East brings the prices down, a very rare issue.

Q: Do you expect the Organisation of the Petroleum Exporting Countries (OPEC), I know that there have been murmurs that the OPEC might consider cutting supply by a bit though in the December meeting they didn't say that at all but given the Iran position right now, you are expecting the OPEC will do that or will this market share battle continue to play out and if that is the case, where do you see prices head?

A: It will be up to OPEC countries to decide what they are going to do but if no policy action is taken, I expect throughout 2016 we will see further downward pressure on the prices. We will see low prices which countries like India and the others will enjoy for their economies.