As we enter the second quarter of 2015, the precarious balancing act that the oil price finds itself in means any major surge of additional supply that seeps into the global network could have a catastrophic effect on producers.

There is a real chance of this happening if the sanctions are lifted and Tehran decides to emulate Saudi Arabia’s current strategy of maintaining high production to ensure market share.

Iran has a capacity of about 4.5 million barrels a day (b/d) and before sanctions were imposed, this meant 2 million b/d was used domestically while the rest was exported. As the sanctions kicked in, Tehran was only able to sell about 1 million b/d, meaning it has the potential to export a lot more at very short notice.

As with most issues dealing with Iran’s labyrinthine oil sector, the reality could be a lot more damaging to the global oil prices. Tehran has been stockpiling oil at a vast rate and there are some reports that suggest as much as 35 million barrels are stored and will be immediately offered for sale if the sanctions are lifted.

Bloomberg has stated that 13 tankers, each with the capacity to carry 2.1 million barrels of oil, are anchored offshore in Bandar Abbas. The displacement of the vessels suggests they are all full. 

However, there is contrasting data that suggests there is less oil being stored in Iran, with US officials stating between 7-17 million barrels is a more accurate figure.

The ability to sell the crude will be completely reliant on whether the shipping and insurance sanctions are also lifted. These have crippled the Islamic Republic’s ability to transport oil and will need to go if this huge volume of crude is to be sold.

Iran is desperate for cash, so it is likely oil buyers will be lining up in the hope of securing a good deal on this stored crude.

Tehran will also feel that after so many of its neighbours have, in its eyes, profiteered from the sanctions against Iran, there is no obligation to consider what increasing production and selling its stockpiled oil will have on prices. 

The immediate influx of large volumes of Iranian crude could increase the market surplus by as much as 30 per cent.

What is also unclear is exactly how long the Islamic Republic will take to ramp up production to full capacity. With crumbling infrastructure, it is almost certain National Iranian Oil Company could take as long as 12 months to fully recover output to 4.5 million b/d. There are some who even doubt whether a full return is possible without significant investment.

Welcoming Tehran back from the diplomatic cold is a welcome move, but after three years away, the appetite for its oil may not be as warm as it once was. It is going to win back its former customers and the only way to do that is to sell its oil cheaper than everyone else.