KUALA LUMPUR: The lifting of permanent sanctions against Iran, which would unlease an additional 1.8 million barrels of oil per day into the market, could drive crude oil prices to as low as US$50 (RM172) per barrel, said Institute of Chartered Accountants in England and Wales (ICAEW) chief economist Douglas McWilliams (pic).

“The lifting of sanctions is likely to reduce oil prices by (another) US$10 due to additional production from Iran. There is a 95% chance that negotiations between the United States and Iran will pan out and the sanctions to be lifted by next year,” he told a press conference to reveal ICAEW’s latest Economic Insight report yesterday.

McWilliams, who is also Centre for Economics and Business Research Ltd executive chairman, said despite high volatility in oil prices in the short term, oil prices are likely to hover within the range of US$75 to US$80 per barrel in the longer term, due to increased activity in non-conventional energy resources and the competition dynamics between China and the US in shale production.

“Depending on how aggressively they want to run the price war and also whether there will be a deal with Iran [as it adds extra supply], there is a chance that oil prices could go as low as US$50 per barrel,” he added.

Nevertheless, McWilliams reckoned that even if this happens, the oil price might not stay low at US$50 per barrel for more than three months.

“It wouldn’t stay low for too long because low oil prices would provide a boost to the world economy [such that] demand will pick up and [subsequently] the price [of oil] will also pick up,” he said.

McWilliams expects the oil and gas services industry to be the most adversely affected due to an expected slowdown in exploration and development of oilfields — its worse since the mid-1980s owing to a likely slowdown in the price of oil in the next six to 12 months. However, he expects the low price of oil will provide the greatest benefits for local industries such as metal producers and ceramics.

Meanwhile, McWilliams said the ringgit is likely to rebound as the currency hit a near five-year low to 3.4420 per US dollar yesterday, its weakest since February 2010. “We’re not far off from the bottom in terms of the weakness of the ringgit, and when the economy, and prices of oil and commodities pick up — which tends to happen around the same time — it will bring up the ringgit automatically,” he said.

This article first appeared in The Edge Financial Daily, on December 4, 2014.