There are five reasons why speculation about the impact of Iranian nuclear deal on the global energy market is overstated.

Iranian Foreign Minister Mohammad Javad Zarif and his Russian counterpart Sergey Lavrov arrive to their joint press conference in Tehran, Iran, Dec. 11, 2013. Photo: AP

A truly historic nuclear deal with Iran, sealed on July 14 between Tehran and the P5+1 (the permanent members of the UN Security Council, plus Germany), will have a long-lasting impact on both Middle Eastern and global developments. One of the most discussed implications of the deal in Russia is its possible impact on global oil prices and Irans ability to enter the European energy market, thereby challenging Russias positions there.

However, this is unlikely to happen for five key reasons, at least in the short- and mid-term.

#1: Shifts in global oil consumption

According to the Joint Comprehensive Plan of Actions (JCPOA) adopted last week in Vienna, international sanctions against Iran might be gradually lifted in the first half of 2016 at the earliest. However, no sanctions relief will be granted until Iran has taken steps to fulfill the Plan.

According to the Organization of the Petroleum Exporting Countries (OPEC), anticipated improvement in global economic activities in 2016 will be translated into higher oil consumption. As a result, world oil demand is forecast to grow by 1.34 million barrels a day (mb/d) in 2016 with total oil consumption reaching 93.94 mb/d. It will likely help decrease the gap between world oil production and consumption, easing the impact of the Iranian oil inflow to the market.

Even considering that Tehran has repeatedly stated that it may increase its oil output by one million barrels a day within six months of sanctions being canceled, the Iranian oil might be back on the market only in the second half of 2016 (more likely, at the end of 2016) after the sanctions will be lifted. This timeframe is likely to downplay the possible mid-term impact on global oil prices.

#2: The weakened state of the Iranian oil industry

The Iranian oil industry was hit by international and individual state sanctions the hardest, especially by financial sanctions and the oil embargo imposed in 2011-2012. In 2012, the oil industrys output dropped by 15 percent  (from 4.4 mb/d to 3.7 mb/d).

This, consequently, decreased Irans oil exports to Europe in 2012 by 80 percent, from 0.78 million barrels in 2011 to 0.16 million barrels in 2012. In 2014, Iran exported only 0.11 million barrels to Europe. This led to the loss of Iranian share of the oil market, which was quickly taken by Libyan and Nigerian oil.

Even after the sanctions are lifted, its going to be extremely hard for Iran to regain its share of the European energy market.

Also consider the fact that OPEC countries dont want to lose their share of the market. In the best-case scenario, when the sanctions are lifted, Irans economy will start a period of rapid growth (by some estimates, by 8 percent annually), which will lead to the increase in both oil consumption and production. However, the latter is likely to grow slower. Irans aging infrastructure and lack of capital investments should not be ignored as well.

#3: The outdated Iranian gas sector

Despite the sanctions under which Iran has been living for quite a long time, its gas production demonstrated quite impressive results. Even after introduction of the most severe sanctions in 2011-2012, Iran was slowly, yet steadily, increasing its gas production. In 2014 the growth was 8 percent from the level of its 2011 output, which estimates place at 172.6 billion cubic meters (bcm).

This means that its unlikely that after the sanctions relief Iranian gas output will immediately skyrocket. Iran does not possess modern equipment, facilities and investment, which is not a quick task to accomplish even after the sanctions relief and foreign investment inflow. The Iranian government estimates that the energy sector needs investments worth about $300 billion over eight years.

According to the most recent available BP statistical review, in 2014 Iran exported gas almost solely to Turkey 8.9 bcm (about 18 percent of Turkish gas imports including LNG), while Russia supplied 26.9 bcm to Turkey (56 percent of Turkey total gas imports) and about 147.7 bcm to Europe (30-35 percent of its total gas imports including LNG).

As Iran consumes about 97 percent of its own gas, it needs to import gas to be able to export it to Turkey. For more than a decade Iran has been buying Turkmen gas, e.g. 4.7 bcm in 2013, 6.5 bcm in 2014.

To increase its gas output, Tehran needs significant investments into its gas industry as, in the case of oil, this industry lacks modern equipment and technologies. Thus, it is doubtful that Iran can suddenly become a game-changer in the gas market, even with the help of Europe.

#4: Lack of pipeline infrastructure

Another obstacle for Iran to enter the European market and potentially challenge Russia there lies in its poor exporting pipeline infrastructure.

Tehran has only one pipeline, Tabriz-Ankara, which delivers its gas directly to Turkey and can potentially connect Iran to the European market. Aside from that, Iran can potentially use pipelines that run through Azerbaijan and Georgia to Europe. However Caspian petro-states are unlikely to let Iran take their share of the European market.

Although potentially Iranian gas can get access to European markets through the existing South Caucasus Pipeline (throughout capacity is over 7 bcm annually) and proposed Trans-Anatolian Pipeline (TANAP), which is planned to be finished in 2018 and carry some 16 bcm per annum.

Thus, Iran needs to construct another pipeline to Turkey to increase its supplies of gas or to build a new pipeline to Azerbaijan, which requires huge investments.

At the same time, Russia has already sealed a deal with Ankara to construct the Turkish Stream pipeline. Its planned annual throughput is 63 bcm per annum and the first deliveries are expected in December 2016.

This will make Turkey the major regional energy hub this means that Iran will have to deal with both Turkey and Russia to get its gas to Europe.

Another issue is that Iran has neither operating LNG plant for maritime supply of gas to Europe nor a substantial fleet of tankers for active LNG transportation. To finish ongoing construction of the Iran LNG Company on the west coast of Iran at Tombak (Bushehr province) is going to take several years more because the project is very expensive.

#5: The Chinese challenge

Another important fact is the growing competition for Caspian gas, including Iranian gas, from China.

Chinese demand for natural gas is growing and is expected to grow in the future as the country seeks to decrease the use of coal amidst environmental concerns and to increase the share of natural gas.

In 2014 Chinese pipeline imports of natural gas were up 14.7 percent year-over-year. China already works closely with Turkmenistan and actively increases its gas imports from other Caspian countries such as Kazakhstan and Uzbekistan.

China seeks alternative sources of gas imports in order to increase overall volume of gas imports, but not to diversify them as the EU does. That is why it will need more gas every year.

In April of 2015 Irans Ambassador to China Ali Asghar Khaji announced that Iran has ambitious plans to extend its energy delivery network to China under Beijing's massive "One Belt, One Road" project. Iran has already built a natural gas pipeline to its border with Pakistan. Now, when the Iranian nuclear deal is sealed, Islamabad is just waiting for the sanctions against Iran to be lifted and with Chinese funding it is going start building its section of the pipeline.

Thus, the EU has China as a serious competitor for Iranian and Caspian gas. Moreover, Iranian gas can potentially flow to China via existing pipelines of Turkmenistan, Uzbekistan and Kazakhstan, which is not an unrealistic scenario at all.

Thus, Iran faces major obstacles to becoming a large energy exporter, including the need to ramp up gas and oil production and build new transport infrastructure. Even when the sanctions will be lifted, Iran will need a lot of time to renovate its production capacities and to construct supply pipelines. This makes it almost unrealistic for Iran to become a substantial energy supplier to the European market anytime soon.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.