Right here’s how briskly Iran might enhance oil output after settlement on nuclear deal
Weeks and months of delicate negotiations for the US, Iran and other parties are likely to lie ahead, but a revival of the 2015 nuclear deal – and the easing of sanctions – could see Tehran pick up oil production very quickly.
“Once Iran returns to nuclear compliance – likely two months after agreeing to revert to the deal – it will try to export as much oil as possible as soon as possible. It will not be subject to OPEC + quotas and instead will fight to regain its market share, “said Henry Rome, senior analyst for Global Macro at Eurasia Group, in a statement on Thursday.
He offered two graphs (see below) showing that Iran could reach its capacity of 3.8 million barrels per day within 12 months of signing an agreement:
Iran, of course, wouldn’t export all of that crude oil. Rome estimates that new exports are expected to be 2.2 to 2.4 million barrels per day. Total exports, including sales from the country’s significant volumes of floating storage, could be as high as 2.7 million barrels a day over the next year, he said.
Within three months of achieving compliance, Iranian exports would likely increase by 700,000 barrels a day, with around 70 million barrels of floating storage dumped in the three to six months following a deal. Production would reach 3.2 to 3.5 million barrels per day in the first three months, while closing the gap between these levels and the maximum capacity of 3.8 million barrels per day would likely take another six to nine months, cherished Rome.
The US and Iran made proposals for an interim deal before June that would allow time for talks on a full deal in the fall, Rome noted. While it is possible that a preliminary agreement would allow small amounts of Iranian oil to be legally brought to market, it is not likely as it would be too large a concession for the US to endure, he said.
The Wall Street Journal reported Wednesday that the Biden administration had signaled it was open to easing sanctions on elements of the Iranian economy, including oil and finance, in an attempt to narrow the disparities in the nuclear talks.
The current level of Iranian exports is unclear. The country is likely to export between 700,000 and 1 million barrels a day, mostly through clandestine shipments to China, Rome said.
Brent BRN00, -0.12% BRNM21, -0.12% and West Texas Intermediate CL00, + 0.08% CLM21, + 0.08% crude oil futures made small gains on Thursday. Both benchmarks have rebounded 27% so far in 2021, in part due to efforts by the Organization of Petroleum Exporting Countries and its allies, known as OPEC +, to curb production as they wait for a more complete recovery in demand – a recovery threatened by a resurgence of COVID-19 cases outside of the US
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A return to Iranian production would intuitively have a negative impact on prices, especially if demand growth remains weak due to ongoing restrictions on international travel that are expected to last through 2022 and an accelerated transition to green energy, Rome said.
“Unless consumption recovers unexpectedly and strongly, OPEC + must continue to manage the market,” he said, referring to the organization of the petroleum exporting countries and their allies. “Outside of OPEC, a full return of Iranian oil to the markets will make it difficult for producers to attract investment to maintain and expand production.”