Reviving Iran nuclear deal could dramatically change oil prices

The return of the Iran nuclear deal could be imminent – ​​and with it the return of a lot of oil to the international crude markets.

Before the US resumed sanctions on Iran after former President Donald Trump left the deal in 2018, Iran was the third-largest producer in OPEC after Saudi Arabia and Iraq. In 2017, the country was the fourth largest oil producer in the world, after the US, Saudi Arabia and Russia.

Tamas Varga, an analyst at PVM Oil Associates in London, told CNBC on Tuesday: “OPEC could easily produce 30.5 million bpd (bpd) if Iran comes back and those barrels are gone. enough storage space. “Under this scenario, my model shows Brent oil prices falling to $65 per barrel in the second half of 2023,” Varga said.

That’s a huge drop compared to current Brent crude oil pricewas trading at just over $101 a barrel on Tuesday morning in New York.

Last week, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, warned that OPEC could be forced to cut oil production. The minister argued that the paper and physical market is “disconnecting” from the latter’s market suffering from “very thin liquidity, extreme volatility,” he said in an interview with Bloomberg last week.

However, analysts said the possibility of Iran’s re-export on the market could also be a concern.

“OPEC+ may be preparing for an eventual return of Iran,” Varga wrote in a report on Tuesday. “If the nuclear deal were to be reinstated, 1-2 million barrels of oil per day could hit the market in a relatively short period of time.”

And veteran OPEC analyst Helima Croft, head of global commodity strategy at RBC Capital Markets, told the Financial Times last week that “early this year, I think it’s fair to say that Saudi Arabia is the only Saudi Arabia.” -The United States and other countries in the region reasonably believe that the Iran deal will go nowhere in the near future… Now that the talks have been revived, I think they are. will focus on both the oil market, and the broader security implications of this deal are likely to cross the finish line.”

Iranian negotiators in mid-August expressed optimism about the prospects for a deal, with one adviser saying “we are closer than before” to securing a deal and that “remaining problems are not difficult to solve. ”

But so far, it seems there are still a few sticky spots left that are proving to be quite difficult to resolve. The main point of contention between Iran and the West is the ongoing investigation by the International Atomic Energy Agency – the United Nations’ nuclear watchdog – into unexplained traces of uranium. found at Iranian facilities in the early 2000s. Tehran wants the investigation to end before it accepts any deal; The IAEA and the US and European governments have so far refused.

The nuclear deal, officially known as the Joint Comprehensive Plan of Action and drafted under the Obama administration along with France, Britain, Germany, Russia and China, lifted economic sanctions on Iran in exchange for limits on its nuclear program.

However, since the US withdrew in mid-2018, sanctions have crushed Iran’s economy of 84 million people, and Tehran has gradually increased its nuclear activities in violation of the agreement, enriching itself. uranium to the highest level it has ever enriched and prompted the head of the IAEA to warn that “only bomb-making countries” have this level of activity.

That means the stakes are high, and especially for the Biden administration, which sees restoring the deal as a major foreign policy goal. It also became more urgent as sanctions against Russia for its invasion of Ukraine reduced Europe’s oil and gas supplies and sent prices skyrocketing. While Iranian oil has not fully offset the loss of Russian barrels, it still helps ease supply pressures, analysts said.

Reid l’Anson said: “An agreement with Iran will represent exports, production and exports of crude oil by 1.1, 1.2 million barrels per day. That will happen in the next 8 months. , Senior commodity analyst at commodity data firm Kpler.

But I doubt the possibility of an agreement is reached and he is not alone.

“The question is whether we can really come to an agreement,” he said. “I still think we probably won’t just because of the fact that it’s politically unpopular in the US and even in Iran.”

Bob McNally, president of Rapidan Energy Group, is more optimistic.

“We think a deal is likely; we think it’s always been pretty close and getting closer and closer,” he said.

“Iran has about 150 to 200 million barrels of crude oil and condensate floating on the water. As soon as the deal is done… you will rush to sell that reserve,” he said, estimating that Iran output will increase. about 900,000 barrels a day.

That would mean a significant increase from current production levels of about 30 million barrels per day, unless OPEC members significantly reduce their oil production. “That’s something that OPEC and OPEC plus have to take into account and think about when they think about oil supply policy,” McNally said.

Given the recent comments by the Saudi Energy Minister, it seems the group is definitely thinking about that. However, the longer the deal negotiations with Iran on the issues in dispute, the longer OPEC has to prepare – assuming some sort of agreement is reached.