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President Joe Biden’s expected revival of the 2015 Iran nuclear agreement will enable Iranian oil barrels to reach the global market when prices are at their highest level in two years due to demand recovery from the pandemic.
Former President Donald Trump did not fulfill his promise of “maximum pressure” to cut Iran’s oil exports to zero after scrapping the Obama administration’s nuclear deal. But his harsh sanctions deeply bruised Iran’s economy, even if the penalties failed to inspire Tehran to come back to the table to negotiate a new deal that would also curb its ballistic missile programs and support of militants across the Middle East as Trump had hoped.
Iran has now demanded U.S. sanctions relief on oil exports ahead of its resumed compliance with the original nuclear deal, should negotiators reach a truce to restore it during talks in Vienna.
“The biggest driver of Iran participating in negotiations again is getting oil back on the water and oil money unfrozen in banks,” said Scott Modell, managing director of Rapidan Energy, a research group. “That starts right away, should there be an agreement.”
The Biden administration, meanwhile, is expected to deliver on lifting sanctions.
The United States and the European Union dangled the “lifting of sanctions” as an “essential part” of the nuclear deal in a joint statement issued after a June 14 summit.
“There is deep political will in Tehran and Washington under Biden to do a deal,” Modell said.
U.S. and Iranian officials are not negotiating directly, delegating talks to diplomats from Europe, China, and Russia. But analysts say the next few weeks represent a unique opportunity for reaching an agreement to resume the nuclear deal before the inauguration of Ebrahim Raisi, Iran’s new hard-line president, in early August.
That will allow Raisi, an ally of Iranian Supreme Leader Ayatollah Ali Khamenei, to avoid blame if sanctions relief does not quickly boost Iran’s economy.
Biden is equally ready to rejoin the agreement, one of his top foreign policy campaign promises.
While his chief motivation is to prevent Iran from a nuclear breakout, analysts say Biden could welcome Iran’s subsequent return to global oil markets. Once OPEC’s third-biggest producer, additional crude supply from Iran could reduce rising gasoline prices in the U.S. that have put the Biden administration on the defensive.
“The Biden administration has a problem here,” said Kevin Book, managing director of ClearView Energy, a research group. “Gas prices are rising so much, the American voter is hurting. So if one of the side effects of the Iran deal is more supply on the market, there is no reason why they would say no.”
Iran has been preparing for a return to the oil market, and traders may have already “priced in” its impact.
“The growing demand will absorb the extra barrels, and prices will not experience any major shock,” Louise Dickson, an oil markets analyst at Rystad Energy, said in a June 23 research note.
Still, there will likely be some weakening of prices if Iran can quickly ramp up exports.
Rapidan Energy expects Iran to increase exports to 2 million barrels per day, up from about 1 million barrels per day currently, within a month of Biden lifting sanctions. Iran could return to its full production capacity of 3.8 million barrels per day by April 2022.
While traders and refiners will remain reluctant to reengage with Iran until international inspectors sign off its nuclear compliance, Tehran will likely quickly work off inventories of crude and condensate that it has been keeping in offshore floating storage and onshore tanks.
“The plus-up in Iran’s exports will be from offloading storage,” said Modell of Rapidan Energy. “They are waiting for that magic moment when a deal is announced when they are allowed to start exporting again.”
Tehran’s oil exports never totally stopped during the Trump administration, with some still going to China, its biggest customer.
Both the Trump and Biden administrations have been reluctant to enforce sanctions against Beijing, given its economic power. Rapidan Energy projects that Iran’s oil exports fell below 200,000 barrels per day for a few months but averaged about 500,000 during Trump's maximum pressure campaign. Iran has pre-positioned additional barrels to send to China once sanctions are lifted, Modell and other experts said.
“The issue with China buying Iranian oil and condensate is not going to get demonstrably worse because sanctions are lifted,” said Book of ClearView Energy.
Karen Young, director of the Program on Economics and Energy at the Middle East Institute, said she expects Iran to reenter oil markets more fully and get some sanctions relief through 2022, taking advantage of higher crude prices.
But she said Iran’s energy sector is not positioned for long-term success as investors apply more scrutiny to fossil fuels. Tehran has lagged competitors in the Middle East, including Saudi Arabia, that are moving to diversify from oil into cleaner sources, such as hydrogen and solar.
“Iran’s advantage in oil markets will be short-lived,” Young said. “They are not really well placed to enter the energy transition. There have to be other ways to generate revenue even if you are an oil producer.”
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Original Author: Josh Siegel
Original Location: Iran poised to return to global oil markets if Biden revives nuclear deal