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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Iran Is "Tantalizingly Close" To A Nuclear Deal That Could Drag Oil Prices Down

  • A new iteration of the Joint Comprehensive Plan of Action (JCPOA) – is “tantalizingly close to being done".
  • The prize for a full new iteration of the JCPOA to be signed and put into effect will be at least an immediate 5-10 percent drop in oil prices in the short- to medium-term.
  • Kpler analyst: Iran could see an 80 percent recovery of full production within six months and a 100 percent recovery within 12 months.

The spike in crude oil prices last week in the aftermath of Russia’s invasion of Ukraine has lent further urgency to the long-running efforts to bring Iranian oil back into the global oil market in order to bring prices back down to levels that do not cause so much damage to major economies. According to sources closely connected to the current negotiations between the ‘P5+1’ group of nations (U.S., U.K., France, China, and Russia, plus Germany) and Iran exclusively spoken to last week by OilPrice.com, the mechanism to achieve this – a new iteration of the Joint Comprehensive Plan of Action (JCPOA) – is “tantalizingly close to being done.” However, the most senior source added, not only will Iran have to make significant nuclear and missile concessions first but, even more problematic for both sides albeit for different reasons, Iran will be committed initially to aligning itself with the full rules and regulations of the Financial Action Task Force (FATF) and then to becoming a fully-regulated and constantly-monitored FATF member. 

The prize for a full new iteration of the JCPOA to be signed and put into effect will be at least an immediate 5-10 percent drop in oil prices in the short- to medium-term and maybe more. Specifically, as highlighted by OilPrice.com most recently at the beginning of 2022, Iranian crude oil and condensate production could bounce back very quickly after a new iteration of has been signed and Iran’s Petroleum Ministry orders the National Iranian Oil Company (NIOC) to ramp up production. According to a senior analyst at global energy markets intelligence company Kpler, spoken to exclusively by OilPrice.com at the time, in this scenario Iran could see an 80 percent recovery of full production within six months and a 100 percent recovery within 12 months. “[As at the beginning of Q4 2021] Iranian crude oil production capacity stood at 3.9 to 4.0 million barrels per day [bpd] according to the NIOC with current output holding near 2.4 million, of which 1.7-1.8 million is consumed in domestic refineries, and close to 1 million barrels per day of condensate and natural gas liquids are also being produced at present, primarily from the South Pars gas field, although total condensate and NGL production capacity stands at around 1 3 million barrels per day,” said the Kpler analyst. “Ultimately, we believe Iranian production could technically jump by 1.7 million bpd including 200,000 bpd of condensate and LPG/ethane, in a 6 to 9 month period from when sanctions are lifted and an immediate impact of a 5-10 percent fall in the oil price would be likely,” the analyst concluded.

Over and above the nuclear and missile concessions required of Iran – that have been analyzed in their various aspects by OilPrice.com – and can be agreed to by Tehran with varying degrees of believability, the FATF is a different matter entirely. Founded in 1989 by the G7 group of nations - U.S., U.K., Canada, France, Germany, Italy, and Japan - the FATF was initially focused on identifying and combating money laundering but shortly afterward had its operational remit expanded to included to do the same for the financing of terrorism and related activities. With its 40 active criteria and mechanisms in place to prevent money laundering or to deal with those who do it, and nine criteria and mechanisms in place to do the same for the financing of terrorism and related activities, the FATF has swingeing powers to wield against individuals, companies, or countries who transgress any of its standards and is extremely aggressive in using them by degrees, depending on whether the sanctioned entity is on its ‘grey’ or ‘black’ list. 

Currently, Iran is one of just two countries – the other being North Korea – on its blacklist, with a particular failure on Iran’s part noted by the FATF in its inability or unwillingness to address its deficiencies even after the Implementation Day of the first JCPOA on 16 January 2016. According to the FATF: “Iran’s [2016] action plan expired in January 2018…[and] In February 2020, the FATF noted Iran has not completed the action plan.” The FATF added: “In October 2019, the FATF called upon its members and urged all jurisdictions to: require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran; introduce enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and require increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran.” The FATF concluded – and this is where we are now: “Iran will remain on the FATF statement on [High Risk Jurisdictions Subject to a Call for Action] until the full Action Plan has been completed. If Iran ratifies the Palermo and Terrorist Financing Conventions, in line with the FATF standards, the FATF will decide on next steps, including whether to suspend countermeasures.”

There are three key reasons why the FATF-conditionality being insisted upon by the P5+1 group of nations in the current negotiations to sign a new iteration of the JCPOA is so difficult for Iran. The first of these is that every single element contained in all 49 combined elements of the FATF’s anti-money laundering and anti-terrorism rules and regulations are being broken by Iran. Second, they are being broken by the Islamic Revolutionary Guard Corps (IRGC) and/or its associated entities and affiliates (depending on which of the 49 elements is looked at), and that the IRGC and its associated entities and affiliates permeate the very fabric of Iran’s economic and corporate structures. And third, the IRGC’s activities are regarded as being done entirely in the spirit of spreading Iran’s revolutionary Islamic message around the world by its religious leaders.

In this latter regard, the remarkably pervasive view that the IRGC is somehow a rogue element in Iran that acts without the full knowledge and blessing of Iran’s senior religious figures is devoid of any factual basis. As analyzed in-depth in my new book on the global oil markets – and evidenced in recent elections – at the center of the guiding principles of Iran, and of all of its politicians and of the IRGC, is the concept of Velayat-e-Faqih. This means that all serious political and religious authority is entrusted to the Iranian clergy, which makes all the key decisions for Iran, provided that they have been approved by the foremost religious leader - the Supreme Leader himself. It is only when this approval has been given that actions are then taken to enforce it by the guardians of the 1979 Revolution, the IRGC. “And these decisions cover everything of significance from foreign policy, through defense policy, economic policy, and intelligence policy, to any major domestic policy as well,” a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry told OilPrice.com. 

This standard operating procedure, then, feeds back into the breadth and depth of the IRGC’s involvement in all levels of Iran’s economic and corporate structures, as also examined in my new book on the global oil markets. Back at the beginning of 2016 – again, around the same time as Implementation Day of the first JCPOA - Emanuele Ottolenghi, a senior fellow with the foundation for Defense of Democracies testified before a sub-committee of the U.S.’s House Committee on Foreign Affairs that the IRGC had significant ownership shares in 27 companies that are publicly traded on the TSE, constituting at minimum 22 percent of its total value, at US$15.8 billion between them. Since then, according to sources in Washington and London, estimates are that the IRGC placed top commanders at the heart of more than 200 Iranian companies. Indeed, according to Ottolenghi, the IRGC is active in the Iranian oil, gas, petrochemical, automotive, transportation, telecommunications, construction, and metals and mining sectors, and identified several companies in which the IRGC owns a significant stake. Additionally, the U.S. Department of Treasury, Office of Foreign Assets Control, in September 2012, also described the NIOC itself as an “agent or affiliate” of the IRGC and therefore subject to sanctions under ‘Iran Threat Reduction Act’. Moreover, after years of prevarication – given the knowledge that to do so would be effectively to brand Iran’s religious leadership as the same – the U.S. officially branded the IRGC as a ‘Foreign Terrorist Organisation’ (FTO), with all of the ramifications implied

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on March 01 2022 said:
    Save your breath. I am on record having been saying since the Iran nuclear negotiations started in Vienna last year that US sanctions against Iran will never see the light of day soon or ever. The reason is that the positions of the United States and Iran are irreconcilable.

    The only deal Iran will accept is one on its own terms meaning that sanctions will have to be lifted first with no new limitations on its nuclear and ballistic missile development programmes. This is something the United States egged by Israel couldn't accept.

    The Iranian negotiators who are among the best in the world are fully aware that the United States is in a hurry to reach an agreement so as to focus all its energies on China and the evolving Ukraine crisis. Therefore, they will drag their feet for as long as it takes to extract maximum concessions from the United States.

    In the very unthinkable event that a new agreement has been reached, the maximum additional crude oil that Iran could bring to the global oil market doesn’t exceed 650,000 barrels a day (b/d) being the difference between pre-sanctions and post-sanctions Iranian crude oil exports. This is a drop in the ocean in a global oil market which is in its most bullish state since 2014 and which has already entered a super-cycle phase that could last up to 10 years and take Brent crude to $120 a barrel in the next few years.

    Therefore, the claim by the author that a new agreement with Iran could lead to an immediate 5%-10% drop in oil prices in the short- to medium-term and maybe more is more of a wishful thinking.

    Moreover, Iran doesn’t have a production capacity of 4.0 million barrels a day (mbd). Iran has never been able to produce 4.0 mbd since OPEC allowed it in the early 1980s a production quota of 4.0 mbd.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • American Eagle on March 01 2022 said:
    We wonder, will Iran ban it's oil to be bought by the Americans?

Leave a comment




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