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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Iran's Return To Oil Markets Is Imminent

Following talks in Vienna this month, the U.S. could announce a deal with Iran as early as the end of May, which could lead to the lifting of oil and energy sanctions.

Analysts are predicting a return to pre-pandemic oil production levels for Iran, around 3.9 million bpd, by 2022, assuming that the U.S. eases the sanctions that have been suffocating Iran’s economy. Production levels in March stood at around 2.3 million bpd, the highest level since May 2019, an increase that highlights how Iran’s oil exports have already been recovering in spite of U.S. sanctions. 

Unofficial talks between the two countries have been taking place in Vienna for over a month, in collaboration with diplomats from Europe, Russia, and China, and are expected to result in some sort of an agreement between the U.S. and Iran in the coming weeks.

It is likely that a deal will be reached before Iran’s elections in June, that timeline would ensure an energy agreement is in place between the two countries before any change in government. 

Fernando Ferreira, director of Rapidan Energy Group’s Geopolitical Risk Service claimed that “Progress in Vienna is slow but steady,”. He added that “We’ve seen flexibility from both sides as Biden is now willing to move first, and Tehran understands some sanctions will stay.”

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The easing of sanctions is expected to be gradual, with a complete end to sanctions expected as early as September. This could allow Iran’s crude and condensate exports to increase to 1.5 million bpd by the beginning of next year. 

The hope is that the two countries will return to the Joint Comprehensive Plan of Action (JCPOA) mutual compliance agreement. This would present an easy path forward in the partnership between the two states as no new agreement would need to be developed. 

Under the JCPOA nuclear deal, the U.S. vowed not to restrict Iran’s oil export ability so long as Tehran complied with restrictions on its nuclear program. However, then-president Donald Trump took the U.S. out of the deal in 2018 and imposed sanctions. 

The sanctions introduced between 2018-2020 are viewed by the Biden administration as being “poison pills” meant to disrupt a return to the JCPOA. Iran is calling for a total revocation of these recent sanctions, with Biden aiming to remove those sanctions which hinder Iran’s economy. 

In reference to the talks, Iranian President Hassan Rohani stated this week that "sanctions will be lifted soon if we are all united."

Meanwhile, OPEC crude production increased by 70,000 bpd last month, achieving a three-month high of 24.96 million bpd, largely due to Iran’s increased output. Iran is now ahead of Kuwait for oil production, making it the fourth-largest oil producer in OPEC. 

OPEC+ quotas have limited Iran’s output in recent months, although production decreases in North and West Africa have allowed for slightly higher production from both Saudi Arabia and Iran. 

In addition, Iran has been fostering energy partnerships with industry giants China and Venezuela. These export partnerships are expected to help Iran get back on track quickly as soon as restrictions are eased. 

Talks in Vienna between the U.S. and Iran are looking promising. The proven oil-producing ability of the state as well as its strong relationship with China and Venezuela will mean Iran’s oil industry could soon be back in full swing.

By Felicity Bradstock for Oilprice.com

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  • Mamdouh Salameh on May 12 2021 said:
    Don’t delude yourself. US sanctions on Iran may never be lifted even by 2023 or ever. The reason is that the positions of the United States and Iran are irreconcilable.

    Iran will neither negotiate directly with the United States before the sanctions are lifted first nor will it be ready to renegotiate the nuclear deal which will certainly try to impose limitations on its nuclear and ballistic missile development programmes. From the United States’ point of view, renegotiating the deal means Iran’s relinquishing its nuclear and ballistic missile development programmes which Iran will never do and therein lies the rub.

    Moreover, several geopolitical factors don’t bode well for any successful outcome now or in the future. The first is that Israel will do everything within its power to prevent a return of the United States to the nuclear deal even precipitating a war between Iran and the United States or possibly attacking Iran’s nuclear installations on its own.

    The second factor is that it is most probable that supporters of the Islamic Revolutionary Guard Corps (IRGC) are going to win the Iranian elections in June. The IRGC and its allies will do their utmost to derail any negotiations with the United States as a retaliation for the assassination of their leader Qasim Sulimani or forcing a deal on their own terms.

    A third factor is that Iran might go for broke. With the success it has so far achieved in evading US sanctions, Iran may accept the continuation of sanctions as a small price to pay for ejecting US military presence from Iraq, Syria and eventually the whole Gulf region thus winning a spectacular geopolitical victory over the United States.

    Furthermore, the geopolitical balance in the Gulf region is already tilting towards Iran as judged by the reported talks between Saudi Arabia and Iran to reach some sort of a rapprochement, the continued harassment of US Navy ships by the IRGC Navy in the Strait of Hormuz and also the completion of the Iranian Goreh-Jask oil pipeline that allows Iranian crude oil exports to bypass the Strait of Hormuz thus enabling Iran to use the threat of closing the Strait of Hormuz for political reasons without hindering its own oil exports.

    Iran is determined to acquire nuclear weapons otherwise why the need for a ballistic missile development programme. The United States and its allies in the Arab Gulf as well as Israel want to thwart Iran’s nuclear ambitions.

    There is also an element of security and also logic involved with Iran’s quest for nuclear weapons. Its logic is that if Israel, India, Pakistan and North Korea can defy the world and get away with it, why not Iran.

    And contrary to the author’s statement, Iran has been managing successfully to evade US sanctions and export an estimated 1.5 million barrels a day (mbd) or 71% of its pre-sanction exports. Therefore and in the unthinkable possibility of a return soon to the market, the maximum Iran can bring to the market is 650,000 barrels a day (b/d) being the difference between its exports before sanctions and those under sanctions.

    Furthermore, OPEC+ hasn’t limited Iran’s output in recent months as the author claimed because Iran was exempt from the production cuts.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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