As talks on reviving the so-called Iranian nuclear deal enter a critical stage with the window of opportunity for a comprehensive agreement closing, oil markets are on edge once again about how the outcome of the ongoing negotiations would impact supply and demand balances later this year and early next year.
The Biden Administration launched in April 2021 indirect talks with Iran, via the partners in the Joint Comprehensive Plan of Action (JCPOA), about a possible return of the United States and Iran to the deal. Talks have been struggling since the start. They were suspended for months until a new Iranian president and administration took office and were relaunched at the end of last year, with little progress made so far.
At the start of the talks in April, oil analysts first expected a legitimate return of Iranian oil to the market at some point in late 2021. As the negotiations dragged on and were suspended during the summer, the market pushed back the timeline for a return of Iranian barrels to 2022. This year, many analysts again pushed back that timeline to early 2023 if talks result in an agreement, considering that there would likely be a gap of six to nine months—and possibly more—before Iran starts to export oil without U.S. sanctions.
Whether a deal could be reached in the coming weeks and months would influence estimates of oil market balances because Iran could raise its oil exports by 1 million barrels per day (bpd) within the first year of no-sanction exports.
A full return to the deal and the removal of American sanctions would push oil prices lower as the surplus on the market would rise, upending current estimates. The longer the nuclear talks drag on, the longer it would take Iran to start ramping up its oil exports in case of an agreement.
However, there could be very little time left to reach a deal.
U.S. Secretary Antony Blinken warned earlier this month that the window of opportunity for a deal is closing.
“We have, I think, a few weeks left to see if we can get back to mutual compliance,” Secretary Blinken told NPR in an interview on January 13.
“This negotiation is urgent, and progress has not been fast enough. We continue to work in close partnership with our allies, but the negotiations are reaching a dangerous impasse,” British Foreign Secretary Elizabeth Truss told the UK Parliament on Tuesday.
“Iran must now choose whether it wants to conclude a deal or be responsible for the collapse of the JCPOA. If the JCPOA collapses, all options are on the table,” Truss added.
Earlier this week, Iran suggested that it may consider direct talks with the United States.
“If during the negotiation process we get to a point that reaching a good agreement with solid guarantees requires a level of talks with the US, we will not ignore that in our work schedule,” Iranian Foreign Minister Hossein Amir-Abdollahian said, quoted by AFP.
U.S. State Department Spokesperson Ned Price said on Tuesday: “We do believe that it would be more productive to engage directly with Iran when it comes to JCPOA, when it comes to other issues.”
Still, progress is not being made, and the Western countries in the JCPOA and the United States are concerned that dragging on talks further would allow Iran to advance its nuclear-weapon activities.
If the ongoing talks in Vienna collapse, it would likely be very bullish for oil prices as it would not only tighten expected market balances for 2023 and 2024, but it could also additionally increase the tension in the Middle East with a renewed U.S.-Iran standoff.
“So much has changed since 2015,” Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, told Bloomberg. “Iran is now a nuclear-threshold state. Would they be willing to relinquish that status? It’s not guaranteed,” Croft added, commenting on the possibility that talks could collapse.
The oil market will continue to keep a close eye on the talks, which seem like the wild card for prices later this year and next. Last week, Goldman Sachs said it was pushing its Iran ramp-up forecast to the second quarter of 2023 due to lack of progress in the negotiations, as it joined other Wall Street banks in predicting $100 oil as soon as this year.
By Tsvetana Paraskova for Oilprice.com
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