Many are wondering what will happen to the oil market if the nuclear agreement between Iran, Europe and the United States is concluded and Iranian oil production returns to the market legitimately.
When did the boycott of Iranian oil begin?
Before the United States resumed sanctions on Iran following former President Donald Trump withdrew from the agreement in 2018, Iran was the third largest producer in OPEC following Saudi Arabia and Iraq. In 2017, it was the fourth largest oil producer in the world, following the United States, Saudi Arabia and Russia.
Brent price if Iran returns
“OPEC might easily produce 30.5 million barrels per day if Iran returns,” Tamas Varga, an analyst at PVM Oil Associates in London, told CNBC on Tuesday.
“Under this scenario, my model shows that Brent crude drops to $65 a barrel in the second half of 2023,” Varga said. “This is a massive drop from the current price of Brent, which was trading at just over $95 now.”
Saudi warning
Saudi Energy Minister Prince Abdulaziz bin Salman warned last week that OPEC may have to cut oil production. The minister’s rationale was that the physical and paper markets were “separate” with oil suffering from “extremely thin liquidity, and volatility high,” he said in an interview with Bloomberg last week.
“OPEC + may be preparing for the eventual return of Iran,” Varga wrote in Tuesday’s report. “If the nuclear deal is revived, 1-2 million barrels per day of additional oil might reach the market in a relatively short period of time.”
Iran deal won’t happen
Helima Croft, a veteran OPEC analyst and head of global commodity strategy at RBC Capital Markets, told the Financial Times last week: “Earlier this year, I think it’s fair to say that Saudi Arabia and other regional players were confident in Reasonable extent that the Iran deal will not go well.” It will happen in the near future… Now that negotiations have been revived, I believe they will focus on both the oil market and the broader security ramifications of this deal that will likely cross the finish line. “
But since the U.S. withdrawal in mid-2018, Iran’s economy of 84 million people has been crushed by sanctions, and Tehran has gradually ramped up its nuclear activity in violation of the deal, enriching uranium to the highest levels it has ever enriched, pushing the head of the Security Council. The International Atomic Energy Agency warns that “only bomb-making countries” show this level of activity.
That means the stakes are high, especially for the Biden administration, which has listed reviving the deal as a key foreign policy objective. It has also become more urgent as sanctions imposed on Russia for its invasion of Ukraine have cut oil and gas supplies in Europe and pushed up prices. Analysts say that while Iranian oil will not fully compensate for the loss of Russian barrels, it will still help ease supply pressures.
He said the Iranian deal would represent 1.1 and 1.2 million barrels per day in crude exports, production and exports. It will happen over the next eight months. “So we will have a fundamental difference in balances globally,” said Reed Lanson, chief commodity analyst at commodity data firm Kpler.