Talks to revive the international nuclear agreement with Iran form which the US unilaterally withdrew in 2018 have for some time been rumoured to proceed well. A very concrete and encouraging sign came at the start of this week, when the US decided to waive some sanctions on civilian nuclear technology against Iran, as a confidence-building measure. A renewed Iran nuclear deal holds out a promise to rein in Iranian dual-use nuclear activities, which have accelerated since 2018, and to lower tensions in the region. Furthermore, it holds significant promise for the currently tight global oil market to see its supply and demand balance loosen. But when is it likely additional Iranian oil exports could reach the market?
Iranian oil production fell from 3.83 million bpd in March 2018, just before former US President Trump withdrew from the international JCPOA-agreement, to a pre-pandemic low of 2.0 million bpd by mid-2019, when sanctions had been further tightened. The fall was sharper than during the sanctions period under former US President Obama, but than US authorities had time to develop better tools to target the oil trade post-March 2018, compared to the 2011-2015 sanctions period. Like than, Iran had plenty of time and ability to shut down its facilities in an orderly fashion, making it highly likely that it will again be able to bring production back to just about 3.8 million bpd if a new agreement is reached.
Last time it took Iran from July 2015 to September 2017 to raise production from about 2.8 million bpd to 3.8 million bpd. However, it is important to point out that it took the international community from July 2015 to March 2016 to implement the JCPOA nationally and rip out sanctions legislation or waiver it. Iranian oil exports therefore started rising sharply just before March 2016, as sanctions enforcement fell off the radar, rising from 2.88 million bpd in the seven months from November 2015 to reach 3.6 million bpd in June 2016. The remaining 200,000 bpd of production took another 15 month to reclaim.
While ELS analysis see the pace being somewhat different this time around, it is important to bear in mind that even a swift agreement before end-May (it will likely take negotiations at the foreign-minister level to finalise and no such talks are yet planned it seems) will yield only smaller Iranian increases this year as they again make use of sanctions monitoring de facto stopping. International traders and shippers will still not partake given inabilities to get insurance cover and other important financial services. That means even an imminent deal will make a large supply difference at best in early 2023. It will be sorely needed by then. In the meantime, a recovery on the US shale industry remains the only hope for global oil markets to get noticeably looser, unless the global economic recovery slows.
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