10 Nov – Oil market eyes Iran’s return with Biden win

The president-elect has vowed to lift US sanctions against Tehran and rejoin the Joint Comprehensive Plan of Action (JCPOA) nuclear deal, as long as Iran resumes compliance with all restrictions on its nuclear program. Sanctions imposed by President Donald Trump in 2018 have cut off more than 2mn b/d of Iranian oil exports. A potential return of Iranian crude to global markets, if Biden succeeds in restoring the JCPOA, would complicate implementation of the Opec+ deal, even as the producers’ alliance is discussing whether to extend a 7.7mn b/d crude production cut after January.

The general consensus among many Iran watchers is that the country will be able to increase output — now at 1.97mn b/d — and to use its crude and condensate inventories built up during the sanctions period to ramp up exports, once US sanctions are lifted.

But first, a Biden administration and the Iranian government must agree to the terms of restoring the deal. Tehran insists that the rollback of certain restrictions on its nuclear program is reversible, and it has maintained relations with UN nuclear watchdog the IAEA, allowing its inspectors to provide insight if an agreement emerges.

The Biden team and Iranian diplomats already appear to be negotiating, if only in public forums. The Biden team wants to restore the JCPOA quickly but also is talking about “strengthening and lengthening” the deal as the next step. It views parts of the agreement as outdated, particularly the sunsets on some restrictions on Tehran’s nuclear programme, and want a more vigorous inspection regime. Tehran has warned Biden’s team against trying to renegotiate the Iran nuclear deal and wants guarantees that a future administration will not again renege on it.

Tehran is urging Biden to make good on his pledge. “Now there is an opportunity for the future US administration to make up for past mistakes and return to a path of respecting international norms and complying with its international obligations,” Iran’s president Hassan Rohani said.

A possible first goodwill step from Washington could involve removing the recently imposed sanctions on private Iranian banks and providing stronger reassurance for the global banking community that humanitarian trade with Iran is exempted from sanctions. A Biden administration could offer Iran a mutual re-entry into the JCPOA within a predetermined timeline. A more limited option would be to offer partial relief from oil sanctions in exchange for similar concessions from Tehran. A limited agreement could allow for the return of up to 1mn or 1.5mn b/d — at some point in 2021.

“I do not really see it as a current issue,” oil trading firm Vitol’s chief executive, Russell Hardy says. “It is worth keeping in the back of the mind, but I do not think it is something that people should be overly concerned about in the short run.”

The prospect of even more oil coming to an over-supplied global market still is on the minds of oil executives, including in the US shale patch. “It would take at least a year for an agreement to be reached and for production to ramp up,” US independent producer Pioneer Natural Resources chief executive Scott Sheffield says. “So I look at it as an early 2022 event, to the middle of 2022 for Iran to bring on 1.5mn-2mn b/d.”

Actions taken by Trump’s administration in recent months complicate the task, with additional “counter-terrorism” sanctions slapped on Iran’s oil and banking sectors that the US hardliners hope will be harder to undo for Biden. Trump’s advisers hope their Iran policy will outlast his administration.

“We are building up a lot of leverage, and our hope is that it will be used wisely and not simply discarded,” the State Department’s Iran and Venezuela envoy Elliott Abrams said ahead of the election.

Abrams is visiting Israel, Saudi Arabia and the UAE on 7-12 November for consultations on Iran.