As the European Union circulates the ‘final text’ of the revived joint U.S.-Iranian nuclear deal in Vienna, prospects for a salvaged deal appear more likely. Last week, U.S. officials revealed that Tehran had dropped some of its outstanding demands, making the resurrection of the 2015 Joint Comprehensive Plan of Action (JCPOA) more plausible. An unnamed official involved in the ongoing negotiations told Reuters that “We think they have finally crossed the Rubicon and moved toward possibly getting back into the deal on terms that President Biden can accept,” adding that “If we are closer today, it’s because Iran has moved. They conceded on issues that they have been holding onto from the beginning.”
Will the Deal Have a Beneficial Effect on Gas Prices?
In addition to concerns regarding Tehran’s proximity to obtaining a nuclear weapon, industry experts are analyzing how a revived deal would also impact oil output and prices across the globe. When sanctions were initially eased for Iran in 2016, Iran’s crude oil production came back at a much quicker pace and in greater quantities than ever expected. In a graph featured by Bloomberg news, Iran’s crude production grew nearly ten-fold after just one year of sanctions being eased. The numbers on the graph indicate that a parallel consequence would arise from a renewed set of agreements.
Since sanctions had been reinstated following the U.S. withdrawal from the JCPOA in 2018, many of Iran’s oil fields had been excluded from global trade. Despite this, the regime had maintained its oil fields and stowed away millions of oil barrels for storage, preparing them for this moment. When sanctions were re-imposed under the then-Trump administration, Iran’s production and exportation of oil fell drastically.
The Center for Strategic and International Studies reported that Iran’s crude output dropped from around 4 million barrels per day in 2018 to 2 million in 2019. However, by 2020 the U.S. Energy Information Administration estimated Iran’s oil exports at .4 million bpd while a 2021 Reuters report put Iranian exports at around 1 million bpd. China was the primary beneficiary of Iran’s oil exports and clearly figured out how to best circumvent the barriers put in place by Western-imposed sanctions.
As outlined in a previous 19FortyFive piece, “Under the original deal, the U.S. waived sanctions on purchases of Iranian oil, a practice that ended after the Trump administration withdrew. Prior to that reversal, China, Turkey, and India were among the top importers of Iran’s crude oil. These same countries would probably benefit first from the deal’s revival.”
According to the Eurasia Group, “With an estimated 100 million barrels of crude and condensate in floating storage, more than 50 million barrels in domestic onshore storage and a reported 14 million-15 million barrels in bonded storage in China, the ramp-up in exports and production is likely to be as fast (as), if not faster than, in 2015-2016.” Iranian officials seem to agree with the sentiment that its crude oil production could ramp up exponentially once sanctions are lifted. Javad Owji, Iran’s Oil Minister, stated in March that Iran’s oil production capacity could reach its maximum just weeks after a new nuclear agreement is finalized.
If JCPOA is Approved, Iran Could Dip Into its Stockpile
If the revived JCPOA is reached and sanctions are again lifted off Iran, the regime would potentially reach its full capacity of 4 million barrels per day of crude production after about a year and a half. However, Iran could turn to its ample oil storage stockpile in the meantime. The managing director of energy consultants FGE told Bloomberg that “Of the 100 million barrels of oil in storage, about 40 to 45 million are crude and the rest condensate, a light oil that is pumped out together with gas.”
The potential finalization of the Iran deal could coincide with incoming sanctions targeting Moscow’s oil exports. EU nations are currently importing around 75 percent of the Russian crude oil they were procuring prior to Russia’s invasion of Ukraine. However, by the end of this year sanctions that curb Moscow’s crude oil exports will be in play, drastically lowering this percentage. Iran’s surplus oil production may help augment the hole created by Moscow’s minimal oil exports.
As the final phase of the Vienna talks loom closer, all eyes will be on Iran.
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