Iran’s President-elect Ebrahim Raisi speaks at a news conference on June 21, 2021 in Tehran, Iran.
DUBAI, United Arab Emirates (AFP) — Iran’s president-elect, Ebrahim Raisi, held his first press conference since the country’s election, saying Monday that his government’s priorities would be to improve ties with regional neighbours and resurrect the 2015 nuclear deal — while emphatically rejecting a meeting with US Vice President Joe Biden.
“We support negotiations that protect our national interests… America should immediately return to the agreement and fulfil its obligations under it “According to a Reuters translation, Raisi, a hardline cleric who is himself sanctioned by the US, said.
The 2015 Iranian nuclear deal, officially known as the Joint Comprehensive Plan of Action and spearheaded by the Obama administration and several other world powers, lifted sanctions on Iran in exchange for restrictions on its nuclear programme. Former President Donald Trump withdrew from the agreement in 2018 and reimposed harsh sanctions on Iran, crippling the country’s economy.
Since then, Tehran has increased its nuclear activity far beyond the limits of the deal in what it claims is a protest against the sanctions — sanctions that Washington says it will not lift until that increased nuclear development activity, such as dramatically increased uranium enrichment and stockpiling, is reversed.
Moreover, despite ongoing talks between JCPOA signatories in Vienna and talk of “progress,” the two adversaries appear to be deadlocked on major issues, such as Iran’s transparency with nuclear inspectors.
Oil markets are now keeping a close eye on the talks and Raisi’s messages to see what this means for the world’s supply of the commodity.
As a result of Trump’s sanctions, Iran’s oil exports have been reduced to a mere fraction of what they once were; a revival of the deal and lifting of the levies could restore 3.8 million barrels per day of oil output to the market over time, up from the current 2.1 million barrels per day, according to oil ministry officials. However, due to underinvestment in oilfields and recent years of reduced output, this could be a lengthy process.
Oil prices under pressure?
The agreement, “if revitalised,” would “provide a significant boost to Iran’s economy — it could plausibly expand by 8-10 percent per year in 2021-23,” Jason Tuvey, senior emerging markets economist at London-based consultancy Capital Economics, wrote in a note before the election. However, he added that its increased crude output would put pressure on other dynamics in the region.
“Increased Iranian oil output would act as a drag on global oil prices and may prompt governments in the Gulf countries to maintain tight fiscal policy, weighing on their recoveries,” Tuvey said.
According to Herman Wang, senior oil writer at Platts, if and when Iran is able to return its barrels to the global market, there will be no shortage of demand.
“Many of Iran’s former oil customers, particularly in Asia, have stated that they are eager to resume purchases as soon as the sanctions are lifted,” Wang said. Many of Asia’s refineries are well-suited to Iranian crudes, he says, “which would add competition for neighbouring Saudi Arabia, Iraq, Oman, and other producers of heavier, sourer grades, and Iranian condensate would compete with similar condensates produced by Qatar, the United States, and Australia.”
“This could put pressure on oil prices,” Wang added, “though OPEC and its allies will be hoping that rising demand means a bigger pie for everyone.”
Is there no “imminent return” of Iranian oil?
“At this point, we’re still watching the JCPOA negotiations in Vienna as the more significant variable for oil prices in the near term,” said Ed Bell, director of commodities research at Dubai-based bank Emirates NBD.
Despite Raisi’s indication that he would support a deal, he said it “doesn’t address the differences that still exist among JCPOA parties, including the fact that Raisi himself is subject to US sanctions.”
“The timeline for the return of freely exportable Iranian crude keeps getting pushed back into 2021, and as a result, we don’t see any imminent return that would help to alleviate the current market tightness,” Bell added.
Meanwhile, oil doesn’t appear to be bothered by the prospect of a resurrected deal; international benchmark Brent crude was trading at $74.65 a barrel at noon ET on Monday, up 45 percent year to date and 70 percent from this time last year.
A more pressing long-term issue, according to Bell, would be how a Raisi administration positions itself in relation to OPEC and its oil-producing allies. Would Iran accept a production quota if sanctions were lifted, or would it seek to increase its market share to make up for lost time?
“While Iran alone would not be enough to push oil markets back into surplus this year,” Bell said, “a race for market share could push other OPEC+ members to do the same, risking putting downward pressure on oil prices.”