An Oil Market Guide to What’s Next in Iran’s Nuclear Talks
Here’s what oil traders should watch out for in the next two months.
Iran is set to usher in a new government headed by Ebrahim Raisi, an ultraconservative cleric wary of engaging with the U.S.
His overwhelming victory in Friday’s presidential election -- albeit on a low turnout -- came as world powers try to resuscitate a 2015 accord that limited Tehran’s atomic activities in return for the easing of American sanctions. If the European Union, Russia, China and others manage to broker a deal between the U.S. and Iran, that would probably enable the Islamic Republic to ramp up crude exports at a time when the coronavirus pandemic is still suppressing demand in many regions.
Here’s what oil traders should watch out for in the next two months.
What happens now?
Raisi will come to power around mid-August, with President Hassan Rouhani running the country until then. Analysts will be watching the 60-year-old chief justice’s statements on the nuclear talks and foreign policy, and any announcements on who’ll oversee key positions in his administration.
On Monday, he called on the U.S. to lift sanctions and spoke about enhancing ties with China, already one of Tehran’s main allies.
The nuclear negotiations will continue in the meantime in Vienna. The parties hoped to strike a deal before the election, but failed to overcome the final sticking points during the latest -- and sixth -- round of talks. While Iran believes an agreement is closer “than at any other time,” it has warned that fundamental differences remain between the sides. Western officials have told Bloomberg that deliberations will probably extend well into the summer.
The U.S., for its part, has long said it’s in no rush to revive the Joint Comprehensive Plan of Action -- which then-President Donald Trump pulled out of in 2018 -- and will only do so when it’s convinced Iran has reversed a significant expansion of its atomic activities in the past two years.
“Whether the president is person A or person B is less relevant than whether their entire system is prepared to make verifiable commitments to constrain their nuclear program,” U.S. National Security Adviser Jake Sullivan said Sunday.
Even if there’s a deal in the transition period, many oil and political analysts expect Raisi’s victory to delay the lifting of U.S. sanctions. The president-elect is himself under sanctions, imposed by the Trump administration for his role in a deadly 2009 crackdown on protesters, and Iran insists they must be removed.
The 2015 accord will probably be “beyond repair” if there’s no agreement by the time Raisi takes over as president, said Ali Vaez, Iran project director at the International Crisis Group.
Will Raisi scupper the talks?
Raisi, despite being part of Iran’s faction of hardline politicians and officials who have long opposed rapprochement with the U.S., said he won’t undermine the talks. And the government has emphasized that the decision to negotiate in Vienna was made by Supreme Leader Ayatollah Ali Khamenei, who has the ultimate say over Iranian foreign policy. Khamenei has backed a deal as a way of allowing Iran to resume energy exports and attract foreign investment, thereby rejuvenating the battered economy.
What’s the next key date?
A pact that allows the International Atomic Energy Agency to monitor Iran’s nuclear facilities expires on June 24. It’s still unclear if it will be extended, though the EU expects it will be. If not, that will create an information “black hole” about Iran’s nuclear operations, IAEA Director General Rafael Mariano Grossi told Bloomberg Television last week. It could also stall, if not crater, the Vienna talks.
Who are the key players to watch in the Vienna talks?
Iran’s delegation is led by Deputy Foreign Minister Abbas Araghchi. He regularly makes statements about the talks on his Telegram channel and tweets, as does Russia’s main envoy, Mikhail Ulyanov, and the EU’s Enrique Mora. Another key player is U.S. President Joe Biden’s special envoy for Iran, Robert Malley, who has mostly said that while talks are progressing, there’s still much work to do.
What are the key sticking points?
The major points of contention seem to be over how quickly and which U.S. sanctions will be eased. Tehran has said they must be removed across the board since it won’t be able to export oil and gas unless sanctions on its shipping and banking industries are also lifted.
There is a chance that Washington doesn’t agree to any sanctions removal and instead only agrees to waivers for individual countries. Iran will push hard against that, and Araghchi said on Sunday that one of the most serious disagreements is over Tehran’s need for a guarantee that future U.S. administrations won’t withdraw from any deal, as Trump did.
What will a deal mean for Iran’s oil?
Some analysts forecast that Iran will be able to increase crude exports from barely anything to around 2 million barrels a day within a few months of a deal. State-controlled National Iranian Oil Co. has been priming oil fields and old customer relationships in anticipation of one being struck. The country has more than 100 million barrels of crude in storage, according to Citigroup Inc., which it could quickly sell down while ramping up actual production.
India has said it is ready to import Iranian oil again once sanctions are lifted, while Chinese refiners have already increased purchases this year.
Such a scenario could put pressure on oil prices and complicate OPEC+ policy. The 23-nation grouping of major crude exporters -- led by Saudi Arabia and Russia -- is weighing whether to raise production later this year. The virus and Iran’s potential return make the cartel’s calculations that much more difficult.
Yet Iran’s comeback will probably be much slower if the U.S. doesn’t remove sanctions in one go. And it may take many months before some buyers, including those in the EU, the third-biggest importer of the Islamic Republic’s oil in early 2018, are satisfied they won’t be penalized for dealing with Iranian entities.
Whether European and U.S. Big Oil firms would re-enter Iran is even less clear. France’s TotalEnergies SE planned to invest billions of dollars in the country after the 2015 deal, but had to pull out when Trump tightened sanctions. Raisi may shun Western investment in favor of building stronger relations with Russia and China.
What happens if there’s no deal?
If the Vienna talks fail, that will likely be bullish for oil prices. Iran’s crude will stay off global markets and there could also be greater tension in the Middle East, perhaps leading to more shipping and tanker attacks in areas such as the Persian Gulf and Red Sea. Iran could also increase its military support for Yemen’s Houthi rebels, who have regularly hit Saudi Arabian energy facilities with drones and missiles.
“Absent a diplomatic resolution, the result could be war, with major disruptions to the global economy,” then-U.S. leader Barack Obama said when he signed the JCPOA in 2015.
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