September 2, 2022 - Europe's recent efforts to revive the Iranian nuclear deal have fueled speculation that millions of barrels of Iranian oil could potentially flood world markets. If an agreement is reached, the nation could increase output by nearly 1 MMBbl/d. That would ease the pressure on a tight global market that Russia's invasion of Ukraine has rattled.
The most recent update is that Iran has responded to the final draft of the nuclear deal to the Biden administration; The White House countered by saying that Tehran's response was "not constructive" at all, raising questions about whether the two sides can come to terms.
The JCPOA goes back to 2015 when the Obama administration negotiated the nuclear agreement between Iran and the United States. President Trump canceled the deal, thereby introducing sanctions on Iran’s oil sales. A renewed deal would likely increase Iranian oil exports by removing those oil sanctions. Officials from the EU and the U.S. are reviewing Iran's response to what they described as their "final" proposal to keep the deal alive. But Iran has insisted on the U.S. guarantees that a new agreement would be permanent, requiring it to have ratified-treaty status to prevent another Trump-like withdrawal by the U.S. Many think this would derail the deal.
Iran's crude output and exports recovered more swiftly and fully than analysts had anticipated after sanctions were loosened following the 2015 agreement. That pace could be repeated now, barring any oil-field disruptions. The nation has nearly 100 MMBbl of crude and condensate in onshore storage and tankers, ready to be moved as soon as buyers return.
Iran is producing about 2.5 MMBbl/d of crude now, according to Bloomberg, and the nation can add about 1 MMBbl/d of production by the end of the year and potentially pump near its full capacity of about 3.7 MMBbl/d by 1Q 2023. However, some analysts expect a full ramp-up in Iran’s production to take 12 months from inception.
The market is currently mulling the impact and likelihood of a collapse in Russian exports that could send global supply 5 MMBbl/d lower. Comparing that figure with what Iran can bring to the market, it becomes evident that Tehran alone can bring only some relief. Additionally, the new remarks by Saudi Arabia's Oil Minister that OPEC+ might cut production wouldn't help a market that's already undersupplied.