Iran prepares to ramp up global oil sales as talks to lift US sanctions show progress
Iran is preparing to ramp up global oil sales as talks to lift US sanctions show signs of progress. But even if a deal is struck, the flow of additional crude into the market may be gradual.
State-controlled National Iranian Oil Co. has been priming oil fields — and customer relationships — so it can increase exports if an accord is clinched, officials said. Under the most optimistic estimates, the country could return to pre-sanctions production of almost 4 million barrels a day in as little as three months. It could also tap a flotilla’s worth of oil that’s hoarded away in storage.
But there are many hurdles to overcome. Any agreement must fully dismantle the gamut of US barriers on trade, shipping and insurance involving Iranian entities. Even then buyers may still be reluctant, according to Mohammad Ali Khatibi, a former official at NIOC.
“Our return may be a gradual process rather than swift and sudden — it can’t happen overnight,” Khatibi, also Iran’s former OPEC envoy, said in an interview. That’s partly due to the coronavirus pandemic having “significantly hurt demand,” he said.
The pace of Iran’s comeback may prove critical for the oil market. While fuel consumption is on the rebound as governments distribute vaccines and major economies reopen, it remains depressed by lockdowns and new virus outbreaks. Extra Iranian supplies would impose a burden on other members of Opec+, which has toiled for more than a year to clear a glut built up as the pandemic spread.
Within reach
US and Iranian diplomats, currently negotiating via intermediary governments in Vienna, have signaled that an agreement is within reach.
If successful, the negotiations could reactivate a 2015 international nuclear accord that Donald Trump withdrew the US from three years later. That would require Iran to once again accept limits on its atomic activities, in return for the lifting of an array of tough sanctions imposed by the former president.
Tehran has already taken advantage of a less hostile climate since President Joe Biden came to power in January. It is reviving petroleum sales, sending more crude to emboldened Chinese buyers. Iran’s production has climbed almost 20 per cent this year to 2.4 million barrels a day, according to data compiled by Bloomberg, though most of that oil is still used domestically.
“Even if the sanctions are not removed, depending on their ability to sell oil in the gray market, they will increase their production further,” said Sara Vakhshouri, president of consultancy SVB Energy International LLC in Washington.