Could Ukraine Crisis Hasten Return of Iranian Oil?

Iran's potential return as a supplier of crude oil to European refiners could be swifter than anticipated now that Russia's oil exports face logistical challenges and even the possibility of a targeted ban as a result of expanding western sanctions.

Refiners in Greece, Italy, Spain and Turkey purchased Iranian sour crude in the past, but they had to find replacements such as Russia's Urals grade when the US exited the multilateral Iran nuclear deal and reinstated sanctions against Iran in 2018.

However, European refiners have become reluctant to purchase Russian crude over the last week or so for fear of falling foul of the growing list of sanctions announced by the EU, the US and other nations in response to Moscow's invasion of Ukraine.

Meanwhile, there are signs that negotiations in Vienna about reviving the 2015 nuclear agreement could reach a successful conclusion by Friday, according to two sources. That would open up a path for Iran to resume crude exports.

"Asian buyers especially want our oil. European demand is not so good, but this could change due to the Russia situation," a senior Iranian oil official told Energy Intelligence.

Ready to Hop on a Plane

Iran's ability to ramp up its production and exports would depend on several factors, including whether or not financial transactions with the Islamic republic would still be constrained by lingering US sanctions unrelated to the 2015 nuclear deal.

It would also depend on whether — and how quickly — buyers are prepared to switch back from the alternative suppliers that stepped in to make up for the loss of Iranian barrels when US sanctions came into full force in 2019.

"Iran can reach exports of 2.5 million barrels per day, but our traditional customers found other suppliers [in recent years]. It's not easy for them to immediately change, it takes time," the official said.

However, with Brent crude now trading at more than $110 per barrel and some European buyers shunning Russian crude, a revived nuclear deal would likely speed up purchases of Iranian sour crude, especially by Mediterranean refiners.

"We are hoping sooner or later to see Iranian barrels back. We need them and have stayed in touch throughout Covid, flying to Tehran. We are ready to take a flight," said one Mediterranean refiner.

Final Push for a Deal

The nuclear talks in Vienna continued on Wednesday, in what appeared to be a final push to overcome the remaining hurdles and conclude a deal.

In addition to Iran and the US, the talks also involve China, France, Germany, Russia and the UK. A US source said chances of a deal being struck were about 50-50.

Iran has been holding out for assurances that the US will not back away from the commitments it makes under a new deal if and when a new president succeeds Joe Biden after US elections in November 2024.

However, US officials have made clear that the Biden administration cannot tie the hands of a future president.

Iran's concerns are based on the precedent of former President Donald Trump, who took the US out of the original nuclear deal that had been negotiated during the administration of his predecessor, Barack Obama.

Tehran also wants to see all sanctions on Iran lifted so that it can reap the full benefits, including unfettered access to the international banking system.

"They [negotiators] are still trying to bridge the gap. If the US and [the European nations] aren't prepared to meet Iranian requirements for assurances, there won't be a deal," said Prof. Mohammad Marandi, an adviser to Iran's negotiating team.