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Talk of Deal Puts Iran's Export Potential in Focus

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Mideast Iran Oil

As leaders in Tehran and Washington study a proposed "final text" for an agreement to revive the 2015 Iran nuclear deal, attention is turning once again to Iran's ability to ramp up oil exports at a time of tight global supplies and high prices.

Estimates of Iran's current oil exports range from 600,000 to 900,000 barrels per day, which "makes sense," according to an Iranian oil official.

But those figures likely include both crude oil and up to 200,000 b/d of much lighter condensate, the official said.

The official added that Iran's exports to China — currently the Islamic republic's only major buyer — were "for sure" being impacted by the large volumes of heavily discounted barrels that Russia has been offering to Asian buyers in recent months.

The official — no longer directly involved in crude sales after they were transferred to Iran's powerful Revolutionary Guard — said the Opec member may have lost as much as 200,000 b/d of sales to Russia's cheap oil in recent months.

Nailing Down the Numbers

According to commodities data firm Kpler, Iran's combined exports of oil and condensate averaged just less than 700,000 b/d during the three-month period from May to July, down from 870,000 b/d in February-April.

Shipments fluctuated greatly in May-July, with exports of around 700,000 b/d in July, nearly 1 million b/d in June and around 400,000 b/d in May.

It is extremely difficult to quantify the under-the-radar trade in Iranian oil because of Tehran's sophisticated ways of concealing its exports — especially since they were transferred from National Iranian Oil Co (NIOC) to the Revolutionary Guard.

The Kpler data shows that China imported around 70,000 b/d from the Islamic republic in July, down from nearly 100,000 b/d in June, 130,000 b/d in May and 320,000 b/d in April.

Shipments to Malaysia and unknown destinations have accounted for the bulk of Iranian exports during these months, the data shows.

Iran is understood to be carrying out covert sales involving ship-to-ship transfers offshore Malaysia — and in some other locations — to dodge tough US sanctions. But much of that oil is believed to end up in China.

It remains to be seen how quickly Iran could increase its output if sanctions were lifted under a revival of the 2015 nuclear deal.

But after international sanctions were lifted in 2016, production and exports bounced back faster than many had anticipated and from a technical and operational perspective, Iran should be able to achieve similar results this time.

Opec's former No. 2 producer could ramp up oil output to 3.8 million b/d day within about three months and to 4 million b/d shortly thereafter, once US sanctions are lifted, which would enable it to raise exports to about 2 million b/d — if buyers return — an Iranian industry source previously told Energy Intelligence.

Lingering Risks

Before they are willing to restart imports, traditional Iranian crude buyers in countries such as Italy, Spain, Japan and South Korea will require clarity about any remaining risks related to US sanctions that are not related to the 2015 Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA).

"I think European customers should come back quickly in case of a nuclear deal, especially Spain and Italy. But it depends on sanctions removal. Europe will buy, but sanctions need to be removed," the official said.

The risks associated with US sanctions were highlighted in May, when a tanker carrying Iranian crude in Greek waters was seized at Washington's request. Iran retaliated by seizing two Greek-flagged vessels, which have not yet been released.

A deal that leads to additional supplies of Iranian oil would clearly bring welcome relief to a tight oil market in which Brent crude continues to trade in the mid-$90s .

Europe in particular would welcome Iranian oil as a good replacement for Russian crude, which will be subject to an EU import ban from Dec. 5.

A revival of the JCPOA would also give a big boost to Iran's economy and public finances, which have been battered by years of sanctions and the effects of the Covid-19 pandemic.

Topics:
Oil Supply, Opec-Plus Supply , Sanctions
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