Members of the Organization of Petroleum Exporting Countries and allies, known as OPEC+, would prefer that Iran is free of sanctions to trade oil under the oil cartel’s oversight despite the quota wars amid a tight market due to the coronavirus pandemic, experts concur.
Iran and six other powers have been in talks since April to restore the 2015 nuclear deal that was terminated three years ago by former US President Donald Trump who re-imposed sanctions that have severely hampered Iran's economy by drastically reducing its oil exports.
Although a slew of sanctions aimed at Iran's energy industry was lifted on June 10, sanctions on the country’s oil exports are still in place and Washington warned that even if the nuclear accord were revived, hundreds of US sanctions on Tehran would remain.
Carole Nakhle, chief executive officer of energy and geopolitical advice at research and training company, Crystol Energy, said if indirect talks between Iran and the US, which are currently paused, bear fruit, a repeat of 2016 would be possible. She recalled that in December of that year, OPEC+ officially came together and Iran was placed under a production quota. Under this deal, the reference production output that was applied came before sanctions were imposed, which meant that Iran ended up increasing not decreasing its output.
'Although Iran would officially join a quota, the production level on which the quota would apply would be the one that prevailed pre-sanctions,' Nakhle predicted, pointing out that Iran would enjoy an increase in production even under an official output restriction mechanism.
She said OPEC would welcome Iran’s return to the market, as the group would enjoy being in the driver’s seat to improve market management.
'After all, you cannot manage what you cannot see,' she said.
The Joint Comprehensive Plan of Action (JCPOA), as it is officially known, came into effect in January 2016. Iran's sanctions were lifted in exchange for the country ending its nuclear activities, which included reducing its stockpile of low-enriched uranium and reducing its gas centrifuges.
Iran, which has the world's fourth-largest oil reserves, produced roughly 2.8 million barrels per day (bpd) of crude oil until the expiration of the JCPOA, and was the third-largest producer among OPEC members.
- How much oil is Iran allowed to trade?
Iran’s official quota with OPEC is 3.84 million barrels per day (bpd), and according to OPEC’s Monthly Oil Report published in June, the country’s production hit almost 2.5 million bpd in May.
Chairman of Vienna Energy Research Group (VERG), Fereydoun Barkeshli, said the market is closely monitoring the amount of Iran’s floating oil capacity and its production of fresh oil from wells.
Barkeshli estimates that Iran is currently exporting between 600,000 bpd and 700,000 bpd through gray markets, adding 'technically, Iranian state-owned National Iranian Oil Company (NIOC) is comfortable to go to 3 million bpd within one quarter.'
However, he said the country currently has the highest volume of unsold oil at over 100 million barrels of floating oil capacity in different storage facilities.
“Even during some years of the Iran-Iraq war, it [unsold oil] was 35 million barrels,' he said.
Iran could raise its oil exports to 2.5 million bpd once US sanctions are lifted, Nakhle said, citing Iranian vice-president Eshaq Jahangiri earlier in May.
'If experience is of any guide, these barrels can be brought officially back to the market in a matter of months,' she said.
If Iran manages to return to the market, Barkeshli said some members, namely Saudi Arabia, Iraq and Russia, would have to support Iran to compensate for lost barrels.
'Eyes are on Saudi Arabia, Iraq and Russia who grabbed some 80% of Iran’s crude oil grades,' he said.
Nakhle, however, said if the return of Iranian oil to the market would significantly reverse price gains, the Saudis would step in to compensate.
'After all, Saudi Arabia subsidizing other OPEC members is a known practice,' she concluded.
By Sibel Morrow