Over the past two years only, Iran has experienced the toughest ever sanctions in four decades. The heavy burden of the sanctions led everyone to think Iran would fail in an unequal economic war. However, Iran’s oil exports were not zeroed; rather, Iran managed to export its petroleum products to various nations despite the outbreak of the coronavirus pandemic.

Minister of Petroleum Bijan Zangeneh has said time and again that Iran would return to the oil market and regain its market share, as soon as US sanctions are lifted. He has even said Iran would not shy away from retaining its share from the countries that have seized it.

Iran is returning to the oil market forcefully while being exempt from the OPEC+ oil deal.

During the first  round of President Hassan Rouhani's administration, after Iran and six world powers signed the historic nuclear deal known as the Joint Comprehensive Plan of Action (JCPOA), Zangeneh convinced OPEC to exempt Iran from any output cut under its decision to reduce production along with allies. In the next phase of OPEC production cut, Iran’s oil was already under US sanctions. Zangeneh again filed the same request. Some nations opposed, but finally OPEC+ agreed to exempt Iran from production cut in order to help stabilize prices.

Covid Price Shock

The year 2020 was not a good year for global economy and oil market mainly due to the outbreak of the coronavirus pandemic. World oil demand fell below zero and oil prices dropped to below $20.

Year 2020 is now ending against the backdrop of a historic OPEC+ deal which helped boost prices; however, the prices are unlikely to return to the pre-2018 levels. On April 12, 2020, OPEC and their partners agreed to cut 9.7 mb/d of oil from their total output for two months (May-June) as of May 1. After the two-month period, OPEC+ was to cut 7.7 mb/ from its output for six months ending on December 31. For the period running from January 1, 2021 to April 30, 2022, OPEC+ agreed on cutting 5.8 mb/d from its output. This decision helped boost oil prices which are now above $50.

The 180th meeting of the OPEC Conference and the 12th OPEC+ meeting were held while covid-19 was racing ahead. OPEC + agreed to raise output by 500,000 b/d for one month. Of the 20 states involved in the OPEC+ deal (excluding Iran, Libya and Venezuela), 12 countries had overproduced 2.346 mb/d, which were asked to compensate by March 2021.

Iran Oil Slot

Iran is getting ready to return to the world oil market. However, the main question is to know how the market would react to Iran’s return?

Iman Nasseri, Managing Director of the Middle East at FGE, said: “We may just have a look at the oil supply and demand. Analyses and statistical data tell us the market need for increased OPEC and OPEC+ production in 2021 and particularly in the second half of next year is higher than the amount Iran plans to supply on the market. Therefore, there would definitely be room for Iran’s oil, notwithstanding what OPEC and OPEC+ have forecast for the market balance.”

“Based on the OPEC+ agreement, during the second half of 2021, the market would need more oil in order to maintain its balance. Therefore, during the OPEC regular meeting, member states are likely to decide about lifting their output from the current levels,” he said.

Nasseri also said in case OPEC and OPEC+ intend to control the oil market balance in the long-term they should try to keep oil prices at about $45 by keeping their output lower than their production capacity on the long-term.

“Currently, oil prices have increased to $50 a barrel and are forecast to exceed $50 barrel. But this price will allow the US resume its shale oil production and increase its oil output next year,” he said.

Therefore, when oil market balance is said to be needed, oil prices should remain between $30 and $35 a barrel for at least for two years in order to keep US shale oil production from having economic justification, said Nasseri.

US Shale Oil and Paris Climate Deal

The US President-elect Joe Biden favors his country’s adhesion to the Paris climate deal that requires nations to cut their greenhouse gas emissions.

Trump’s pullout from the Paris deal provided oil companies with an opportunity to increase their oil production, making the US an oil exporter.

European Union leaders agreed recently to cut net carbon emissions by 55 percent in the next decade from levels measured in 1990, overcoming the concerns of nations which are still heavily dependent on coal and taking a critical step in the effort to become climate-neutral by 2050.

European leaders, who are keen to position themselves as at the forefront of the global fight against climate change, had failed in October to reach a deal on an even less ambitious target of 40 percent.

“Europe is the leader in combating climate change,” tweeted Charles Michel, who heads the group of EU leaders. “We decided to cut our greenhouse gas emissions of at least 55 percent by 2030.”

Now everyone is waiting for Biden to see what decision he would adopt for his country which is among the top emitters of greenhouse gases in the world.

Asked about an acceptable oil price, Nasseri said: “OPEC should look at the realities in the market. A $45 oil would guarantee increased shale oil production, thereby leaving no room for OPEC to raise output or even return to the 2018 levels.”

2.3mb/d Oil Exports Planned

Zangeneh, in a meeting with the Planning and Budgeting Committee of parliament, has said Iran would be exporting 2.3 mb/d of oil next calendar year to 20 March 2021.

Ever since the US re-imposed its tough oil sanctions on Iran, the Petroleum Ministry has refused to release any official data on oil and petroleum products exports.

The minister had said on the sidelines of drilling operations for Phase 11 of the massive offshore South Pars gas field, that Iran would seek nobody’s permission for enhancing its production level. He also said that without sanctions, Iran would easily reach the 2.3 mb/d export.

Experts say the timing of Iran’s planned re-entry to the market and the amount it hopes to bring would be of high significance.

Nasseri said: “To that end, all oil and non-oil sanctions imposed on Iran must be lifted. It would not be enough for the US to say it would lift all oil sanctions. Rather, banking, insurance and shipping sanctions should be also lifted. That would be a long process.”

He said that the duration of this process is likely to lead Biden to grant waivers to buyers of Iran’s oil so that Iran would be able to supply part of the 2.3 mb/d it has promised on the market as absorption in the market is also instrumental.

Over the past two years, Iran has implemented numerous production projects in order to enhance output. It is now ready to make a comeback as soon as sanctions have been lifted.

Iran would be naturally expecting fellow OPEC members to show cooperation for its return to the market next calendar year. Iran could not sell enough oil due to the sanctions and some OPEC members replaced Iran in the market. Now they should reduce their output.

Zangeneh has also said that Iran is entitled to enhance production and the market has capacity for that purpose.

Asked if OPEC would cooperate with Iran, Nasseri said: “To export 2.3 mb/d, Iran has to inform OPEC members of its intention and the timing envisaged for that purpose. OPEC is likely to ask Iran to reduce its output, but we should see how Iran would compromise.”

“We have also to take into account the point that Iran would say it has been under sanctions and has reduced its output and exports more than others. Therefore, it would expect fellows to let it export as much oil as it can,” he added.

However, that’s not the whole story. Based on what American analysts and Biden have said, the new US president is likely to resume talks with Iran. In a bid to convince Iran to return to the negotiating table, the US should lift all oil sanctions. That would be a good starting point for both sides. In other worlds, the maximum pressure campaign must be modified. The signs of such policy have been visible in the past one month.

Austrian Ambassador to Tehran Stefan Scholz said during an Iran-Austria Energy Forum working group that Iran had proven an excellent performance despite tough sanctions and the outbreak of covid-19.

Abbas Baqerpour Ardakani, Iran’s ambassador to Vienna, said at the remotely-held meeting that Tehran and Vienna could benefit from mutual technical capabilities in the energy sector.

Iran Oil Buyers

Speculation is rife among the traditional buyers of Iran’s oil about their intention to restart purchasing oil from Iran. But the question is to know if Iran would be easily able to sell its oil in a chaotic market filled with rivalry for market share.

Nasseri said: “Iran may easily sell its oil on the world markets. Many customers are ready now to supply part of their needs from Iran. They don’t want to limit their oil market to several nations. They would be happy with more diversity.”

Iran would not face a tough task in selling 1 mb/d to 2.mb/d of oil with discounts and methods they have in mind.”

“The market will welcome it in terms of supplier diversity. Definitely some of Iran’s oil buyers are waiting for Iran’s return,” he said.

Positive Record

Iran has left behind two tough and cumbersome years in the face of the US maximum pressure campaign.

Now after two years, many analysts give a positive assessment of Zangeneh’s performance during tough years of sanctions. Iran’s oil exports have not been down to zero despite all US pressure, and Iran has been able to export petroleum products.

Nasseri said: “The performance of the Petroleum Ministry was higher than expected. Neutrally speaking, I have to acknowledge that despite all pessimistic analyses about Iran, we are now witnessing Iran has managed to deal with this problem successfully.”

“Iran’s crude oil exports were above all expectations. However, the outstanding point pertains to Iran’s maximum supply of petroleum products so as to minimize the impact of sanctions. Iran even managed to export gasoline in the chaotic and covid-stricken market. That partly blunted the pressure from oil sanctions,” he added.

Asked about the significance of Iran’s petroleum products exports, Nasseri said: “Iran has over the past seven years managed to improve the quality of its petroleum and refined products and bring into operation the Persian Gulf Star refinery, which is the largest facility fed on gas condensate. That ended Iran’s dependence on gasoline imports and even made Iran an exporter of gasoline. Furthermore, the gas condensate produced in South Pars was used as feedstock.”

“Definitely, had Iran not been able to export petroleum products it would have to reduce its refinery run and cut its oil production,” he added.   

President Hassan Rouhani had also said that exporting 2.3 mb/d of oil would be possible. He touched on self-sufficiency in gas, gasoline and gasoil production as the key achievements of his administrations.

Courtesy of Iran Petroleum

by Negar Sadeqi