Iran’s oil and financial sanctions will be lifted with a phased deal struck on its nuclear program on July 14, but the market won’t immediately see more crude. The country is currently exporting around 1 million b/d of crude, less than half the 2.2 million-2.3 million b/d exported before the European Union and US imposed crippling oil and financial sanctions in mid-2012.
TIMING
The market probably won’t see any noticeable increase in Iranian crude supply until next year. Iran by October 15 must show that it has met its commitments and the International Atomic Energy Agency hopes to issue a final report by December 15. The US Congress also needs to approve the deal, although President Barack Obama earlier July 14 reiterated that he would veto any legislation preventing implementation.
HOW MUCH
The first Iranian oil release may come from roughly 40 million barrels of floating storage in the Persian Gulf. About half of this is crude and the rest condensate. Officials also think they can export an additional 500,000 b/d of crude within months of sanctions removal and then another 500,000 b/d after that.
BUYERS
Iran sells most of its crude exports to four Asian countries: China, India, Japan and South Korea. With Turkey and Taiwan, these countries were buying Iranian oil under waivers from US financial sanctions granted in return for reduced oil purchases from Iran.
The deal struck July 14 would allow them to boost their purchases. That would mean the crude they’d been buying, from West Africa, Russia, the Caspian, the North Sea and Iraq, among others, could be looking for a new home.
Oil minister Bijan Zanganeh has said Asia will be Iran’s main target. That’s where oil demand is still growing, albeit more slowly than before. Europe, which took about 600,000 b/d before the sanctions hit, will also be a focus, a senior oil official said July 14.
However, wherever Iran tries to sell its oil there will be challenges. Competition has increased everywhere, partly because lower US reliance on imported crude has sent former suppliers looking for new markets.
OIL SALES TERMS
Like other oil exporters, Iran sells its crude on a market-related basis and adjusts pricing from month to month. There may be room for inventiveness in other areas, such as credit terms.
OTHER BENEFITS
Once sanctions are lifted, Iran hopes to attract top international oil companies to its upstream sector to help it develop its vast reserves of oil (about 157 billion barrels) and gas (about 1,200 Tcf). Zanganeh has held talks with firms like BP, Shell, Total and Eni. The country plans to launch a new new upstream contract model in December.
US OIL COMPANY INVOLVEMENT
US companies have to abide by a separate raft of US sanctions not related to the nuclear issue. A US embargo on imports of Iranian oil will remain in place.
