US elections: Biden win could lead to surge in Iranian oil exports by 2022

Source: By Meghan Gordon, Claudia Carpenter and Aresu Eqbali in Tehran, S&P Global • Posted: Wednesday, September 9, 2020

Washington — Iran sanctions relief under a change in US president represents the biggest supply and price impact for global oil markets heading into the November election, with analysts expecting a Biden White House to quickly return to the negotiating table with Tehran.

S&P Global Platts Analytics predicts 1.5 million b/d of Iranian exports could return to the market within a year of a new deal that removes US oil sanctions.

Rapidan Energy Group sees 1.8 million b/d returning by the end of 2021 under a President Joe Biden, a full year earlier than scenarios for any significant relief if President Donald Trump wins a second term.

“Biden is going to make a beeline back to the JCPOA or some version of it, and we’re pretty sure on that,” said Bob McNally, Rapidan president and former White House adviser during the George W. Bush administration, referring to the Joint Comprehensive Plan of Action of 2015.

Chris Midgley, head of Platts Analytics, said Biden clearly wants to resurrect the Iran nuclear deal, and Tehran likely anticipates the same.

“It is obvious watching the behaviors of the Iranians by the way they are showing great self-restraint right now given the attacks by the Israelis on their nuclear facilities that they’re waiting for this current administration to move out and they believe there’s a much greater chance of resolution [under Biden],” Midgley said.

Trump scenario

If Trump wins a second term, analysts expect sanctions enforcement to remain tight and rhetoric to stay heated between Washington and Tehran for at least the following year. Facing four more years of sanctions pressure could force Tehran to test the waters — either with an invitation for talks or proxy attacks.

“In this case, relative pragmatists in Iran may convince the Supreme Leader to green-light direct talks with Trump, to determine the degree of his desire for a landmark foreign policy deal,” Platts Analytics said.

McNally said the risk of a US-Iran conflict increases in the near term as Trump “turns the screws even more” on sanctions enforcement.

“It could end with a war, but most likely it will end with some sort of a deal,” he said. “The difference is timing — it’s not going to be next year.”

OPEC+ test

Whether a new deal emerges from a Biden or Trump administration, OPEC+ faces a massive challenge of accommodating up to 2.5 million b/d in returned Iranian supply, possibly through additional production cuts, to avoid a price collapse.

Iran’s oil production and exports have plunged since the US reimposed sanctions in November 2018 and stopped issuing waivers in May 2019.

Iran pumped 1.98 million b/d in July, the lowest since March 1988, and exports fell to 46,000 b/d, according to a Platts OPEC survey and Kpler data.

“Having Iran’s oil back to the market means that OPEC+ has to cut its output even more if they want to have a balanced market,” Sara Vakhshouri, founder and president of SVB Energy International in Washington, said. “The market is very sensitive to any additional supplies that could enter the market, including the Iranian oil. This is given the fact that already OPEC+ has cut its production to a historical level, and even before the COVID-19 pandemic, the market was already oversupplied.”

Vakhshouri said Iran does not face many technical hurdles to increase production to pre-sanctions levels. “In fact, the country has already increased its production capacity from some of its fields in the West Karun region,” she said.

Iran has a current export capacity of 2.7 million b/d and could bring back 2.5 million b/d in eight to 12 months if sanctions are removed, said Reid I’Anson, analyst at data intelligence company Kpler in Houston.

“When the original nuclear deal was signed in mid-2015, Iran did not manage to boost exports to full capacity until mid-Q2 of the following year,” he said.

Unlike Rapidan, Kpler sees Biden pursuing a new deal with Iran later in his first term once the US economy starts to rebound to avoid further damage to US oil producers.

“Return to its oil market share is Iran’s priority,” Saeed Khatibzadeh, spokesman of Iran’s foreign ministry, told Platts. “Normal trade with the world is Iran’s priority.”

Market-share battle

Lower prices from the new Iranian barrels will pressure US and Middle East producers alike, said Carole Nakhle, CEO of Crystol Energy in London. “OPEC, or OPEC+ if still around, will have to revisit its strategy,” she said.

Biden could pursue a “JCPOA plus deal” including tempering Tehran’s influence across the Middle East, notably, in Yemen, Gaza, Iraq, Syria and Lebanon, said Neil Quilliam, associate fellow in Chatham House’s Middle East & North Africa Program in London.

“Moreover, he will pocket any gains that have been made by Trump’s maximum pressure campaign, however small they have been, and that means extracting further concessions before lifting sanctions on Iranian crude,” he said.

If Biden eases sanctions, Iran would seek to recover lost market share by undercutting other Middle East producers, Quilliam said.

Saudi Arabia’s leadership is unwilling to reach a compromise with Iran, and though it would like to see an increase in the oil price it would likely be willing to see it go lower to hurt Tehran, he said.

Given that “mood,” he said, “it is hard to imagine Riyadh and the UAE surrendering market share and not lowering their own OSPs to crowd out Tehran.”

Other exporters that have stepped up in Iran’s absence such as Saudi Arabia, Russia and Iraq “are more reliable suppliers to Iran’s key markets: China and India,” said Alice Gower, director of geopolitics and security at Azure Strategy in London, noting that India started importing from Russia in 2020.

“Competition between Saudi Arabia, Russia and the US to gain traction in these markets is high,” Gower said.

|