Should an agreement be achieved on resurrecting Iran’s nuclear deal with world powers, OPEC+ will attempt to integrate Iran into its oil supply-limiting agreement, according to sources close to the organization, in order to avoid market share rivalry that may drive up prices.

According to the International Energy Agency, a favorable result to the discussions may ease US sanctions on Iran’s exports, potentially putting 1.3 million barrels per day (bpd) of Iranian oil back into the market. This might help to relieve global supply constraints and cool a spike that has pushed benchmark oil prices to just around $100 a barrel. 

Iran is exempt from the existing arrangement between the Organization of Petroleum Exporting Countries and allies, known as OPEC+, to limit oil supplies, because of the impact of sanctions on its exports.

OPEC+ would eventually seek to pull Iran into the agreement, sources said, despite the exemption allowing Iran to increase supply.

“It is very likely OPEC will adjust Iran into the deal, as there is no other option,” a source in OPEC+ was quoted in reports as saying. A deal for conducting a review of the nuclear deal seemed to be close, said the source.

According to reports citing sources familiar with Iran’s position, Iran will first strive to restore its lost output before agreeing to a quota following negotiations with OPEC+. Iran is one of the five founding members of the OPEC.

Iran is pumping roughly 2.5 million barrels per day, down from 1.3 million barrels per day in 2018, when former US President Donald Trump withdrew the US from the nuclear deal and re-imposed sanctions, slashing Tehran’s oil revenue dramatically.

“With the lifting of sanctions, Iran will increase its oil production according to its facilities, capabilities, and interests, to compensate for its lost oil revenues,” the source familiar with Iranian thinking said.

“In my opinion, OPEC+ will set a quota for Iran’s oil production but will apply it gradually, and Iran will accept the quota with some bargaining to show its support for OPEC.”

When asked if OPEC+ would work out a new supply agreement that includes Iran, OPEC Secretary General Mohammad Barkindo said the group’s track record gave him confidence.

“Having survived the last five years since the establishment of the historic partnership between OPEC and non-OPEC that helped us to navigate through two oil cycles, we have every reason to remain reasonably optimistic going forward,” he told Reuters.

Following historic cuts in 2020, when demand dropped due to the epidemic, OPEC+ is gradually increasing oil output. However, it fell short of its goal because some producers did not make the necessary investments or perform the necessary maintenance on oilfields during the pandemic to maintain those facilities ready to ramp up production fast.

Given the domestic pressures that President Joe Biden’s administration is under as a result of growing inflation, it would make sense for the US to remove sanctions on Iran to assist in lower prices. According to a person familiar with Russian energy thinking, the US may also be examining whether any supply from Iran might mitigate the impact of any confrontation between Russia and Ukraine on global oil markets.

“The U.S. will surely lift the sanction from Iran as soon as they decide to put more pressure on Russia given the current tensions over Ukraine,” the source said. “Iranian oil will cool oil prices.”

Extra Iranian production could also assist in bridging the shortage in OPEC’s output target misses, according to OPEC+ sources. 

OPEC+ has not addressed this issue by having larger producers step in to enhance output to compensate for those who are unable to. These discussions can be challenging because they touch on sensitive themes like national prestige and market share.

However, like in previous years, any nuclear deal will almost certainly require OPEC+ to modify its quotas to make place for Iranian barrels.

When Iran last rejoined the fold after being sanctioned by the US in 2015-2016, it fought tooth and nail among oil producers for its own interests, first refusing to participate in a suggested output “freeze” to reduce excess while it regained output.

Iran eventually gained a quota that enabled it to boost output during talks to form OPEC+ in 2016, when the other producers were agreeing on production cuts, citing the impact of sanctions that had limited its market share.

Still, a third OPEC+ source said the group would not rule out talks on bringing additional Iranian oil back into the market, and that it has experience dealing with similar tricky issues.

“We will deal with it very well,” this source said. “OPEC has been around for 60 years and we can deal with all issues.”

(Adapted from Tribune.com.pk)

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