Energy policy in focus as Iran decides on new leadership

Political leadership of OPEC's third-largest crude producer has come down to a runoff election set for July 5 between two candidates who hold opposing views toward the western world and any chance of reviving nuclear talks to end sanctions on the country's energy industry.

The more moderate former health minister Msoud Pezeshkian will run against hardliner and former top nuclear regulator Saeed Jalili in the runoff for a new four-year term as president, election officials announced June 29. A runoff was decided after none of the four candidates in the initial vote on June 29 secured a 50% majority win.

The pro-reform Pezeshkian has vowed to revive nuclear talks under the Joint Comprehensive Plan of Action and re-establish western relations while his opponent Jalili follows doctrines such as "resistant economy and self-sufficiency" and is closer to Supreme Leader Ayatollah Khamanei. The snap election is being held to choose a successor to President Ebrahim Raisi who died in a helicopter crash on May 19. Raisi took office in 2021 with a reputation as an anti-west hardliner, succeeding the more moderate presidency of Hassan Rouhani.

Pezeshkian would follow the country's March 2023-March 2028 development plan to increase oil exports 12% a year, according to Hamid Hosseini, a senior energy expert.

"Pezeshkian believes and said that he aims to boost international interractions," he said in an interview June 30. To meet the development plan, Iran would need $250 billion of investment annually and that can only be achieved through foreign participation and an end to the sanctions, he said. Diplomacy alone would not work. "He is pro detente, whereas his rival believes that removing sanctions should be done by creating tension."

Jalili's campaign was not available to comment.

Jalili has said that Iran faces numerous opportunities "but our people believe that we are losing many opportunities as we go," Hosseini said. Among the opportunties, Jalili wants to build 10 refineries, he said. "Building new petro-refineries needs a lot of cash which we don't have... we should preferably use our existing finances in the upstream sector to raise oil output and create added value."

While Pezeshkian has campaigned for development policies that require foreign investment, Jalili advocates maintaining the status quo. Jalili is known to be a flag bearer of the previous administration that aimed to expand ties with Russia and China, eliminate use of the US dollar in trade and join the BRICS and Shanghai Cooperation Organization groups of nations. However, Iran's economy hammered under an inflation rate if above 30% and sanctions could encourage a review of current policies no matter who wins.

"Pezeshkian is a candidate to remove the sanctions" and supports "equal relations with other countries," Pezeshkian's campaign manager Ali Abdolalizadeh said June 29, according to the official news agency IRNA. The Biden administration attempted to forge a new nuclear agreement with Iran that would have suspended sanctions imposed by former US President Donald Trump, but a deal could not be reached.

Rival candidate Jalili is expected to keep China as the biggest and mostly only customer of Iran's oil and push for building domestic refineries as he has said that he believes that crude oil sales are not in the country's interests. Jalili comes from the Resistance Front, which influenced the late president Raisi's administration widely both in terms of appointments and policymaking.

Over televised presidential elections debates, Jalili took credit for an increase in Iran's oil sales to 1.5 million b/d this year from 300,000 b/d before Raisi took office in 2021. Jalili has said that he found ways to get around western sanctions, and that Raisi took his recommendations "seriously and completed them to reach 1.5 million b/d of oil in exports." Former oil minister Bijan Zanganeh was among those who rejected Jalili's statements.

Refined sales

Jalili has also supported sales of oil products over crude oil to benefit the local economy with higher value refined product exports. Under Raisi's term, Iran was known to sell oil at large discounts to the compeittion to maintain market share. Iran exported around 1.5 million b/d of crude oil in the first quarter of 2024, with most heading to China, according to data from S&P Global Commodity Insights.

Iran holds 12% of the world's oil reserves and its crude production had ramped up significantly under Raisi's administration, despite western sanctions intended to heavily crimp the sector, even as market sources have said US enforcement of the measures relaxed in recent years.

Iran pumped 3.17 million b/d of crude in May, according to the latest Platts OPEC+ survey by S&P Global Commodity Insights, its highest since October 2018. Only fellow OPEC members Iraq and Saudi Arabia produced more.

With Iran's backing of Hamas in the Israel-Hamas war, Tehran is finding itself under new sanctions pressure from the US, which could present a challenge to the new president. The Biden administration in late April imposed a series of new sanctions on Iranian oil trade, including penalties on foreign ports, vessels and refineries involved in importing or shipping Iranian petroleum products. The Iran-backed Houthis have also led attacks on shipping in and around the Red Sea since the start of the war, prompting many vessels to avoid the region and take the costlier and more time-consuming route around Africa's Cape of Good Hope.

Much of Iran's crude production is of heavier grades and condensate, with key grades in terms of production led by Iran Heavy, Iran Light, Forozan, Soroosh, Lavan, South Pars (condensate), Pars, Sirr and Koroosh/Cyrus.

State-owned National Iranian Oil Co. set the July official selling price of its flagship Iran Light at a premium of $2.60/b over the average of Platts Oman/Dubai assessments, down 50 cents/b on the month, while the OSP for Iranian Heavy was lowered 30 cents/b to a premium of 80 cents/b to the same benchmark. As of May 1, the Iran Light OSP to Asia was $86.29/b, according to Commodity Insights data. Platts-assessed Dated Brent was $86.83/b on June 28, according to the data.

Iran 's heavy sour grades compete directly with crudes such as Saudi Arabia 's Arab Heavy, Arab Light and Arab Medium; Iraq 's Basrah Light, Basrah Medium and Basrah Heavy; Russia 's Urals; the UAE's Upper Zakum; Oman Crude Blend; Kuwait Export Crude; Venezuela 's Mesa 30 and Merey 16; and Mexico 's Mata, among others.

Iran also produces and exports ultra-sweet low sulfur oil or condensates, especially from South Pars, which is similar in quality to condensates produced by Norway, Qatar, the US and Australia.