US-Iran nuclear talks enter 'make-or-break' month as 1.7 mil b/d hangs in balance

The Biden administration appears to be increasing the urgency for reviving the Iran nuclear deal after talks have languished for months and as 1.7 million b/d in oil supply expected by end-2022 hangs in the balance.

The lead US negotiator, Robert Malley, headed to Paris and Moscow for talks with Russian and European diplomats over Sept. 7-10 about the "need to quickly reach and implement an understanding on a mutual return to compliance with the Joint Comprehensive Plan of Action," the State Department said Sept. 7.

S&P Global Platts Analytics still expects the US and Iran to reach a new nuclear deal by October or November, allowing the Biden administration to remove sanctions on Tehran's oil, shipping, petrochemical and other sectors. But Platts Analytics added a no-deal scenario to its outlook as doubts have grown about whether Washington and Tehran can break the impasse.

Platts Analytics expects Iranian oil supply to rise to 3.87 million b/d by December 2022 if a deal is reached and US oil sanctions are removed. If talks are delayed further or collapse, the Iranian supply outlook would fall to 2.17 million b/d by end-2022, near last month's estimate of 2.15 million b/d.

Supply uncertainty

Global oil supply would tighten next year under the no-deal scenario, as demand for OPEC+ barrels would increase by 1.5 million b/d by August 2022, Platts Analytics said.

Paul Sheldon, chief geopolitical adviser, said recent signals by Iran's foreign minister about delaying talks until November "may be setting expectations low to build leverage," but Platts Analytics still sees the potential export incentives for Iran make a deal "more likely than not in the coming months."

"That said, Iran could easily be unwilling to agree to anything the Biden administration would accept, making our base case forecast for a deal by November the largest supply-side uncertainty in our balances," Sheldon said.

Make or break

Fernando Ferreira, Rapidan Energy Group's director of geopolitical risk, called September a make-or-break month for the talks, given growing doubts in Washington and Europe about whether the JCPOA can adequately contain Iran's nuclear program, especially as the International Atomic Energy Agency "can no longer ensure that their cameras and monitoring devices are still collecting data on nuclear activity."

The IAEA Board of Governors is set to meet in Vienna next week.

Rapidan still expects to see a deal this fall, putting the odds at 60%, Ferreira said. But it sees risks growing for either a temporary agreement that delays full sanctions relief into 2022 or a breakdown in talks, which it continues to view as an outlier.

ClearView Energy Partners continues to see both sides' incentives as "marginally favoring" a return to the JCPOA and expects a "go/no-go decision" to be known as early as this month.

Analyst Stephen Brennock of PVM Associates does not expect a breakthrough before the end of the year, despite Iran's determination to steadily ramp up production in anticipation of an unrestricted return to the oil markets.

"Washington's recent call on OPEC to boost supply suggests that it does not envisage a swift return of Iranian barrels," Brennock wrote in a Sept. 8 note. "The Iran factor is therefore likely to be put on the back burner, at least for the time being. Iran is no longer the oil market's wildcard but expect it to make a comeback in the early part of 2022."

Iran's interests

The talks have stalled since mid-June, when the sides paused for the Iran elections and were expected to start up shortly after President Ebrahim Raisi took office in early August.

While Iran was seen as dragging its feet on a seventh round of talks, Tehran said it would not hesitate to resume negotiations if they are determined to be in its interests. Tehran appears to be buying time to rebuild its negotiating team and decide its stance under the new administration, while also gauging how it can live under sanctions.

Iran would in "no way distance from the talks," Foreign Minister Hossein Amir-Abdollahian said Sept. 6, according to Iran's state-run IRNA news agency. "We believe in wise, dignified negotiations that secure the Iranian nations' right, and we will work actively on it," he added.

Raisi told French President Emmanuel Macron that he doesn't "have anything against useful negotiations," according to IRNA.

"But the plan and result should be removal of the sanctions against Iran. Negotiations for the sake of negotiations is useless," Raisi said.