New reformist Iran president aims to eliminate crude discount, end sanctions 'disaster'

Reformist politician, Masoud Pezeshkian, won Iran’s presidential runoff July 6, opening the prospect for the OPEC member to supply more crude to the market and energize its aging oil and gas infrastructure.

Pezeshkian, a former health minister (2001-2005), built his campaign on a platform of reviving the country’s stalled nuclear deal with the West that curbs Tehran’s expansive atomic activities as well as removing international sanctions.

"We need foreign opening. Economic development … is not possible without interactive foreign policy and detent," said Pezeshkian in a campaign statement.

Despite US sanctions targeting Iranian oil sales, the Islamic republic remains a key and growing supplier of heavier crude grades to Asia. Chinese independent refiners, mainly in eastern Shandong province, increased their Iranian crude imports by 4.3% in June to an eight-month high of around 6.1 million mt, according to sources and S&P Global Commodity Insights data July 4.

In the first half of this year, Iranian exports increased by 20% on the year to average 1.5 million b/d, according to S&P Global Commodities at Sea data.

"Despite Iran's claim in May to increase oil production to 4 million b/d within 10 months, we forecast that Iranian crude production will remain at 3.2 million b/d until the end of 2025. We estimate Iran's refining capacity will be around 2.3 million b/d by 2025 end," Commodity Insights analysts said in a note.

Analysts at Commodity Insights see Pezeshkian's victory having a "neutral" impact on crude prices. Platts Dubai -- the key benchmark for Middle East medium-sour and heavier grades from the region -- was assessed at $87.65/b on July 5. The price benchmark has gained 7% since June 2 when OPEC+ agreed to extend production cuts. Iran is exempted from quotas.

Sanctions in focus

"The election result is not going to change US policy/practice when it comes to Iranian oil exports this year," wrote Commodity Insights analysts following the results.

Pezeshkian, 69, has questioned the current government for what he said was selling oil below the market price and the sanctions profiteers’ role in the trade.

"It wouldn’t be possible to reach economic growth without exports growth and foreign investment … we sell cheap and buy expensive. We suffer a great deal of loss selling our oil. Sanctions are a disaster … we say we walk around the sanctions but [this is a] wrong detour," Pezeshkian said in a televised debate before his victory.

An Iran-China cooperation agreement has not materialized, he said, because the G7-founded Financial Action Task Force that tackles money laundering, terrorism and proliferation financing, has kept a non-complying Iran blacklisted.

"China agreed to make investments in Iran. They said we should sort out the FATF, otherwise, they won’t make investments … it’s not possible to have a decent trade partner this way with these sanctions … we cannot import new technology for our oil industry. We are losing underground reservoirs with these unsuitable technologies. Our efficiency in oil instead of 40%, is 12%-13%, and we cannot recover it again," he said.

Pezeshkian’s presidency is not expected to have a direct impact on oil fundamentals and market sentiment, however, according to analysts at S&P Global Commodity Insights, as the ultimate authority in determining foreign policy and domestic decisions lies with Supreme Leader Ayatollah Ali Khamenei.

Pezeshkian, who was the only qualified choice of the reformists by the legislative watchdog Guardian Council, inherits Raisi's administration, which was advocating for a resistance economy, defiance of the West and promoting ties with Russia and China.