Iran’s Potential Return to the Oil Market

As tension builds between the US and Iran following the killing of military leader Soleimani, S&P Global Platts covers the repercussions for global oil, natural gas, metals and petrochemical markets.

In the latest attempt to block a new Iran nuclear deal and oil sanctions relief, US Republican senators proposed June 11 a bill to require that President Joe Biden submit to Congress any renewed agreement with Tehran as a treaty.

Analysts do not expect the Republican proposal to get enough votes for passage, but they said it shows the rhetorical opposition the Biden administration faces domestically if the US and Iran both agree to return to the 2015 Joint Comprehensive Plan of Action.

"The last thing Senate Democrats want is to have to chew up valuable floor time this summer on a divisive issue like the Iran deal," Fernando Ferreira, director of Rapidan Energy Group's Geopolitical Risk Service, said in an email.

Senator Jim Risch of Idaho, the top Republican on the Senate Foreign Relations Committee, and Senator Ron Johnson of Wisconsin led 21 other Republicans in introducing the Iran Nuclear Treaty Act.

Iranian exporters aim to increase LPG exports to full capacity, if the Biden administration lifts sanctions that limited shipments from the country's petrochemical plants and gas refineries, adding to healthy Middle East supply, which could drive up freight, industry sources familiar with the sector said.

Assuming the US completely removes sanctions in second-half 2021, Iran can export 3.73 million mt during the period and at least 33 vessels will be needed for transportation, six more than currently, they said.

A deal to remove US sanctions on Iran's oil and other energy exports still remains the consensus view among analysts, but the possibility of talks collapsing has started to grow with the delays.

The oil market would lose up to 1 million b/d of incremental supply growth through early 2022 if an Iran deal is significantly delayed or the talks get derailed altogether, said Paul Sheldon, chief geopolitical adviser for S&P Global Platts Analytics.

South Korea will likely alter its crude oil procurement and trading strategy when Iranian barrels return to the international market, with Mexican and Russian suppliers poised to lose a big portion of their market share in the world's fifth largest crude importer.

Major South Korean refiners are keen and ready to buy Iranian crude oil if the sanctions on Tehran are lifted, as medium and heavy sour grades from the Persian Gulf producer are relatively economical.

S Korea's overall refinery systems also are better designed to process Iranian feedstocks, refinery officials based in Seoul told S&P Global Platts.

Iran officially inaugurated its new $2 billion exports terminal by loading 300,000 barrels on an oil tanker off the Sea of Oman, enabling the sanction-hit country to bypass the Strait of Hormuz for oil exports.

"For the first time in the over 110 year history of Iran's oil, crude oil export operations start from Mokran shores in the Sea of Oman," the oil minister Bijan Zanganeh said in the televised ceremony.

"The 1,000 km, 42-inch pipeline can carry heavy and medium crude oil from Goureh in the Bushehr province to Jask in the Hormozgan province," Zanganeh said.

Zanganeh said the current capacity of the Goureh-Jask pipeline was 300,000 b/d and will be completed to reach 1 million b/d phase by phase.

"Because of the sanctions, the impossibility of provision of electro-pumps and... pipes brought the project to a dead end. But with help of domestic manufacturers, we could remove this problem and locally build them for the first time in the country," Zanganeh said.

Iran had accelerated construction of the pipeline in order to secure its oil shipments amid a heightening of tensions in the Persian Gulf with regional rivals Saudi Arabia and Israel, which oppose the US' willingness to reinstate the Iran nuclear deal and relax sanctions.