A revived nuclear deal to lift sanctions on Iranian oil sales now hangs in the balance, with Russia saying March 5 that western sanctions imposed for its invasion of Ukraine could derail an agreement that all parties had hoped to clinch in the coming days.
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The 11th hour demand, issued by Foreign Minister Sergei Lavrov, seeks a written guarantee that from the US that its sanctions would not impede Russia's trade with Tehran – a move that appears to try and carve out a loophole on the west's punitive measures imposed on its financial sector.
US officials have not formally responded to the request, though a State Department official told S&P Global Commodity Insights that it hopes Russia will adopt a more productive stance towards the negotiations.
"The new Russia-related sanctions are unrelated to the [original nuclear deal in the] JCPOA and should not have any impact on its potential implementation," the official said, asking not to be named due to the sensitivity of the matter. "We continue to engage with Russia on a return to full implementation of the JCPOA. Russia shares a common interest in ensuring Iran never acquires a nuclear weapon."
Negotiators on the nuclear deal had said they were extremely close to finalizing an agreement, which would bring significant supplies into an oil market increasingly pinched by the Ukraine crisis and rising global demand.
The deal would revive the 2015 Joint Comprehensive Plan of Action signed by the US, UK, France, Russia, China, Germany, the EU and Iran, waiving sanctions restricting sales of Iranian oil, in exchange for concessions on Tehran's nuclear program.
Russian veto power
Lavrov's comments came as the UN's nuclear watchdog, the International Atomic Energy Agency, said it had agreed to an inspections and safeguards regime with Iran that had been one of the sticking points.
The announcement did not address the Russian concerns, and Kevin Book, managing director of consultancy ClearView Energy Partners, said Moscow could still delay or derail a final deal.
"The way I read the IAEA-Iran agreement is that … it seems have provided the transparency the agency has requested in a way that Iran can abide, but I think Russia still has a couple of potential ways to intervene," he said.
Book noted that Russian assent is critical to the final deal because it is one of the five veto-wielding permanent members of the United Nations Security Council and an original participant of the JCPOA.
If a deal can be reached, S&P Global's Platts Analytics projects that full sanctions relief by May could lift Iranian production by 750,000 b/d by August, plus allow about 300,000 b/d of exports from storage.
That would be welcome relief for oil consumers, as prices have soared while many traders have voluntarily suspended purchases of Russian oil in the wake of the country's invasion of Ukraine and western sanctions levied against its financial sector.
The Platts Dated Brent crude benchmark hit $120.23/b on March 4, its highest in more than nine years.
S&P Global has forecast that 2022 oil supply and demand would be basically balanced with an Iran nuclear deal, while a no deal scenario would create a 1.5 million b/d supply gap for the year.
But an extended disruption to Russian oil flows could tip the market back into deficit.