Washington geopolitical analysts increasingly expect the US and Iran to announce a deal by the end of May that will allow for the lifting of sanctions on oil, petrochemical, shipping and other key sectors as soon as the third quarter of this year.
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European and Asian oil buyers could start negotiating deliveries when such a deal is announced, with most likely waiting until the Biden administration removes sanctions to finalize purchases.
Iran would be able to return to pre-sanctions oil production of about 3.9 million b/d next year, analysts predict. It pumped 2.3 million b/d in March, according to the latest S&P Global Platts OPEC+ survey.
Indirect talks between the US and Iran that started in Vienna in early April have raised the prospects for reaching a framework to rejoin the 2015 Joint Comprehensive Plan of Action nuclear deal.
US President Joseph Biden is seen as eager to strike a deal with Tehran before Iran's June presidential elections, which hardliners are likely to win.
"Progress in Vienna is slow but steady," said Fernando Ferreira, director of Rapidan Energy Group's Geopolitical Risk Service. "We've seen flexibility from both sides as Biden is now willing to move first, and Tehran understands some sanctions will stay."
S&P Global Platts Analytics expects a framework deal by the end of May, including a possible sanctions waiver allowing up to 500,000 b/d in sales, followed by full oil sanctions relief by the end of September, said Ash Singh, manager of supply and production analytics. The timeline is accelerated from last month's outlook of a deal in August and lifting of sanctions by year's end.
Platts Analytics predicts Iranian crude and condensate exports will reach 1.5 million b/d by January 2022, up from 825,000 b/d in Q1 2021 and 420,000 b/d in Q3 2020.
Rapidan Energy Group sees 80% odds of a deal in mid- to late May, with implementation taking two to three months. It expects the bulk of Iranian oil supply to return late in Q3 2021, reaching near capacity production of 3.5 million b/d by the end of the year.
Ferreira expects European and Asian oil buyers to start negotiating deliveries once a roadmap is announced this month but will remain reticent to accept any Iranian barrels until the US formally drops the sanctions. He predicted Iranian exports would stay in the 1 million-1.5 million b/d range until Washington is back in the JCPOA.
"We don't see any insurmountable obstacles to reaching a deal," Ferreira said. "Tehran has indicated it is willing to compromise on its maximalist demands, such as removing the Foreign Terrorist Organization designation on the IRGC and lifting sanctions on several entities linked to the Supreme Leader."
Ferreira said the greatest risk to a deal this month is that "Iran overplays its hand and sticks to an uncompromising position in the hopes of getting Biden to make additional concessions." In that case, negotiations would likely be on hold until mid-to-late Q3.
'Never more favorable'
Henry Rome, senior analyst with the Eurasia Group, predicts major oil sanctions relief will not come until Iran returns to nuclear compliance, which will take at least two months after a deal is reached.
Rome estimated Iran will be able to increase exports by 700,000 b/d and start discharging some of its 70 million barrels of floating storage in Q4 2021 or Q1 2022. Iran would then return to 3.8 million b/d of production by Q4 2022 or Q1 2023.
Under a faster scenario where the US and Iran formally rejoin the JCPOA by July, Rome said Iran could start increasing production and return to its previous level one quarter earlier than his base case timeline.
Matthew Reed, vice president of Foreign Reports, said the Biden administration appears ready to lift sanctions with minimal delay pending verification of Iran returning to nuclear compliance.
"I don't know if we'll see a deal this month, but the atmospherics have never been more favorable," Reed said. "The US and Iranian positions are indistinguishable at this point. The posturing phase is over. Now both sides are pushing to revive the JCPOA lock, stock and barrel -- no complications or changes. Everyone knows what has to be done. It's just a matter of timing each step."
Reed said a deal this month or next could pave the way for higher Iranian oil exports by the end of summer and further increases into Q4.
Congress, OPEC+ watching
Analysts do not expect the US Congress to block sanctions relief as long as Biden can keep Democrats united behind his efforts.
Still, Biden can't take Congress for granted, said Foreign Report's Reed.
"Fewer Democrats are willing to give him the benefit of the doubt as they did with Obama," he said. "If a vote was held today to endorse the JCPOA or prevent Biden from lifting sanctions, it would be close. Republicans are determined to force a vote of some kind using laws on the books or new legislation."
The prospect of increased Iranian supply comes as global oil demand growth remains weak from international travel restrictions and the accelerating green energy transition, Rome said.
"Unless consumption makes an unexpected and sharp recovery, OPEC+ will still need to manage the market," Rome said. "Outside OPEC, a full return of Iranian oil to markets will make it more difficult for producers to attract investment into maintaining and expanding production."
OPEC+ delegates say they are closely monitoring the JCPOA talks and Iranian production forecasts. But for now, they say there is no need for the group to change plans to gradually ease back its production cuts in the coming months, with the market having absorbed recent increases in Iranian crude exports without derailing the price recovery.
Under the OPEC+ supply accord, Iran is exempt from a production quota, along with Venezuela and Libya. Platts estimates that Iran has pumped some 300,000 b/d more since the start of the year.
"If Iran is exporting the volumes that [analysts] say they are, from a market perspective, the market took that volume and it actually did not have an impact," Saudi energy minister Prince Abdulaziz bin Salman told reporters after an OPEC+ meeting April 1.