Iranian oil output and export recovery may lag Middle East neighbors: analysts

Iran's ramp-up in oil production and exports could be slower than that of its neighbors if a US-Iran agreement delivers lasting peace and a return to pre-war shipping levels through the Strait of Hormuz, analysts said.

Unlike other Middle Eastern producers, Iran's production and export capability had already been battered by years of Western sanctions when the war began in February. Analysts say its infrastructure has sustained more damage than that of its neighbors over the last few months, adding to the technical issues already imposed by sanctions.

"Iran may face a longer recovery path than some of its neighbors given the additional constraints imposed by sanctions and the more extensive attacks on its energy and transport infrastructure," Carole Nakhle, founder of consultancy Crystol Energy, said.

Jim Burkhard, vice president and head of research for oil markets at S&P Global Energy CERA, said that most of Iran's "production growth will come from other Gulf countries in the next 3-6 months, but Iran could sustainably boost both exports and production."

In late May, analysts at CERA said that output could reach 2.9 million by the end of the year.

Iran produced 2.5 million b/d in May, according to the Platts OPEC+ crude production survey by S&P Global Energy. This was down from 3.19 million b/d in January, before the war started on Feb. 28.

Iranian official estimates of pre-war production are higher. A spokesperson for Iran's Oil, Gas and Petrochemical Products Exporters' Union, Hamid Hosseini, put pre-war output at 3.6 million b/d, of which 1.5-1.6 million b/d was exported. He said that production likely fell to 2.5 million b/d during the war.

Hosseini doesn't expect Iran to increase output to this level in the near future because emptying storage and reviving capped wells will take time.

"It will take two weeks or so until we empty the storage tanks and ships start moving and NIOC starts new production," he said, referring to the National Iranian Oil Company.

He estimated that Iran could fall 100,000-150,000 b/d short of pre-war oil production.

"We should open wells for roughly 1 million b/d with all the repairs... they plan to gradually open the wells as of next week. It depends on when the storage tanks empty, how the wells get restored," Hosseini said, adding that other equipment needs to be checked and repaired.

The Iranian Oil Ministry did not reply to a request for comment on production plans.

Former NIOC director for international affairs Mohsen Ghamsari told Platts that exports were likely around 2 million b/d before the war started. He sees production potentially reaching 4 million b/d, with exports at around 2 million b/d, if the agreement holds.

"I don't have technical information about well closures. The standard process under obliged reduction is to approach onshore and non-shared oilfields," he said, declining to comment on how much Iran cut oil production and exports during the war.

Iran could increase exports by bringing production back online or using floating and onshore storage.

Ghamsari, who was in charge of NIOC oil sales, said: "If Iran wants to use its floating storage, it's quickly accessible. Vessels could be usually based outside the region. I think they could easily reach the targeted figures, but the marketing and sales require a particular process of its own that takes time naturally until they can reach sales agreements and prepare contracts," he said, adding that technically it would be easy to resume operations.

He said it is hard to predict without exact storage figures, but exports could be back at pre-war levels in around three months.

Oil prices have fallen in recent weeks on the prospect that Middle Eastern barrels, including those from Iran, could return to the market. Platts, part of S&P Global Energy, assessed Dated Brent at $77.5/b on June 18, down from $100.295/b at the start of June.

The last time Iran benefited from significant sanctions relief was 2015, when it signed the Joint Comprehensive Plan of Action (JCPOA) with China, France, Germany, Russia, the UK, the US and the EU.

Iran was producing 2.88 million b/d in July 2015, according to the Platts survey. Output remained around this level until February 2016, when it jumped to 3.19 million b/d and continued to grow.

Ghamsari said circumstances are different now.

"At the time, the issue was only the sanctions, marketing and sealing contracts. We [now] have technical issues in addition," he said, adding that as the negotiations on signing export contracts advance, Iran can also make progress on the technical issues.

Iranian officials have given some detail on repair work progress at oil infrastructure targeted during the war. Iranian Offshore Oil Co. Managing Director Ahmadreza Rasti said on June 16 that reconstruction of the maritime oil production platforms at Lavan has reached 91%, according to a statement on the company's website.

"Only one week after the incident, 50% of the region's production was revived and oil production resumed," Rasti said.

Frankfurt-based energy analyst Abdollah Babakhani said in a post on X that damage to Iranian energy infrastructure runs into the billions of dollars, and foreign resources should be used to carry out repairs.

He said Iranian companies have a window of opportunity until the US midterm elections to secure export permits and contracts for the equipment needed for these repairs.

The US-Iran peace agreement includes $300 billion for the country's reconstruction. However, it is not clear who would be funding that.

At a press conference on June 18, US Vice President J.D. Vance said, "I assume in the UAE there would be private money and so forth that would be part of this, but again, this is so far in advance because it assumes transformation in Iranian behavior."