Raisi Victory Will Delay Return of Iran’s Oil, Analysts Say

The election of a conservative cleric as Iran’s president will probably hold up the lifting of U.S. sanctions on the Islamic Republic’s energy exports, said analysts including Sara Vakhshouri, president of SVB Energy International LLC.

“The election of a hard-liner delays the expectation of a rapid return of Iranian oil,” she said.

Voters overwhelmingly picked Ebrahim Raisi on Friday, albeit on a low turnout. The 60-year-old head of Iran’s judiciary, generally seen as wary of rapprochement with the U.S., will succeed President Hassan Rouhani in August.

Worlds powers including the U.S., the European Union and Russia are attempting to resuscitate a 2015 accord that limited Iran’s atomic activities in return for sanctions relief. Diplomats said on Sunday they had adjourned their sixth round of talks with significant disagreements remaining about how to revive the deal, which then-President Donald Trump pulled the U.S. out of in 2018.

Oil prices have surged to almost $75 a barrel this month as major economies ease coronavirus restrictions and as the Iran talks drag on. The perception now among traders is that Iranian exports won’t make a comeback until late in the year, Vakhshouri said during an energy forum hosted by the Dubai-based consultancy Gulf Intelligence.

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Iran’s crude will likely be easily absorbed by the market given that demand will outstrip supply by as much as 1.5 million barrels a day by the end of the year, she said. Production growth has been constrained by OPEC+’s supply cuts and shale firms in the U.S. prioritizing generating cash for shareholders over drilling new wells.

Oil prices came under pressure earlier in 2021 on concerns that a nuclear deal was imminent and Iranian oil would soon flood the market.

The country’s exports have decreased from around 2 million barrels a day to barely anything since Trump withdrew from the accord, known as the Joint Comprehensive Plan of Action.

Back in Stages

Iran’s oil is only likely to come back in stages once a deal is reached, Robin Mills, chief executive of Dubai-based consultant Qamar Energy, said. The U.S. won’t ease sanctions until it’s convinced Iran is complying with the new accord, he said.

A deal leading to a rapid end to sanctions was “always more of a long-term hope and now, with Raisi elected, even more so,” Mills said. Still, Raisi “will be keen to have a deal done by the time he gets to office so he can benefit from improving economic conditions” as sanctions are eased.

The Organization of Petroleum Exporting Countries, which includes Iran, and partners such as Russia cut output last year to make up for a drop in demand caused by the pandemic. Oil use is now recovering and nearly at pre-pandemic levels. Due to the sanctions, Iran was exempt from the OPEC+ restrictions.

Even with a nuclear deal in place again, U.S. and European companies will be less likely to invest in Iran’s oil industry, Vakhshouri said. The new Iranian administration will favor continued oil sales to China in return for investment, she said.

©2021 Bloomberg L.P.

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