An Iran nuclear deal revival could dramatically alter oil prices

The return of the Iran nuclear deal could be imminent — and with it, the return of a lot of oil to international crude markets. 

Before the U.S. resumed sanctions on Iran after former President Donald Trump left the deal in 2018, Iran was the third-largest producer in OPEC after Saudi Arabia and Iraq. In 2017, it was the fourth-largest oil producer in the world, after the U.S., Saudi Arabia and Russia.

“OPEC could easily produce 30.5 million bpd (barrels per day) if Iran comes back and those barrels are not accommodated,” Tamas Varga, analyst at PVM Oil Associates in London, told CNBC on Tuesday. “Under this scenario my model shows Brent dipping to $65” per barrel in the second half of 2023, Varga said. 

That’s a massive drop from the current price of Brent crude, which was trading at just over $101 a barrel on Tuesday morning in New York. 

Last week, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, warned that OPEC could be forced to cut oil production. The minister’s reasoning was that physical and paper markets are “disconnected” with the latter suffering from “very thin liquidity, extreme volatility,” he said in an interview with Bloomberg last week.

But Iran’s potential reemergence on the market is also likely to be a concern, analysts say. 

“OPEC+ might be preparing for the eventual return of Iran,” Varga wrote in a report Tuesday. “Should the nuclear deal be revived, 1-2 million barrels per day of extra oil could hit the market in a comparatively short period of time.”  

And veteran OPEC analyst Helima Croft, head of global commodity strategy at RBC Capital Markets, told the Financial Times last week that “earlier this year I think it’s fair to say Saudi Arabia and other regional actors were reasonably confident the Iran deal wasn’t going to happen in the near future … Now that the negotiations have been revived I think they will be focused on both the oil market and the wider security implications of this deal potentially getting over the finish line.” 

Iranian negotiators in mid-August expressed optimism about the prospects for an agreement, with one advisor saying “we’re closer than we’ve been before” to securing a deal and that the “remaining issues are not very difficult to resolve.” 

But so far, it seems there are a few remaining sticking points that are proving fairly difficult to resolve….