Iran’s Sanctioned Production Renaissance
Iran’s Sanctioned Production Renaissance
Iranian crude exports are surging back to nearly pre-sanction levels and the country now represents one of the largest—if not the largest—single sources of supply growth over the past year.
Good morning and happy end of summer to all you oil-watchers,
Today is a Commodity Context double header (weekly will still go out at the end of the day) as we head into the long Labour Day weekend in the US and Canada, furnishing you with plenty of reading material with which to kick back and relax over the coming days.
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Iranian crude production is surging and represents one of the single-largest sources of incremental global oil supply over the past year.
The extent of that growth is disputed (like virtually all major Iranian oil industry metrics), with the true y/y growth figure falling somewhere amidst an estimate range of 300–800 kbpd.
Current Iranian shipments remain an estimated ~700 kbpd below early 2018 levels prior to the Trump Administration’s scuttling of the Iran Deal, which means a healthy chunk of underutilized production capacity still exists.
“Weaker enforcement” of US sanctions against Iran have often been credited with this rebound but that’s likely only part of the story; OPEC+ cuts, Chinese policy, and more aggressive discounting of Iranian barrels are all playing a role, too.
Iran supply risks are diminishing but probably won’t abate entirely over the coming months, not to mention the now potentially price-positive consequence of a Iran-hawkish 2024 Republican US presidential election win.
Iranian crude production and exports are indisputably booming and represent one of the largest-single sources of incremental global oil supply growth this year. But, there is still a healthy degree of debate in the market as to whether this represents a near-complete recovery or simply a partial one with more potential room to run.
Historically, the country’s oil production has been plagued by Tehran’s hostile relationship with both the West and its immediate regional neighbors—from Iraq to Saudi Arabia. Iran’s oil business has faced countless ups and downs over the past decade as the government stubbornly pursued a nuclear weapons programme despite sanctions aimed at slowing its progress toward The Bomb and punishing Tehran for its proliferative efforts. Nuclear-related sanctions first throttled back Iranian crude exports beginning in 2012, were lifted briefly as part of the 2015 Joint Comprehensive Plan of Action (aka JCPOA or simply the Iran Deal), and then were reimposed by the Trump administration in 2018.
Current efforts to revive the Iran Deal have yet to bear official fruit—though you’d be forgiven for believing some kind of agreement has been reached judging by Iran’s rapidly rebounding exports and reported production. The possibility of Iranian sanctions relief has for the past half-decade been a 1-2 MMbpd sword of Damocles hanging over the market, threatening to push balances back toward a fresh supply glut. Even today, with at least some of that having already arrived, prices flinch on every rumor that the White House is making “progress” in talks with Iran; just this past Friday, we had a short-lived $2/bbl pullback on another such whisper.
So, let’s dig into this latest flurry of headlines to understand where Iran’s growth stands, how far it’s come, and the range of production possibilities that stand before us.