U.S. Sanctions Relief Could Restore Iranian Oil Exports

NIOC tanker
File image courtesy Alf van Beem

Published Feb 21, 2022 6:12 PM by The Maritime Executive

U.S., European and Iranian negotiators are nearing an agreement to revive the Obama-era Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear deal, according to officials involved in the talks. If they do reach an accord in the coming days, Iran would begin to wind down its nuclear enrichment program in exchange for sanctions relief - in particular, relief from strict U.S. sanctions on Iranian petroleum.

A deal lifting sanctions on Iran would release millions of additional barrels of oil for a tight global market, and would help offset any supply-side impact of upcoming U.S. sanctions on number-two oil exporter Russia. According to tanker analysts Poten & Partners, Iran has accumulated more than 50 million barrels of crude oil in floating storage, enough to supply all global demand for half a day. It would likely be marketed immediately, providing price relief as oil nears the $100-per-barrel mark. 

Iranian oil has been smuggled out to customers in China and beyond for years, but the difficulty of these clandestine transactions has suppressed export volume. Once sanctions are lifted, the National Iranian Oil Co. (NIOC) has announced intentions to restore oil production to 3.3 million bpd within the span of a month, then increase it to 4.0 million bpd - the same quantity it produced before the imposition of sanctions in 2018. 

"If sanctions are lifted, the bulk of Iran’s output will be restored within one month, with full output restoration happening within three months,” NIOC deputy for production Farokh Alikhani told state-owned Shana News. 

According to Poten & Partners, this could have a positive impact on tanker day rates. Iran has 54 tankers in its state-owned fleet, but most have been used for floating storage for years, and it is unlikely that they would be ready to sail immediately. Instead, commercial tankers will likely be chartered to take the first shipments to market. 

When Iranian oil goes mainstream again, the return of legitimate tonnage will likely doom the small "rogue" fleet of sanctions-busting tankers, Poten said. Activist group United Against Nuclear Iran estimates that there are 169 vessels in this category, primarily smaller ships. 

"The lifting of sanctions would legitimize the Iranian exports and significantly reduce the employment opportunities for these vessels, most of which will likely disappear from the market," predicted Poten. "The return of the NITC fleet will take some time, while the impact on the rogue tankers will be immediate. In addition, we expect that Iranian crude output and exports will grow and this will add oil supply to the market."