Iran’s potential nuclear deal would impact oil price – but the deal is not close

1. Increased Oil Supply and Downward Price Pressure:
   • Iran’s Production Capacity: Iran, a major OPEC producer, exported around 2.5 million barrels per day (bpd) of crude oil before sanctions tightened in 2012, dropping to 1.4 million bpd by 2015 due to restrictions. In 2023, Iran produced 2.9 million bpd, with exports recovering to around 1.5 million bpd, mostly to China, despite sanctions. A sanctions lift could enable Iran to ramp up exports by an additional 0.8 to 1.3 million bpd within 6-12 months, and potentially reach pre-sanctions levels (2.5 million bpd) within a year or two, depending on infrastructure and investment.
   • Price Impact: Analysts estimate that adding 1-2 million bpd of Iranian oil could depress global oil prices significantly. For instance, a 2022 analysis suggested Brent crude could drop to $65 per barrel by mid-2023 if Iranian oil fully re-enters the market, compared to $101 at the time. In May 2025, with Brent at $64.53 and WTI at $61.62, expectations of a deal led to a 2% price drop, reflecting bearish sentiment. A World Bank model from 2016 projected a 13% decline in global oil prices due to increased Iranian supply post-sanctions.
   • Market Dynamics: The oil market is currently oversupplied, with OPEC+ producing above quotas and U.S. production at record levels (13.7 million bpd in 2025). Additional Iranian oil would exacerbate this, pushing prices lower unless offset by production cuts or demand spikes.
2. Immediate Market Expectations:
   • Speculative Pressure: Even the announcement of a deal could drive prices down before physical supplies increase, as markets price in future supply growth. In 2015, the JCPOA announcement accelerated the downward trend in oil prices. Recent posts on X in May 2025 noted that oil prices fell 2% on news of U.S.-Iran talks progressing, reflecting trader expectations of sanctions relief.
   • Volatility: Uncertainty around the deal’s terms, implementation timeline, and geopolitical fallout (e.g., tensions with China, Iran’s top oil buyer) could introduce price volatility. A failure to secure a deal or reimposition of sanctions could reverse price declines, as seen when Trump threatened secondary sanctions in May 2025, pushing prices up nearly 2%.
3. Geopolitical and OPEC+ Responses:
   • OPEC+ Countermeasures: OPEC+ (including Saudi Arabia and Russia) may cut production to stabilize prices if Iranian oil floods the market. In 2022, Saudi Arabia signaled readiness to reduce output to accommodate Iranian barrels. However, OPEC+’s recent decision to increase production by 138,000 bpd in 2025 suggests limited appetite for deep cuts, which could amplify downward price pressure.
   • Regional Tensions: Lifting sanctions could strain relations with other producers like Saudi Arabia, Russia, and Qatar, who compete for market share. In 2015, this was noted as a potential source of tension. Saudi Arabia might increase output to maintain market share, further depressing prices, as seen post-2015 when Gulf producers capitalized on Iran’s discounts ending.
4. Longer-Term Effects:
   • Investment and Infrastructure: Iran’s oil industry requires significant investment to restore pre-sanctions capacity due to aging infrastructure. Limited international investment at current low oil prices ($60-65/barrel) could delay full production recovery, muting price impacts beyond the initial surge. The World Bank noted in 2016 that Iran’s per capita welfare would rise 3.7% from sanctions relief, but global price effects would be moderated by slow reintegration.
   • Natural Gas Markets: Iran’s gas exports, particularly LNG to Asia or pipelines to Europe, would take 5+ years to scale up due to high investment costs, having a negligible short-term impact on oil prices but potentially challenging U.S. LNG exports to Asia in the long term.

• China’s Role: China absorbs ~90% of Iran’s crude exports, often rebranded as Malaysian or Middle Eastern oil via “dark fleet” tankers. Stricter U.S. sanctions enforcement targeting Chinese refineries could limit Iran’s export growth, reducing the supply shock. However, China’s non-recognition of U.S. sanctions complicates enforcement.
• Global Demand: Weak demand growth, particularly in China (projected to slow in 2025), and flat U.S. growth could amplify bearish price effects. Conversely, demand growth in South Asia and Latin America might absorb some Iranian supply.
• Sanctions Reimposition Risk: The U.S. withdrawal from the JCPOA in 2018 and subsequent sanctions reinstatement highlight the fragility of any deal. If Iran violates terms or geopolitical tensions escalate (e.g., with Israel), sanctions could “snap back,” tightening supply and spiking prices.

• 2015 JCPOA: When sanctions were lifted in January 2016, Iran’s oil exports gradually increased, contributing to a global supply glut that kept Brent prices below $50/barrel in 2016-2017. The deal unlocked $100 billion in frozen assets and enabled Iran to resume open market sales, though financial transaction restrictions limited trade growth.
• 2018 U.S. Withdrawal: Reimposed sanctions cut Iran’s exports by ~1 million bpd, contributing to Brent peaking at $86 in October 2018. This illustrates the price sensitivity to Iranian supply disruptions.

• X Posts: Sentiment on X reflects expectations of lower oil prices if a deal is reached, with estimates of Brent falling to $60 or below due to increased Iranian supply. However, some posts warn of price spikes if Trump’s “maximum pressure” sanctions succeed in cutting Iranian exports (e.g., by 1.5 million bpd).
• Analyst Views: SEB analyst Ole Hvalbye noted that 0.8 million bpd of additional Iranian crude would be “undeniably bearish” for prices. Rystad Energy suggests sanctions relief could unlock significant supply, but effectiveness depends on China’s cooperation.

• Short-Term (6-12 months): If sanctions are lifted and Iran adds 0.8-1.3 million bpd, Brent could fall to $55-60/barrel from its current $64.53, assuming no major OPEC+ cuts or demand shocks. A full return to 2.5 million bpd could push prices toward $50-55/barrel by mid-2026.
• Long-Term (2-5 years): Sustained low prices ($50-60/barrel) are likely if Iran’s production stabilizes and global demand growth remains sluggish. However, geopolitical risks or OPEC+ interventions could keep prices in the $60-70 range.

• U.S. Drilling Slowdown: The U.S. rig count decline (576 rigs in May 2025) and focus on efficiency mean domestic production growth is slowing, which could partially offset Iranian supply increases. However, U.S. producers’ break-even costs (~$61-65/barrel in the Permian) align with current prices, limiting their ability to counter a price drop.
• Singapore’s LNG Market: Singapore, reliant on LNG for 94-95% of its power, could benefit from lower global energy prices if Iranian oil depresses LNG-linked gas prices. However, its LNG suppliers (e.g., Australia, Qatar) may face margin pressure, potentially affecting contract terms.
• Port Cranes and Shipping: Lower oil prices could reduce shipping costs, benefiting port operations and crane demand (e.g., South Korean cranes at $10-15 million for STS models). However, this is a secondary effect.
• Folk Yanbu Operations: The Saudi-flagged Folk Yanbu, operating in the Red Sea, could face increased competition if Iranian oil boosts regional trade volumes, potentially lowering freight rates but increasing port activity.

• Data Gaps: Precise timelines for Iran’s production ramp-up and the deal’s terms are uncertain. Infrastructure constraints and investment needs could delay full recovery.
• Verification: For real-time updates, monitor OPEC+ announcements, IAEA reports, or platforms like OilPrice.com. Tanker tracking data (e.g., Rystad Energy) can confirm export volumes.
• Geopolitical Risks: Tensions with Israel, China, or within OPEC+ could derail the deal or alter price outcomes.

Energy News Beat