OPEC+ Prepares To Bring Iran Back Into Oil Supply Deal After Sanctions

OPEC and its oil exporting allies will integrate Iran into their oil supply accord should a nuclear agreement be reached in Vienna and US sanctions lifted.

Quoting sources close to the group the report said OPEC+ seeks to avoid market share competition that could hit prices.

A successful outcome to the talks will lift United States’ sanctions on Iran's exports, according to the International Energy Agency, potentially bringing 1.3 million barrels per day (bpd) of Iranian oil back into the market. That could ease tight global supply and take some heat out of a rally that has taken benchmark prices to just a few dollars short of $100 a barrel.

Iran has been under full US oil sanctions since May 2019, and it was under partial sanctions from mid-2018. Its finances and the economy have suffered gravely as a result, and it is eager to sell as much crude as possible once sanctions are lifted.

The sanctions have also made Iran exempt from the existing export limit deal between the Organization of the Petroleum Exporting Countries and allies, known as OPEC+. While that exemption allows Iran to boost output, OPEC+ would eventually seek to bring Iran into the accord, sources said.

"It is very likely OPEC will adjust Iran into the deal, as there is no other option," an OPEC+ source told Reuters, who added that an agreement on reviving the nuclear accord looked close.

A source familiar with Iranian thinking said Iran would first seek to restore its lost output, but would likely, after talks with OPEC+, agree to a quota. Iran is one of the five founding members of OPEC.

Iranian officials are trying to restore they market share with previous customers like South Korea, Japan and India. Contacts and talks have already begun to coordinate post-sanction shipments.

Iran is pumping about 2.5 million bpd, some 1.3 million bpd less than in 2018 when former US President Donald Trump withdrew the United States from the nuclear accord and re-imposed sanctions, drastically cutting Tehran's oil income.

"With the lifting of sanctions, Iran will increase its oil production according to its facilities, capabilities and interests, to compensate for its lost oil revenues," the source familiar with Iranian thinking said.

"In my opinion, OPEC+ will set a quota for Iran's oil production but will apply it gradually, and Iran will accept the quota with some bargaining to show its support for OPEC."

'OPTIMISTIC' ON IRAN ISSUE

OPEC Secretary General Mohammad Barkindo, asked if OPEC+ would work out a new supply agreement that included Iran, said the group's track record gave grounds for confidence.

"Having survived the last five years since the establishment of the historic partnership between OPEC and non-OPEC that helped us to navigate through two oil cycles, we have every reason to remain reasonably optimistic going forward," he told Reuters.

OPEC+ is gradually boosting oil output after making record cuts in 2020 when demand collapsed due to the pandemic. But it has failed to hit its target because some producers did not make the investment or do the maintenance needed on oilfields during the pandemic to keep those facilities ready to increase output quickly.

For the United States, it would make sense to lift the sanctions on Iran to help lower prices given the domestic pressure the administration of President Joe Biden is facing due to rising inflation. The United States may also be considering that any output from Iran would ease the impact on global oil markets of any conflict between Russia and the Ukraine, a source familiar with Russian oil thinking said.

"The US will surely lift the sanction from Iran as soon as they decide to put more pressure on Russia given the current tensions over Ukraine," the source said. "Iranian oil will cool oil prices."

Reporting by Reuters