For now, sanctions are curbing Iran’s oil exports, blocking payments for past sales and crippling new investment. And while Western investment in new projects probably would not be possible until sanctions are completely lifted, a temporary easing of sanctions on transactions with Iran’s central bank might clear the way for Chinese and other buyers of Iranian crude oil to immediately pay tens of billions of dollars owed for past shipments.
Even amid sanctions, Iranian oil exports account for 80 percent of the country’s foreign exchange earnings and about half of government revenue, according to the Energy Information Administration.
Iran’s willingness to engage with the United States and other Western powers worried about Iran’s nuclear program has already changed price expectations in the oil markets, where anxiety about conflict that could disrupt oil supplies has given way to anticipation of an easing in sanctions that could bring higher Iranian output.
Where traders and analysts once said that the mere possibility of an attack on Iran’s nuclear facilities by the United States or Israel added as much as $5 to $15 a barrel when tensions ran high, now they are focused on how much a reopening with Iran might trim the price of crude oil.
“I would say right now there isn’t an Iran premium,” said Robert McNally, president of the Rapidan Group, a consulting firm. “Now there’s an Iran discount. All of a sudden, everyone is abuzz talking about how soon Iran’s exports could resume once sanctions are ended.”
Iran is currently exporting roughly 1 million barrels a day, down by more than half, and production has slumped to its lowest level since 1992.
“In a grand bargain scenario . . . the Iranian risk premium could erode and exert downward pressure on prices,” said Barclays analyst Helima Croft in a September note, though she cautioned against “irrational exuberance” and warned that “the physical void of Iranian barrels is likely to remain a fixture of the oil market because of sanctions and technical difficulties.”
She said in an interview Saturday that Congress, where the Senate is weighing a House measure that would tighten restrictions on Iran, was unlikely to lift sanctions anytime soon. She also noted that several state legislatures had also passed their own sanctions measures that could remain obstacles to new investments. “The only thing Congress seems united on is antipathy toward Iran,” Croft said.
But Iran under President Hassan Rouhani is already reaching out to Western oil companies, inviting them to meet at the time of the U.N. General Assembly sessions, according to one major U.S. petroleum giant that was invited but did not attend. Oil company executives did, along with other major American business leaders, attend a luncheon with Iran’s foreign minister.
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