Iran is sending the most crude in nearly five years, bolstering its re-emergence on the geopolitical stage while posing risks to a fragile global crude market.
Exports rose to the highest level since US sanctions were reimposed in 2018, according to a range of analysts including Kpler Ltd., SVB Energy International, FGE and the International Energy Agency. The vast majority flows to China, as the world’s largest importer collects barrels at discounted prices from the Islamic Republic.
The rebound in sales is the most tangible sign yet that the country, while still reeling economically from years of isolation, is reasserting itself, having begun mending ties with regional rivals, encouraging relations with the main Asian power and even to start a diplomatic engagement with Washington. .
However, the extra supplies are denting confidence in an oil market weakened by weak economic growth and cheap Russian cargoes, thwarting efforts by Iran’s partners in the OPEC+ alliance to put a floor to crude oil prices.
“Iran’s crude oil exports broke it last month,” said Homayoun Falakshahi, senior analyst at Kpler. “Iranian crude is extremely interesting for those who are willing to take the risk of buying.”
Crude shipments have more than doubled since last fall to reach 1.6 million barrels per day in May, although US sanctions remain in place, the firm said. Production reached 2.9 million barrels a day, the highest since late 2018, the Paris-based IEA estimated. Consultants SVB Energy, Petro-Logistics SA and FGE believe production is even higher, perhaps exceeding 3 million barrels per day.
The recovery in flows, greatly reduced after former President Donald Trump abandoned a nuclear deal with Tehran in 2018, could boost an economy battered by rampant inflation, a falling currency and periodic unrest against hardline President Ebrahim Raisi.
It coincides with other signs of Iran’s renaissance: a preliminary deal with regional rival Saudi Arabia in April, efforts to rehabilitate Syrian ally Bashar al-Assad and secret talks to ease tensions with the White House.
Through negotiations between brokers in Oman and on the sidelines of United Nations meetings, Washington and Tehran are moving toward a deal to free American prisoners and explore limits on Iranian nuclear research in return, according to a person familiar with the matter. the Iranian position, room for maneuver. to send more crude.
A State Department official said rumors of a nuclear deal are “false and misleading” and that the US priority remains preventing Iran from obtaining a nuclear weapon. Iran says its atomic program is for peaceful purposes only.
However, additional shipments are already occurring, adding to flows from two other sanctioned OPEC+ members, Russia and Venezuela, hitting global oil markets. Prices have fallen 12 percent this year to near $75 a barrel in London, prompting a flurry of downgrades by forecasters including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Iran’s surge has undermined efforts to stabilize the market by the Organization of the Petroleum Exporting Countries and its leader, Saudi Arabia, which this month announced a further 1 million barrel production cut per day, with little effect.
Since U.S. sanctions were reimposed five years ago, Iranian crude has been shipped to the few remaining buyers using a so-called “dark fleet” of tankers, often aging and uninsured, that disable transponders to avoid detection.
Although tanker tracking shows China has remained Tehran’s top customer, official data does not record any imports from the Islamic Republic over the past year. Instead, purchases have surged from Malaysia, where Iranian cargoes are often sent to be transferred to another vessel, obfuscating the shipment’s origins.
“These phantom barrels are not counted in the official total,” said SVB founder and president Sara Vakhshouri. But “while all of OPEC+ is trying to cut as much as possible, and Saudi Arabia is going with a voluntary cut, every barrel counts.”
Chinese refiners, especially smaller independents in Shandong province, are increasing purchases of Iranian cargoes as price discounts offered by Tehran help offset a recent drop in profit margins, Kpler says.
Iran has had to deepen discounts on its crude to compete with the influx of Russian crude driven out of Europe by sanctions, according to Iman Nasseri, managing director of FGE in Dubai. According to the companies, the increase in flow is drawing heavily on the crude it had stored in tankers to meet demand.
“China’s willingness to support Iran by taking its sanctioned oil suggests a slight improvement in Iran-China relations,” said Greg Brew, analyst at consultancy Eurasia Group. “All of this supports the view that Iran’s position is improving, along with its advanced normalization with other regional states.”
It was Beijing that brokered the nascent détente between Iran and the Saudis, a symbol of the growing rapprochement both countries are seeking with Asia’s rising power, as Middle Eastern rivals seek to defuse decades of power conflicts. , like the ongoing war in Yemen.
In addition to China’s increased appetite, some analysts have speculated that the increase has been tacitly allowed by a US government intent on keeping gasoline prices under control. Turning a blind eye could also help while the two countries work on building a diplomatic channel.
“There has been less enforcement of sanctions by a US administration that wants to counter Russian crude in the market while keeping supply flowing,” FGE’s Nasseri said.
The impact on oil prices from Tehran’s rebound could be limited going forward. Crude deliveries to China may slow as authorities crackdown on the bitumen mix, which traders suspect is being used as a cover for cheaper, denser barrels sold by Iran.
In any case, global oil markets will be headed for a sharp deficit for the rest of the year as China’s post-pandemic rebound accelerates, the IEA predicts. Demand will exceed supply by roughly 2 million barrels per day in the second half of the year, more than enough to absorb additional Iranian flows.
Crude traders remain skeptical about the tightness of projected supply, in part because the rising tide of barrels from Iran casts a shadow over the outlook.
“Negative supply-side anxiety is palpably shaping sentiment,” said Tamas Varga, an analyst at broker PVM Oil Associates Ltd. in London, adding that additional Iranian flows are part of it.
–With assistance from Sharon Cho, Serene Cheong, Alex Longley, Paul Wallace and Jonathan Tirone.
