Progress on the Iran nuclear deal has put the spotlight on a significant crude stockpile held by Tehran that could be quickly shipped to buyers if a deal is struck.
As Bloomberg reports, about 93 million barrels of Iranian crude and condensate are currently stored on ships in the Persian Gulf, off Singapore and near China, according to ship-tracking firm Kpler, while Vortexa Ltd. estimates reserves at 60 to 70 million barrels. In addition, there are smaller quantities in land reservoirs.
Iran’s potential full re-entry into the global crude market, with the possible lifting of US sanctions, comes at a complicated time for traders as the countdown to much tighter European Union restrictions on Russian crude flows from December, in context of the bloc’s reaction against the war in Ukraine. Additionally, the Biden administration’s mammoth sale of the Strategic Petroleum Reserve will expire in October.
The potential return of Iranian barrels to global oil markets – both in floating storage and long-term – has weighed on futures prices in recent weeks, offsetting signs of tightness elsewhere.
The focus for diplomats is reviving a multinational deal that curbed Iran’s nuclear program in exchange for the lifting of related sanctions, including on oil flows.
The original deal collapsed after then-President Donald Trump abandoned it. Last week, the US sent its response to the latest proposal, fueling speculation that a deal could be reached soon, although Tehran said on Sunday that exchanges would continue until September.
Iran’s offshore crude stockpile compares with this year’s average daily global supply of about 100 million barrels per day, according to an International Energy Agency estimate. In the US, President Joe Biden is releasing about 180 million barrels from the strategic stockpile over six months.
Since former President Trump stopped granting exemptions for Iranian oil imports following US sanctions, Iran’s daily shipments have been held at about 1 million barrels, according to Vortexa analyst Emma Lee. China remained among the top buyers as other nations retreated.
Longer term, after any deal is reached and the offshore cargoes shipped, Iran will seek to rebuild production and ramp up overseas sales.
Goldman Sachs Group Inc., which is wary of a major breakthrough on the deal in the near future, said that even if it is reached, shipments would not begin before 2023, according to a note.
While Iran may aim to fill the gap left by Russia in Europe, namely Spain, Italy, Greece and even Turkey, Tehran will also try to regain share in the valuable Asian market, even if it has to sweetens the terms, Driscoll said.