State-controlled National Iranian Oil Co. has been priming oil fields – and customer relationships – so it can increase exports if an accord is clinched. In the most optimistic estimates, the country could return to pre-sanctions production levels of almost 4 million barrels a day in as little as three months. It could also tap a flotilla’s worth of oil that’s hoarded away in storage. There are still many hurdles to overcome before than can happen. Any agreement must fully dismantle the gamut of US barriers on trade, shipping and insurance involving Iranian entities. Even then buyers may still be reluctant.
The pace of Iran’s comeback may prove critical for the global oil market. While fuel consumption is on the rebound, it remains depressed by lockdowns and new virus outbreaks. Extra Iranian supplies would impose a burden on its counterparts in the OPEC+ alliance, which has toiled for more than a year to clear a lingering supply glut. Engineers at government-owned NIOC have been rotating crude production between different fields to maintain sufficient reservoir pressure, according to officials at the company, who asked not to be identified when discussing operations. The procedure is crucial for keeping up output levels. Gas injections at older oil fields in the south of the country are playing a similar role. With Tehran and Washington still haggling to secure the best terms from the talks, a deal may take much more time. If recent attacks and incidents in the Persian Gulf escalate into open hostilities, it might slip away altogether. For many in the market, from Wall Street banks like JPMorgan Chase & Co. to trading houses such as Vitol Group, oil demand is recovering fast enough to comfortably absorb additional Iranian barrels. As the rapid deployment of vaccines helps end lockdowns, pent-up demand for travel stands to propel consumption higher in the second half.