Relations between the U.S. and Iran appear to be thawing, with the U.S. swapping prisoners and agreeing to allow $6 billion in oil revenue to be released to Iran. It may help put a lid on oil prices.
Five Americans kept in Iranian jails were released and flown to Qatar on Monday, and the U.S. agreed to free Iranian prisoners held in American jails. In addition, the U.S. agreed to allow $6 billion in Iranian oil money to be released from banks that had frozen those funds.
The deal comes at a complicated moment in the relationship between the countries. Iran’s clout in the oil industry—it has the third-highest reserves in the world after Venezuela and Saudi Arabia—has given it leverage at a time when international oil prices are over $90 per barrel.
Iran still faces U.S. sanctions because of its nuclear enrichment program, but the country’s oil exports have still been on the upswing over the past year or so. Analysts say the U.S. hasn’t been enforcing the sanctions aggressively, because the Biden administration wants to increase global oil supplies—which has a deflationary effect on oil prices.
The U.S. government appears to be practicing “de minimis sanctions enforcement to enable Iranian barrels to reach the Asian market,” wrote RBC Capital Markets analyst Helima Croft.
The State Department didn’t respond to a request for comment on enforcement of the sanctions. In a media briefing on Monday, Secretary of State Antony Blinken said the prisoner swap “doesn’t speak to anything else in the relationship.”
“Let me be very clear that this process and the engagements necessary to bring it about, the freedom of these unjustly detained Americans, has always been a separate track in our engagement or, for that matter, lack of engagement, with Iran,” he said.
Iran now exports at least 1.5 million barrels of oil a day, more than three times as much as it did in 2019. Its total production is now over three million barrels a day. That is a modest but key portion of the 100-million-barrel-per-day oil market, because it balances out cuts by other producers. Saudi Arabia has reduced its oil output by more than two million barrels a day to prop up prices at a time when Chinese demand has been weaker than expected.
There is a chance Iranian production could rise more, and weigh down oil prices. The U.S., Europe, and Iran have discussed lifting oil sanctions, which were reimposed after then-President Donald Trump withdrew from the Iran nuclear deal in 2018. But the parties haven’t come to any deals on that issue yet, and there has recently been acrimony over the country’s nuclear inspection program.
The director general of the International Atomic Energy Agency said on Saturday that Iran had withdrawn the designation of several inspectors there, meaning “Iran has effectively removed about one third of the core group of the Agency’s most experienced inspectors designated for Iran.”
The U.S. State Department also warned Americans on Monday not to travel to Iran.
If the parties can come to an agreement, Iranian supply would likely climb higher, some analysts argue.
“A formal deal could restore up to 1-million barrels a day of crude oil and condensates production over a 6-9-month period,” wrote Citi analyst Ed Morse on Monday.
He doesn’t expect a nuclear deal before the 2024 presidential election. But Morse still thinks oil prices are likely to slump to an average price of $74 per barrel next year as a group of countries he calls the “Fragile 5”—Iran, Libya, Nigeria, Venezuela, and Iraq—boost production by 1.3 million barrels a day.
Write to Avi Salzman at [email protected]
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