[UPDATED ANALYSIS] Iranian Nuclear Deal: Situation Report

Analysis details (12:05)

OVERVIEW: The Iranian Nuclear Deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), has been in a state of limbo following a string of unsuccessful negotiations between members, namely Tehran and Washington – who have resisted making concessions to forward a deal. The EU put forward a proposal to Tehran in a bid to revive the Iranian nuclear deal, according to a draft cited by Politico. The proposal seemingly sees the US making concessions, primarily by reducing pressure on the Islamic Revolutionary Guard Corps (IRGC), one of Tehran’s demands, whilst blunting some of the effects of Washington’s sanctions on Iran. It's also worth remembering that agreeing to the EU proposal does not mean that an agreement has been made on the final text.

RHETORIC: Markets are yet to hear formally from the US. Although, US special envoy for the Iran talks, Rob Malley, told Politico that the US is not changing its standards or rules with regards to sanctions enforcement. An Iranian Foreign Ministry spokesperson said significant progress was made in the last round of talks held in Vienna, but consultations over the EU draft are ongoing. The spokesperson added that the ground is prepared for an agreement, provided Iran's red lines are met, via Tehran Times. There were separate reports that Iran has accepted the EU proposal, and an agreement will soon be signed. Iran said we have to let go on some nuclear demand to gain others. Iran to inform the EU of its response to a nuclear deal text tonight, and added of there is a plan B if talks fail - the response will be made by midnight tonight. Given the mixed messaging, traders will eye Washington’s side to weigh whether the US will accept the EU proposals and/or offer the necessary concessions to bring Iranian barrels into the market. Iran added that further nuclear talks will be needed if the US refuses to show flexibility, and a deal can be concluded if the US agrees to three remaining issues. Iranian Foreign Minister said "We exchange messages with Washington on three issues, and we have informed them of our readiness for compromise", via Al Jazeera.

NOTABLE COMMENTARY: WSJ's Norman on the Iranian talks said "A source suggests that what Iran wants is a guarantee that sanctions on some entities/sectors won’t spillover into stopping trade/transactions in others... If that’s accurate, that looks like a very tough sell. The US has offered what’s in my read a modest concession on IRGC dealings. I’m doubtful Washington will offer Iran any kind of guarantee that non sanctioned sectors will be free of shadow of sanctions on other parts of econ. That would be a big concession."

OIL MARKET IMPACT: The Biden administration has attempted to revive the deal to bring energy prices down as the West shuns Russia's oil and gas. Analysts at ING at the start of the year suggested “If we are to see a lifting of sanctions, it would help ease some concerns over the ability of OPEC to increase output. Iran is currently producing around 2.5mln BPD but is estimated to have a capacity of closer to 3.8mln BPD. Therefore, over time there is the potential for 1.3mln BPD of additional supply to come onto the market.” In line with this, Reuters in March 2022 cited the Iranian oil minister saying Iranian oil production capacity can reach its maximum less than two months after a nuclear deal is reached. Iran pumped an average of 2.4mln BPD in 2021 and plans to increase output to 3.8mln BPD if sanctions are lifted.

BRIEF HISTORY: Sanctions were previously imposed by the UN, US and EU in an attempt to force Iran to halt uranium enrichment crippled the Iranian economy. Under the 2015 JCPOA, all nuclear-related sanctions on Iran were lifted, and Iran was permitted to resume selling oil on international markets while using the global financial system for trade. In May 2018, former-US President Trump abandoned the JCPOA and reinstated all US sanctions on Iran in November 2018 as part of a "maximum pressure" campaign after Iran refused to curb its ballasting missile programme and distance itself from regional conflict. In April 2021, Iran set out five key issues in future negotiations that they will adopt a firm stance on. A full history can be found via the Council on Foreign Relations, while details on the Iranian deal can be found via BBC.

15 Aug 2022 - 12:05- EnergyGeopolitical- Source: Newsquawk