Revival of the Iranian Nuclear Deal: will it overshadow the key factors in the oil markets again?

 

After months of uncertainty over the revival of the JCPOA, 2015 Iranian deal, the diplomatic moves are fully underway to restart the negotiations.

Both President Biden and President Raisi of Iran hinted that the next round of talks is in the offing in Vienna, the Austrian capital.

If Iran is allowed to enter the global crude oil markets, increased output that the consumers can only dream of at present is going to become a reality: on one hand, Iran, in the middle of a dire economic situation, compounded by the pandemic, needs to sell its oil to bolster its coffers; on the other hand, the world, hit by an acute supply crunch of gas, does not want yet another energy supply disaster, especially reeling from a catastrophic impact on the economies due to the pandemic.

Politicians, regardless of where they come from, rarely give a straight answer to a straight question. It was no different when it came to the Iranian nuclear issue and the JCPOA either.

As always it is the case, we need to read between the lines to make out what may come once they talk about important things – in a few or months’ time, of course.

The regional powers in the Middle East, Saudi Arabia, the UAE, and Israel, have been vehemently opposing the revival of the Iranian nuclear deal, citing the fears of Iran developing a nuclear bomb.

The newly elected Israel prime minister even went to the US to meet President Biden and talk on the issue. The latter must have made the US position clear to the former in private. In public, President Biden said he wanted to give diplomacy a chance, while emphasizing what he called, ‘other options’ at his disposal.

On his return, Israeli position slightly mellowed: the defence minister said recently that if the JCPOA were to be revived, there should be a, ‘Plan B’ with regard to the Iranian nuclear issue.

Israel has been threatening Iran with military attack in the event of the latter making a nuclear bomb. At present, it seems that the US is restraining the Jewish state against such a move using its levers of power.

As for the other US allies in the region, the abandonment by the world’s only Super Power is going to cause serious security problems: Saudi Arabia now faces Houthi threats from sea as well, in addition to daily drone and missile attacks.

The US officially requested the oil producers to increase the supply of crude oil to the markets in order to rein in the soaring prices at the pumps.

It was not rebuked by the OPEC+; it, however, did not get a sympathetic ear by the block either.

In this context, the speed at which the revival of the talks got back to be in the public domain, some analysts suspect, shows a certain correlation. In short, the US, having been frustrated with its long term allies, wants Iran to fill the void, if allies do not care about its need of the hour – an increased supply of crude oil.

As far as crude oil markets are concerned, the revival of the JCPOA is going to steal the focus of analysts once again, shadowing the other key factors such as the fall in the US crude inventories; they fear that Iran will release its crude oil to the market in large volumes in order to compensate for the losses it suffered for three long years due to US-led sanctions.

Although it is too early to say that the pandemic is behind us, the demand for crude oil is firmly back on track and appears to be irreversible: the latest data from the API, American Petroleum Institute, shows a fall of over 6.1 million barrels for the week ending September, 17 – much more that what analysts expected, 2.4 million barrels.

Unless the supply increases in proportion, the price of crude oil is going to go through the roof and the influential global politicians are not going to take it lightly – for obvious reasons; then, there will be inevitable political consequences as we see in the Middle East recently.

Therefore, maintaining a sensible price for crude oil is in everyone’s interest, because the survival of both producers and consumers is the urgent need of the hour – especially in the post-pandemic world, if it is not too early to call it.