While oil traders appeared ready June 10 to accept an instantaneous end to US sanctions on Iran's oil sector, analysts expect the Biden administration to take several weeks or months to actually remove them after the two countries agree to rejoin the 2015 nuclear deal.
Crude oil futures sank briefly June 10 as traders misinterpreted a routine Treasury Department announcement that removed sanctions from a single Iranian official. Some traders instead thought the announcement was lifting broad US sanctions on Iran's oil sector, which would have carried major impacts for global oil supply.
A State Department spokesman later clarified that there was "no connection" between the removal of sanctions on the former managing director of National Iranian Oil Co. and the US-Iran talks to revive the 2015 Joint Comprehensive Plan of Action.
If a deal is announced, however, there will not be "an immediate flooding of the market with Iranian barrels," Fernando Ferreira, director of Rapidan's Geopolitical Risk Service, said in a June 10 interview.
"There's probably going to be a compliance period, an implementation period for us to get back into the JCPOA. This might take from as little as a month to three months to get there," he added.
The US and Iran continued indirect talks in Vienna this week aimed at returning to the JCPOA, in which Tehran demonstrates its nuclear compliance in exchange for relief from US sanctions.
S&P Global Platts Analytics expects the US to remove sanctions on Iran's oil, petrochemical, shipping and other sectors by September, allowing the country to boost crude and condensate exports to 1.5 million b/d by December, from 600,000 b/d in May.
Compliance sequencing
The timing of the US sanctions relief — often referenced as the "sequencing" — is one complexity of the Vienna talks that both sides still need to sort out. In essence, each side wants the other party to go first in proving that it will comply with the JCPOA.
Henry Rome, senior analyst at the Eurasia Group, said in a June 7 interview on the Platts Capitol Crude podcast that Iran has insisted that it get a chance to verify the US sanctions relief before it takes its corresponding steps on the nuclear front.
"Now the US can't really accept a situation where it relieves all sanctions on Iran, and Iran takes its time to decide whether that's good enough and then, and only then, decides to return to its nuclear compliance," Rome said.
"So what the two sides need to work out is some type of phased sequencing that will allow Iran to say domestically that it has verified the US steps that they are actually in practice enjoying some of the benefits of JCPOA while also moving concurrently on the nuclear front," he added.
June deal possible
The Vienna talks, which started in early April, are taking longer than some analysts predicted , but the consensus remained that a deal will be reached in the near term.
Rapidan Energy Group sees 60-70% odds of a deal before the end of June, as the remaining issues are "surmountable and depend only on political will, which exists on both sides," it said in a June 4 note.
Ferreira said Iranians obviously want as much sanctions relief upfront as they can get out of the talks, and the US obviously does not want to give up any leverage until the Iranians return to nuclear compliance.
"We don't know exactly what this compliance-for-compliance stance is going to look like once they find a way back into the deal," he said. "Choreographing this dance may take some time, but ultimately we expect Iranian production to go back to 3.5 million b/d, inching closer to 3.8 million b/d capacity early on in 2022."
Platts