The Iran nuclear negotiations, which have attracted significant market attention and was progressing well, suddenly hit a deadlock in recent days. The European Union’s representative announced on March 11 that the indirect negotiations between the United States and Iran to return to the "Iran Nuclear Agreement" need to be suspended due to external factors. He emphasized that he would maintain communication with all parties and pointed out that the final text of the negotiations was ready. The chief envoys of the United Kingdom and France who were part of the negotiations said on the same day that the external factors hindering the agreement must be resolved in the next few days. Otherwise, the talks risk breaking down.
Since the outbreak of the Russian-Ukrainian war, oil prices have been soaring. However, if Iran and the world powers reach an agreement soon, the nuclear sanctions on Iran would be lifted, and Iranian crude oil would return to the international oil market. Such an outcome would help curb rising crude oil prices, a negative factor for oil prices.
The Twists and Turns of the Iran Nuclear Talks
The history of the Iran nuclear deal originated in 2002 when the international community panicked that Iran might move towards developing nuclear weapons and impose sanctions on the country. After multiple rounds of marathon negotiations, in July 2015, Iran reached a nuclear deal with the United States, Britain, France, Russia, China and Germany. However, in May 2018, the U.S. government unilaterally withdrew from the Iran nuclear deal and subsequently restarted and added a series of sanctions against Iran. Since May 2019, Iran has gradually suspended some provisions of the Iran nuclear deal and has progressed its nuclear ambitions.
Parties involved in the Iran nuclear deal held talks in Vienna in April 2021 to discuss the resumption of Iran’s compliance with the deal. However, the talks were suspended after six rounds due to significant differences between the United States and Iran regarding the 2021 Iranian Presidential elections. The Iran Nuclear talks were later restarted on November 29, 2021, in Vienna, and the parties are now very close to reaching a new agreement.
The timing of a possible agreement coincided with the outbreak of the Russian-Ukrainian war. Russia suddenly demanded assurances from the involved parties that the sanctions imposed by the West on the Russian economy due to the Ukraine war would not affect trade between Russia and Iran. Russia's request brought uncertainty to the negotiations, forcing the EU representatives to announce the suspension of negotiations.
The United States refused to negotiate a waiver of sanctions against Russia related to the Ukraine war to save the 2015 Iran nuclear deal and could try to reach a separate deal that does not include Russia, a senior U.S. official said, according to the Wall Street Journal.
Oil Prices Still Have Room To Rise
As of March 14, London Brent oil futures closed at $109.9 a barrel, down 5.1%; New York oil futures closed at $103.01, down 5.8%. After the markets assessed the impact of the Russian-Ukrainian war on global crude oil supply, Brent oil futures fell from a recent high of $139.13. However, the sudden suspension of the Iran nuclear deal has added new variables to the future for oil prices. If a final agreement cannot be met, this could perpetually drive up the price of crude oil.
Brent crude oil futures in London have traded above $110 a barrel several times in the recent past. The rally has been fueled by rising global oil prices and falling crude oil inventories due to the strong domestic demand for crude oil in the United States. In the week ended March 4, U.S. crude oil inventories were 411.562 million barrels, down 1.86 million barrels from the previous week. The decline represents a 17% drop compared to last year's same period.
The inability of the global crude oil supply to keep up with the continued strong market demand has become a problem that cannot be quickly resolved, which has forced the US government to start looking for oil everywhere. The US government intends to import oil from Venezuela and Saudi Arabia, but the results are not optimistic. Moreover, it seems that the idea of importing oil from Iran is very likely to collapse if the nuclear deal is not sealed eventually.
The crude oil market is closely watching the energy sanctions imposed by the United States and the United Kingdom on Russia and the possible impact on future crude oil supply. If Russian supply continues to decline in the next few months, coupled with OPEC's extension of its production cut agreement into this year, oil prices are likely to rise. However, OPEC countries are still sticking to the plan to increase production cautiously despite the intensifying shortage of crude oil on the supply side, which is likely to push up oil prices again.
Last week, Goldman Sachs raised its one-month price forecast for Brent to $115 a barrel from $95. Oil could hit $150 a barrel in the next three months if Russian crude continues to be “unloved,” said Goldman Sachs’ head of energy research. However, he warned the market that there were "a lot of upsides" for oil and that demand destruction could start once oil crosses $150 a barrel.