Since the U.S. sanctions snapped back on Iran’s oil industry, relations between Iran and Iraq have grown more complex and controversial as a series of security and political events in the two countries have captured global attention. Yet while the political aspect of the Iran-Iraq relationship has been dominating coverage of the countries, their ongoing competition in the oil market has not—and once American sanctions are removed, Iran will be returning to a very different oil market.
Sanctions and an Opportunity for Iraq
The return of U.S. sanctions in 2018 was an opportunity for Tehran’s oil rivals, among them Iraq, to fill the gap left by Iranian crude oil—especially in the highly prized Asian market as Iranian exports began to fall. When the U.S. ended the sanctions waivers in May 2019 to import Iranian oil, Tehran’s crude and condensate exports plummeted to below 1 million barrels per day (Mbd), compared to 2.57 Mbd the same month in 2018, according to TankerTrackers.com, an independent firm that tracks crude oil shipment and storage using various tools, including satellite imagery and AIS signal.
In September, and despite U.S. sanctions, Iranian oil exports rose to above 1 million bpd for the first time since April 2019
However, Iran has continued to export crude and condensate clandestinely to conceal the loading and destination of its cargoes. In September, and despite U.S. sanctions, Iranian oil exports rose to above 1 million bpd for the first time since April 2019, according to TankerTrackers.com (see chart below).
Iran and the Slow Reintegration into the Market
The incoming administration of President-elect Joe Biden has expressed its interest in rejoining the nuclear deal, although this won’t be an easy task due to internal politics in both Washington and Tehran. According to Homayoun Falakshahi, a senior analyst at data intelligence firm Kpler, it will be difficult for President-elect Biden “to act too quickly on Iran sanctions, especially due to internal politics, and because he does not want to see this leading to a flood of crude in the oil market.” In addition, the hardliners in Iran, according to Falakshahi “do not want any breakthrough until the [presidential] elections are over next summer.”
Iran’s return to the oil market will not be immediate, although some clients such as India, which used to be Tehran’s biggest customer after China, want to resume Iranian oil imports. Iran has around 100 million barrels of oil in storage, and these include volumes in onshore storage in Iran and China, according to Falakshahi.
Oil rivals, such as Iraq, have increased their market shares in Asia during U.S. sanctions on Tehran’s oil industry
Although it remains unclear how Iran will reposition itself in the global market after the Trump administration leaves the White House, one thing is clear: Oil rivals, such as Iraq, have increased their market shares in Asia during U.S. sanctions on Tehran’s oil industry, particularly in India and China, Asia’s biggest oil consumers. These have been key…