The US government may be tempted to allow Iran’s oil export volumes to edge higher in the coming months, despite an impasse over a nuclear deal and recent seizures of EU-flagged ships by Tehran, experts say.

Talks between Washington and Tehran over reviving the Joint Comprehensive Plan of Action, otherwise known as the Iran Nuclear Deal, have stalled since March.

“As I speak to you, we do not have a deal and prospects for reaching one are tenuous at best,” said Robert Malley, the top US envoy to the nuclear talks, in a testimony to the Senate Foreign Relations Committee in late May.

Since President Joe Biden took office, there has been greater political will to restore the pact, with informal discussions having taken place last year in Vienna over the possibility of Iran curbing its nuclear activities in exchange for sanctions relief.

But commodities traders and analysts say the US may ultimately let Iranian oil sales creep up even if a new nuclear agreement cannot be reached, as consumers globally feel the bite of soaring fuel prices.

“Uncle Sam might just allow a little bit more of that oil to flow,” said Mike Muller, head of Asia at Vitol Group, on a June 5 podcast produced by Dubai-based Gulf Intelligence.

“If the [November] midterms are dominated by the need to get gas prices lower in America, turning a somewhat greater blind eye to the sanctioned barrels flowing out is probably something you might expect to see. US intervention in these flows has always been pretty sparse,” he added.

While the US has previously taken some measures to clamp down on Iran’s sanctions evasion techniques, including through forged shipping documents, vessel impersonation and front companies, others agree the crisis is set to test Washington’s Iran sanctions resolve.

Homayoun Falakshahi, a senior commodity analyst at data firm Kpler, tells GTR a trend of lax US sanctions enforcement is “already happening to an extent” and Iran’s oil exports have been on the rise since the start of the year.

Iran oil exports grew from 300,000barrels per day (bpd) in 2020, to about 670,000 bpd in 2021 and 920,000 bpd throughout Q1 2022, according to Kpler data.

But Falakshahi says there is a question mark as to where Iran will send its ramped-up exports, with its ability to boost sales likely to be constrained by the fact only a few nations are willing to buy Iranian oil due to US sanctions.

China is a major destination and typically purchases about 80 to 85% of Tehran’s oil exports, Kpler data show, with friendly countries including Syria and Venezuela accounting for the remainder of the sales.

“Technically, Iran could increase production and exports by 800,000 bpd in three months and 1.1 million bpd in six to seven months, putting some downward pressure on global oil prices. However, the key issue for Iran is that only China is willing to buy its oil, and China is already buying a lot of Iranian oil,” Falakshahi says.

“Though [China] could buy more, we think the potential is limited to just an incremental 200 to 300,000 bpd as it probably wants to keep a low profile on these imports and because the country already has supply agreements in place with other suppliers like Saudi Arabia and the UAE,” Falakshahi says.

Other current markets like Syria and Venezuela are also limited in their ability to purchase additional oil and do not offer a plausible solution, he adds.


Rising tensions

Tensions between Washington and Tehran have flared in recent months, after the US confiscated a shipment of Iranian oil that had been aboard a Russian-operated vessel seized by Greek authorities in April.

As reported by Reuters, it is unclear whether the cargo from the Iranian flagged ship, the Pegas, was detained because of sanctions on Iran, or because of levies on the tanker as a result of its Russian nexus.

When Tehran seized two Greek ships just weeks later, Supreme Leader Ali Khamenei said the country was taking back its “stolen property”.

As of press time, natural gas is nearly 200% more expensive than it was this time, data from Trading Economics show, with costs expected to remain elevated as US and European countries work to ditch Russian energy.

Crude oil has remained well above US$100 a barrel since the outbreak of the crisis, and is roughly 70% more costly than 12 months ago.

Even prior to the Ukraine crisis, Iran had been exploring new ways to export oil to destinations such as Lebanon, with the country’s oil minister stating in September there was a “strong will” to boost sales.