Iran Nuclear Deal: Pushing Through Russia

Published on March 7, 2022
SGH Insight
Iranian officials negotiating in Vienna to limit the country’s nuclear program in exchange for a lifting of sanctions, including on its critical oil exports, have struck an optimistic tone on the prospects for a deal now for some weeks.
While Iran’s eleven-month negotiations with the “P4+1” countries (UN Security Council Permanent Members UK, France, China, Russia + Germany), with the United States weighing in the background, have been derailed numerous times in the past, our understanding is that a deal is now indeed forthcoming.

Negotiations have been complicated by Russia’s last-minute efforts to link any deal with Iran with sanctions just imposed on it by Europe and the United States after its invasion of Ukraine, but we believe that will stall, and not derail, what was to be an imminent deal for a short period of time. We truthfully do not know for exactly how long.

Tehran has been negotiating furiously with Washington for a deal now for months, even if by proxy, and Iranian officials have openly bristled at recent interventions by Moscow to derail the nuclear negotiations.
Market Validation
Reuters 3/15/22

Oil plummets as Russia seeks resumption of Iran nuclear deal

LONDON — Oil prices dropped to their lowest in almost three weeks on Tuesday as Russia indicated it is in favor of the Iran nuclear deal resuming as soon as possible.

Brent futures were down $8.90, or 8.3%, to $98 a barrel at 1125 GMT, while U.S. West Texas Intermediate (WTI) crude was down $8.97, or 8.7%, to $94.04 a barrel.

Both benchmarks fell below $100 a barrel for the first time since March 1.

Brent has lost almost $40 since 14-year highs reached on March 7, while WTI has fallen by over $30 since touching highs since 2008 almost a week ago.

The sharp decline in prices follows a statement from Russian foreign minister Sergi Lavrov on Tuesday that Moscow is in favor of the 2015 Iran nuclear deal resuming as soon as possible and is waiting for Washington to lift sanctions on Tehran.

Talks to revive the nuclear accord, which would lead to sanctions on Iran’s oil sector being lifted, recently stalled due to Russian demands.

Bloomberg 3/15/22

The U.S. has given Russia “written guarantees” that sanctions imposed over the invasion of Ukraine won’t affect Moscow’s nuclear partnership with Iran, potentially allowing for the resumption of talks to revive the 2015 atomic accord. Oil prices fell.

World powers and Iran suspended their efforts to restore the nuclear pact on Friday, amid deepening tensions between the Kremlin and the White House.
Iran Nuclear Talks Suspended as Window Closes on Key Deal

Russian Foreign Minister Sergei Lavrov called on March 5 for U.S. assurances due to concern that sanctions under consideration by the Biden administration would interfere with fuel supplies to Iran’s only operating atomic-power plant in Bushehr and the planned construction of a second facility.

“We received written guarantees,” Lavrov said Tuesday after meeting his Iranian counterpart in Moscow. “They are included in the text of the agreement itself,” he said adding that these “provide reliable protection for all projects and activities envisaged” in the nuclear deal.


Iranian officials negotiating in Vienna to limit the country’s nuclear program in exchange for a lifting of sanctions, including on its critical oil exports, have struck an optimistic tone on the prospects for a deal now for some weeks.

While Iran’s eleven-month negotiations with the “P4+1” countries (UN Security Council Permanent Members UK, France, China, Russia + Germany), with the United States weighing in the background, have been derailed numerous times in the past, our understanding is that a deal is now indeed forthcoming.

Negotiations have been complicated by Russia’s last-minute efforts to link any deal with Iran with sanctions just imposed on it by Europe and the United States after its invasion of Ukraine, but we believe that will stall, and not derail, what was to be an imminent deal for a short period of time. We truthfully do not know for exactly how long.

Tehran has been negotiating furiously with Washington for a deal now for months, even if by proxy, and Iranian officials have openly bristled at recent interventions by Moscow to derail the nuclear negotiations.

Ironically, Supreme Leader Ali Khamenei had essentially designated Russia to be Iran’s interlocutor with the United States and “E3” (France, Germany, and the UK), but now Tehran’s interests diverge clearly from Moscow’s, while Moscow’s leverage has gone down.

It would of course be naïve to imagine that Iran will walk away from its strong ties with Russia, developed over four decades despite Ayatollah Ruhollah Khomeini’s post revolution exhortations for the country to seek a path of “neither East, nor West.” But from a practical perspective, the vacuum left by the sanctions on Iran has increasingly been filled in recent years by China, and less so by Russia, a giant to its north that Iran has historically had a relationship fraught with mistrust.

Beyond the resumption of oil exports, Tehran is eyeing $7.3 billion of assets to be unfrozen from South Korea, and for the possibility of export flows to resume to Asia. That includes greater oil exports not only to China, which has been buying Iranian crude all along, but also a resumption of halted exports to South Korea and Japan, a significant export destination for Iran that is also under pressure now to cut its imports from Russia.

As to the last remaining hurdles to a deal, Iranian officials have demanded on multiple occasions that a deal with the West, specifically the US, must come with assurances that subsequent administrations cannot walk away from it like President Donald Trump did with the JCPOA (Joint Comprehensive Plan of Action) negotiated in 2015 by President Barack Obama.

To address those demands, it appears that the US will allow Iran to maintain its advanced nuclear centrifuges to leave Tehran with “break-out” leverage should the deal again fall apart in the future. Under the original JCPOA agreement, Iran was required to halt or destroy these advanced centrifuges.

The International Atomic Energy Agency has also already signaled it will drop what is an important but in truth political sideshow of demanding explanations for Iran’s past clandestine uranium enrichment activities. One might imagine the answer to that is rather obvious.

While we are not privy to any negotiations on this sensitive matter, it appears one of the last remaining stumbling blocks from Tehran’s side is in ensuring the lifting of sanctions on the IRGC, Iran’s powerful Revolutionary Guard Corps, which was designated by the US as a Foreign Terrorist Organization.

All that will not sit well with critics of a deal with Iran back home in the US. Washington’s eagerness to bring negotiations to a speedy conclusion, however, goes without saying as inflation, oil, and gas prices continue to soar, and as pressure mounts on the White House to now impose oil import sanctions on Russia, even if done unilaterally without the EU (see SGH 3/3/22, “EU: Gas and Oil Policy Response”).

What will it mean for oil markets?

Last Thursday, Iran’s Oil Minister Jawad Owji told Iran’s Energy News Agency (SHANA) that his country is ready to ramp up production to the 3.8 million barrels per day of crude oil and condensate it was producing before the US withdrew from the JCPOA in 2018 in a matter of one to two months. That would translate into a 1.3 million bpd increase over the International Energy Agency’s most recent 2.5 million bpd estimate of Iran’s crude output for January of 2022.

While analysts do not seem to dispute Iran’s ability to hit those production levels, perhaps closer to 3.5 million bpd, the ramp up to reaching that level is widely seen to be longer than Tehran claims, potentially three to six months. That said, Iran has stored an estimated 80-100 million barrels of oil in tankers, ready for immediate release upon conclusion of a deal with the US, which when released could translate into about 1 million bpd of additional crude on markets for three months.

To put that in context, Russia exports about 7 million bpd, of which the US imported approximately 700,000 bpd of crude and refined products through 2021, according to the US Energy Information Administration.

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