Analysts point out that the return of Iranian crude would cause a drop in prices and a new scenario for the oil alliance

Iran's possible return to the oil market threatens the balance established by the OPEC

photo_camera REUTERS/RAHEB HOMAVANDI - Iran's return would help break the West's heavy dependence on Saudi Arabian oil, as well as boost competitiveness in the sector

Efforts to revive the Iran nuclear deal have stalled again recently. Last week, the US described Tehran's latest response to its proposals as "not constructive". Shortly afterwards, the EU's high representative for foreign affairs, Josep Borrell, said he was "less optimistic" than in previous days. "The whole process is in jeopardy," he warned.

The progress made during August gave the oil sector hope that Iranian crude could return to international markets. In the event that a nuclear deal is reached and sanctions against Tehran are lifted, the return of Iranian oil would create an imbalance within OPEC, an organisation led by Saudi Arabia and Russia that has recently agreed to reduce oil supply by 100,000 barrels a day in order to bring stability to the markets

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Since the start of the war in Ukraine, the West has called on Riyadh to increase oil production to cope with the sharp rise in prices. Riyadh has chosen to ignore the demands, which has led to a rift with the US.

Already in late August, Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, warned that OPEC might be forced to cut production. According to analysts quoted by the Financial Times, these statements could be a warning to the United States in the midst of nuclear negotiations with Iran, its main rival.

Riyadh is wary of Tehran's possible return. If that were to happen, according to Al-Arab, oil tankers loaded with more than 70 million barrels would be added to the market after the lifting of sanctions. This would lead to lower prices and a new scenario for OPEC.

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"OPEC could easily produce 30.5 million barrels per day if Iran returns. In this scenario, Brent crude is expected to fall to $65 per barrel in the second half of 2023. This is a significant drop considering the current price of $94 per barrel," explains Tamas Varga, an analyst at PVM Oil Associates, as quoted by Al-Arab.

On the other hand, Iran's return would help break the West's heavy dependence on Saudi Arabian oil, as well as boost competitiveness in the sector. 

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For these reasons, according to the Arab newspaper, Iran's return has several supporters, especially within the United States, which may be looking for a way to "punish" Saudi Arabia for not responding to its demands for increased oil production.

However, there are also voices critical of Iran's possible return. Former White House National Security Advisor during Donald Trump's presidency, John Bolton, has stressed that reviving the nuclear deal with Tehran "would put us in jeopardy". Moreover, Bolton believes that lifting sanctions could encourage Iran to partner with Russia.

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On this point, it is worth noting a POLITICO report based on statements by Western diplomats that Moscow is planning to use Iran to circumvent sanctions on its oil if a deal is eventually reached. Bolton also warns that the millions of dollars of Iranian assets currently frozen would be earmarked for Iran's nuclear programme and to support terrorist groups in the Middle East.

Israel takes a similar stance. For Prime Minister Yair Lapid, the draft presented by the EU in early August is 'unacceptable' as he considers it 'a bad deal' that would allow Tehran to 'undermine regional stability and promote terrorism'.   

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However, despite the sanctions and thanks to the use of "phantom fleets", Iran manages to circumvent Western sanctions and sell its oil. Tehran is also strengthening its trade relations with some of its partners, such as Venezuela, which is also subject to Western sanctions. In this regard, as reported by Al-Arab, in recent months several countries have ignored the US measures imposed against Iran, causing the country's oil revenues to soar by 580%.

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