If presumptive Democratic candidate Joe Biden wins the presidential election in November, Iran could suddenly turn from a bullish driver for oil prices into a bearish factor if it resumes up to 2 million barrels per day (bpd) of oil exports. Currently, there is a consensus among analysts and international agencies that the oil market is tightening and will continue to tighten, lifting oil prices through next year.
Oil demand is expected to rise next year by between 5 million bpd and 7 million bpd compared to this year’s lows, according to OPEC and the International Energy Agency (IEA)—in the absence of a mass return to lockdowns. The OPEC+ group is set to further ease its collective production cuts. In theory, the current expectations of supply and demand in 2021 are bullish for oil prices.
Yet, the market shouldn’t discount one political and geopolitical factor that could upend current oil price forecasts for next year. The U.S. presidential election in November could install a new administration in the White House – of a President Biden – that would be inclined to renegotiate the Iran nuclear deal and potentially ease the current sanctions on Tehran’s oil exports.
The return of 1-2 million bpd of Iranian oil on the global market would cap oil price gains next year, a leading oil analyst said last week.
“If you have Joe Biden as president he could basically take the US back into the [Iranian] Nuclear deal and you could see a million plus Iranian barrels hit the market. These are the kind of things I think will be very important into the trajectory of oil into 2021,” Helima Croft, head of commodity strategy at RBC Capital Markets, told Business Insider in an interview last week.
If Biden wins the November election, he could be inclined to revisit and renegotiate the Iran nuclear deal, potentially easing some sanctions in exchange for Tehran returning to compliance under some revised form of the Joint Comprehensive Plan of Action (JCPOA).
“The recent killing of Qasem Soleimani, the commander of Iran’s Quds Force, removed a dangerous actor but also raised the prospect of an ever-escalating cycle of violence in the region, and it has prompted Tehran to jettison the nuclear limits established under the nuclear deal,” Biden wrote in an essay in Foreign Affairs earlier this year.
“Tehran must return to strict compliance with the deal. If it does so, I would rejoin the agreement and use our renewed commitment to diplomacy to work with our allies to strengthen and extend it, while more effectively pushing back against Iran’s other destabilizing activities,” he said.
Iran’s oil will not return overnight to the market if Biden becomes president. But the prospect of renegotiation of the nuclear deal will likely keep oil prices depressed, making Iran a bearish factor for the market. This would be in contrast with the bullish factor that Iran has been for oil prices during the Trump Administration so far, with the renewed…