Rip it up and start again?

Author Ben Winkley

A year ago today international sanctions on Iran were lifted, an event that played no small role in the upheaval that rolled through the global oil market last year.

A year ago today international sanctions on Iran were lifted, an event that played no small role in the upheaval that rolled through the global oil market last year.

It is safe to say that Iran didn’t hang around to see how things would pan out, conscious that US policy could about-face within a year.

With a stated aim of regaining lost market share and with a mantra of restoring production to 4mn b/d, Tehran moved swiftly to target and widen its European customer base, booking the first very large crude carrier (VLCC) into Europe within two weeks. Tankers from Iran’s own fleet have now been spotted in the Mediterranean.

This renewed flow of Iranian crude into the Mediterranean is in direct competition with Iraq and Saudi Arabia in some cases, with Iran seizing substantial market share. Test runs in northwest European refineries pit Iranian crude against Russian export blend.

Iran also negotiated not only a dispensation from the Opec production cap deal agreed in November, but secured the right to increase production, making the wily oil minister Bijan Namdar Zanganeh the non-alcoholic toast of Tehran.

The speed and focus of Iran’s movement in the past 12 months have been astonishing. The government has been feeling out deals with western companies such as Airbus and Boeing. Slowly, foreign companies are being allowed to get a foot in the door of Iran’s oil industry.

Publicly, Tehran has been as bullish as can be about the future. But there has been concern about what will happen when the US presidency changes hands — a concern that dates from before the outcome was known — leading Iran to get as much locked down as possible ahead of US presidential inauguration day on 20 January.

Emboldened by the change in US political leanings, congressional legislation again includes a joint resolution to authorise military force “to achieve the goal of preventing Iran from obtaining nuclear weapons”, although this has been tried before and to no avail.

But the incoming US administration hasn’t got a consistent line on Iran. President-elect Donald Trump told the Times of London today that he is “not happy” with the sanctions deal, and called it “one of the dumbest… I’ve ever seen”. He called it “horrible” on 28 December, using his preferred method of communication, Twitter.

The idea that the sanctions deal could be ripped up holds little sway in Tehran. But the imposition and removal of sanctions on Iran were the basis of a broad multilateral approach that may not sit well with Trump’s America First policy.

US secretary of state presumptive Rex Tillerson, in his nomination hearing, called for a broad review of the deal and suggested renegotiating Tehran’s right to enrich uranium, but admitted the sanctions were effective only because others joined in.

The Republican head of the Senate foreign relations committee, Bob Corker, has said he is confident Trump will enforce the Iran nuclear deal, no matter what the president-elect has said in the past.

For Iran, then, the blessings appear mixed. Yes, the deal won’t be rolled back and Iran’s access to oil markets is likely to remain. But it suggests a stricter line than the one taken by the outgoing, legacy-focused US administration, and that means lingering uncertainty.

There is little incentive for banks and reinsurers to resume transactions that may once again be made the subject of sanctions under the new administration, suppressing risk appetite with regards to Iranian shipping and putting a lid on Iran’s European market share ambitions.