"US-Iran Nuclear Deal to Have Minimal Impact on Global Oil Prices... Hits Chinese Refiners"

On May 23, Daishin Securities analyzed that even if sanctions against Iran are lifted as a result of a nuclear agreement between the United States and Iran, the primary impact will be felt by Chinese small and independent refiners, known as Teapot Refiners.

In its report titled "Iran Nuclear Negotiations: A Negative Factor for Chinese Refiners, Not Oil Prices," Daishin Securities mentioned that the possibility of an Iran nuclear deal is being discussed again. Ali Shamkhani, Iran's political and military advisor, stated that Iran could abandon its highly enriched uranium facilities if the United States lifts its sanctions against Iran. He also proposed that for low-enriched uranium facilities used for nuclear power generation, a joint organization involving the United States, Iran, Saudi Arabia, and the UAE be established for international monitoring, and that new nuclear power plants linked to this initiative be supplied with electricity by the United States.

As nuclear negotiations between the United States and Iran intensify, there is growing attention on the potential impact on oil prices. Daishin Securities expects that even if sanctions are lifted through a nuclear agreement between the United States and Iran, the impact on oil prices will be short-lived.

First, Iran's crude oil exports, which were at 200,000 to 500,000 barrels per day in the first half of 2023, have now recovered to 1.65 to 1.85 million barrels per day, reaching the levels seen in August 2018, just before the full enforcement of sanctions. If sanctions are lifted, exports could increase to a maximum of 2.0 to 2.5 million barrels per day, but the additional increase (350,000 to 650,000 barrels) is not as large as before.

Furthermore, the lifting of sanctions on Iran is expected to be a negative factor not for international oil prices, but for Chinese Teapot Refiners. In early April, U.S. President Trump threatened to apply secondary boycotts to countries importing Iranian crude oil, but Iranian oil is still being exported through indirect channels. Of these exports, 90% end up in China. Choi Jinyoung, an analyst at Daishin Securities, explained, "Sanctioned Iranian heavy crude is about $5 to $6 per barrel cheaper than international prices, making it an optimal product for Teapot companies in China's Shandong region. If Iranian oil is removed from the sanctions list, Iran will have no reason to continue offering such discounts."

However, the nuclear negotiations between the United States and Iran still require further observation. Steve Witkoff, the U.S. special envoy to the Middle East, stated that Iran must also abandon its low-enriched uranium facilities despite Iran's concessions, but Iranian Foreign Minister Abbas Araghchi countered that enrichment activities must continue under the NPT treaty. Nevertheless, the possibility of an agreement remains, if only to avoid a military conflict. According to CNN, the Israeli military is preparing for a possible attack on Iranian nuclear facilities in case the negotiations break down. On May 16, President Trump warned, "If an early agreement is difficult, bad things will happen in the future." Analyst Choi Jinyoung emphasized, "Given the political risks, it is difficult to make any predictions, but if the gap in positions is narrowed, it will be a negative factor not for oil prices, but for Chinese Teapot companies."