What a new nuclear deal with Iran would mean for the European Union
After more than 18 months of back-and-forth multilateral negotiations between Iran, the United States and the European Union, the prospects of negotiating the return of the JCPOA agreement are closer. A huge step forward was Iran’s decision to officially drop the request to remove the Islamic Revolutionary Guard Corps (IRGC) from the US list of terrorist organizations. The move follows the EU’s latest proposal that would kill two birds with one stone: easing Washington’s sanctions against the IRGC, while giving Tehran the chance to get out of a dispute with the International Security Agency. Energy (IAEA) over undeclared nuclear sites discovered in 2019. A deal would eventually lift sanctions on a number of Iranian banks and companies, in exchange for curtailing Iran’s nuclear program. The deal would also mean that Iranian energy will be able to enter global markets, at a time when the EU is rushing to diversify its imports.
Why does the EU need Iranian oil?
In response to the Russian invasion of Ukraine, the European Union adopted 7 – more precisely 6.5 – sanctions packages. The sixth package – the most debated and negotiated of all – sanctions the import of crude oil and refined petroleum products from the Russian Federation and extends the exclusion of additional Russian banks from the SWIFT system. The import of Russian crude oil will be phased out over a period of six months and over a period of eight months for other refined petroleum products. Member states, such as the Czech Republic, Hungary and Slovakia, have been temporarily excluded from the ban, as crude oil can only arrive via pipelines. In addition, Bulgaria and Croatia also benefited from a temporary exclusion for the purchase of imports transported by sea. All of this means that by December 5, 2022, the EU will have a partial import ban on Russian crude oil (February 5, 2023 for refined petroleum products), leaving a vacuum that needs to be filled. A return of Iranian oil to the European energy market could fill some of this void.
What is the EU hoping for?
Iranian crude oil is comparable in quality and quality to that of Russia, so it can be used as an alternative. In fact, following the JCPOA agreement in 2015, a number of EU members, for example Greece, Italy and Spain, imported oil from Iran to diversify their imports. A successful deal would bring Iranian oil back to European energy markets, meaning the EU is once again able to make such purchases. The embargo on Russian crude oil, which will come into effect on December 5, 2022, will remove around 2 million barrels of oil every day. Iran could initially export around 1 million barrels a day to the bloc, displacing some Russian oil. Any partial closing of the gap would relieve the EU. As the deadline for phasing out Russian crude oil approaches, the EU is eager to finalize a deal as soon as possible. However, if an agreement is not reached before then, the EU may have to postpone full implementation of the ban until alternative imports can be guaranteed.
What would a resumption of oil exports to the EU mean for Iran?
Iran – with the fourth largest oil reserves in the world – could use the resumption of the JCPOA to increase oil production and export. The deal would allow Iran to sell oil to countries where export was previously banned. Crucially, however, Iran already exports oil to a number of countries, including China, its biggest consumer. A nuclear deal would therefore allow Iran to sell to the EU, where its crude oil would replace some Russian oil. Exporting to Europe would not only increase the country’s income, but also diversify export destinations. Iran currently exports mainly to Asia, whose market has recently seen increased rivalry for customers due to increased shipments of discounted Russian oil.. Iran’s focus on European exports would therefore also help the country meet competition in Asia. Export crude oil to a market that desperately needs imports and where competition among importers is limited.
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