Explainer | What does Russia’s threat to torpedo Iran nuclear deal mean for oil prices and Asian economies?

Iranian oil can return to global markets under a revived nuclear pact, easing the supply crunch brought on by the Russia-Ukraine war

But Moscow’s demands could disrupt the nuclear talks, bring more pain to economies already reeling from high prices

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Oil pumps in operation at an oilfield near central Los Angeles in February 2011. Photo: AFP

Published: 5:30pm, 7 Mar 2022

Russia has threatened to torpedo an imminent agreement to revive the Iran nuclear deal by linking it to Western sanctions imposed after the invasion of Ukraine.

Speaking in Moscow late on Friday, Foreign Minister Sergey Lavrov said Moscow had asked Washington to guarantee that Russia’s future trade with Iran would not be subjected to Ukraine-related sanctions.

Otherwise, the Kremlin would not endorse the prospective Iran nuclear deal, he said, raising the spectre of a Russian veto if and when an agreement is presented to the United Nations Security Council for approval.

International Atomic Energy Organization, IAEA, Director General Rafael Mariano Grossi, right, speaks with Iran’s Foreign Minister Hossein Amirabdollahian, left, during their meeting in Tehran on Saturday. Grossi met Saturday with Iranian officials as talks in Vienna over Tehran’s tattered atomic deal with world powers appear to be reaching their end. Photo: AP

Lavrov’s bombshell means a likely delay in the full-fledged resumption of Iranian oil exports. Oil analysts are hoping increased Iranian oil flows will reduce pressure on Asian and Mediterranean markets reluctant to buy Russia’s benchmark Ural blend because of growing sanctions on Moscow.

What does the nuclear deal have to do with oil?

In 2015, Iran and six world powers agreed on the Joint Comprehensive Plan of Action (JCPOA). They reached an agreement where most economic sanctions against Tehran, including on oil exports, would be lifted if the United Nations nuclear watchdog could verify that it was no longer enriching uranium to weapons grade levels as part of its nuclear programme.

Oil and oil product exports have been a mainstay of Iran’s economy but the United States under Donald Trump’s presidency quit the JCPOA and Washington then imposed “maximum pressure” sanctions on Iran.

Still, Iran was able to keep some of these exports flowing, with most shipments reportedly going to China through intermediaries disguising the origin of the oil shipments. But these remained below the 2.5 million barrels per day it was shipping before the sanctions. Besides mainland China, its main customers included India, South Korea, Japan, and Taiwan.

For the US and its European allies, Russian oil replaced Iran’s sour crude exports. Now that they are considering banning imports of Russian oil amid its war with Ukraine and with concerns about the supply crunch, oil prices have soared to their highest since 2008. Russia exports around 7 million barrels per day of oil and refined products, or 7 per cent of global supply. It is the world’s third-largest oil producer.