As much as 500,000 barrels of Iranian oil could return to the market if Western sanctions are eased, according to the Centre for Global Energy Studies.
The P5+1 group (the United States, United Kingdom, France, Russia, China, and Germany) and Iranian diplomats are meeting in Geneva this week to thrash out a deal over Tehran's nuclear program.
"The last round of nuclear talks with Iran showed that a diplomatic resolution is possible," German foreign minister Guido Westerwelle said in a statement from Berlin. "We can succeed at the Geneva talks beginning today to take important first steps."
The Iranian regime is also hopeful of a deal, as foreign minister Mohammad Javad Zarif told reporters: "There is every possibility for success of these talks. I go to Geneva with the determination to come out with an agreement at the end of this round. I hope we will."
The deal would provide Iran some relief from the repressive sanctions in exchange for a halt in the country's nuclear program. The confidence-building deal would last for six months, and allow the world powers to secure a more comprehensive deal with Iran on its nuclear program.
"The prospect of a deal on Iran's uranium enrichment program that could, in time, see sanctions on the country's oil exports lifted has moved considerably closer over the past month," CGES said in its latest report.
Although an earlier meeting between the key governments and Iran failed to secure the deal, it did break the ice, raising hopes of a resolution. Iran also signed a deal with the International Atomic Energy Agency which would allow its inspectors access to Iran's nuclear facilities within three months.
ECONOMIC COMPULSION
Iran desperately needs some relief as the repressive sanctions are weighing down the economy and hampering Tehran's ability to sell their produce.
The country's crude production, which stood at around 3.7 million barrels per day in 2010, now stands at just around 2.68 million barrels per day, as the National Iranian Oil Company (NIOC) finds it increasingly difficult to place their barrels.
The International Energy Agency estimates that 37 million unsold Iranian barrels may be on floating storage -- that's nearly USD 4 billion worth of Iranian crude sloshing around on ships.
"Roughly 6 million barrels of the 10 million barrel in floating storage is reportedly sitting off Chinese ports. Japanese refiners also sharply reduced lifting of Iranian crude in October, to under 100,000 bpd compared with 250,000 bpd in September," said the IEA. "South Korea reduced imports in October, to around 65,000 bpd versus 135,000 bpd the previous month."
In October, Iran's crude imports also declined by a jaw-dropping 45%, falling to the lowest level since January 2012 - when the stricter sanctions regime was first implemented. Exports fell from 1.26 million barrel per day in September to 715,000 bpd in October.
To get around the issue, the Iranian oil company is reportedly offering discounts to secure contracts.
"Iran is reportedly offering free delivery of crude exports to India, equating to a discount of about USD 1/bbl. NIOC is also offering 90-day credit on crude sales to Indian refiners compared to the more normal 30 days. Unconfirmed reports suggest Indian refiners are also being pitched a volume discount, by which prices per barrel would decline as volumes purchased rise," the IEA said.
Despite these incentives, the latest crude import data show India slashed its purchases from Iran by nearly half in October, to around 165,000 bpd, from around 300,000 bpd in September, the IEA said in its October report.
BIG DEAL
A deal with Western powers could turn around Iran's oil fortunes and lead Iran's overall economic recovery.
"While the timeline for reaching a permanent agreement between the international community and Iran remains uncertain, the country's government is already working hard to attract IOCs to its upstream oil and gas sectors once sanctions are lifted," the IEA said.
"Bijan Zangeneh, a former oil minister well regarded by the oil industry, was reappointed at the ministry's helm in August, a clear signal of a turn in Tehran's oil policy. In turn, Zangeneh brought back experienced industry hands to run NIOC, who are working on proposals to replace the widely criticized buy‐back contracts with a more attractive investment framework."
The country has also spent USD 28 billion in generating electricity from oil rather than natural gas, which remains underdeveloped even though Iran sits on the world's second largest natural gas reserves. In addition, inflation rate hit around 42.3% this year as the Iranian rial plunged, bringing further misery to the population.
The International Monetary Fund expects the Iranian economy to contract 1.5% this year, on top of the 1.9% contraction last year. The year 2014 may be a better year for Iran as the economy finally makes estimated gains of around 1.3%. Still, the economic situation is precarious with the middle-class - the Islamic regime's key constituents - especially hurting from the sanctions.
CHANCE OF SUCCESS
Barbara Slavin, senior fellow, Atlantic Council at the Council on Foreign Relations (CFR), said there is a "better than [50-50]" chance the deal can be achieved.
"I think there is a real, compelling need on the Iranian side to have an agreement. I was in Iran in August when [president] Hassan Rouhani was inaugurated, and the audience he really has to satisfy is back home," Slavin said in a CFR Report.
"There is tremendous skepticism about his presidency. He's about to cross the hundred-day line, and he was supposed to get an agreement with the West to lift some of the sanctions, and he hasn't achieved that yet. So, the Iranians desperately need sanctions lifted."
The deal may be in sight, but the last few steps may be the hardest to take for both parties. A key consideration for Washington is that key regional allies in Tel Aviv and Riyadh are deeply upset about a compromise with Tehran.
It is hoped that the deal will not be a false dawn, and the conflict-weary region can at least see one matter resolved. 
© alifarabia.com 2013
