Iranian oil to add 1.5M barrels daily as US-Iran deal unlocks supply

Iran secured waivers for oil and petrochemical exports under an interim peace deal with the US, clearing the path for millions of barrels to return to global markets and potentially reshaping the inflation outlook for the world's largest economy.

"The return of Iranian barrels at scale would be the single most powerful disinflationary force the global economy has seen since the conflict began," said Elena Fischer, geopolitical risk analyst at Edgen.

Brent crude fell 1.9% to $79.04 a barrel in Asian trade Monday after the first round of US-Iran talks in Switzerland ended with a roadmap for a final deal within 60 days. Prices had surged to $126.40 during peak tensions earlier this year. Iran's export waivers cover both crude and petrochemicals, with the potential to add 1 million to 1.5 million barrels a day of supply, according to tanker tracking estimates.

Every $10 decline in oil prices reduces US headline inflation by roughly 0.4 percentage points over 12 months, according to Federal Reserve models. With the Fed's preferred PCE index still running above its 2% target, a sustained oil supply increase could accelerate the timeline for rate cuts, reshaping expectations for the September and December Federal Open Market Committee meetings.

China's Demand Shift Limits the Downside

China's crude imports are set to fall 3.3 million barrels a day this quarter from a year earlier, FGE NexantECA estimates, as the conflict accelerated a structural shift away from gasoline and diesel. Registrations of fully electric vehicles accounted for almost 42% of total car sales in April, up from about 38% in March, according to the China Automotive Technology and Research Center. The International Energy Agency expects China's average oil demand to decline by 360,000 barrels a day this year, what it called the "first significant annual drop" since the oil crises of the 1970s and early 1980s.

Rystad Energy estimates that 200,000 to 600,000 barrels a day of transportation demand lost during the conflict may not return this year. Energy Aspects Ltd. puts the permanent loss at about 300,000 barrels a day. "Consumer behavior can be a bit sticky," said Lin Ye, vice president of oil markets at Rystad Energy. "For those who shifted to electric cars during the war, there might be little reason to switch back unless fuel prices become substantially cheaper."

India's Pivot to Russian Crude Reshapes Trade Flows

India's oil imports from Russia hit a record 2.6 million barrels a day in June, accounting for 53.5% of total crude purchases, according to Kpler vessel-tracking data. The previous record was 2.2 million barrels a day in May 2023. The surge came as the Strait of Hormuz crisis disrupted supplies from Iraq and other Gulf producers, forcing Indian refiners to seek alternatives.

The US sanctions waiver that facilitated these purchases expired this week, and it remains unclear whether Washington will renew it. Even so, analysts expect Russian crude flows to remain elevated. "The volumes are simply too large to replace quickly," said Natalia Katona, an energy analyst. "The Asian view of Russian crude has changed: it is now increasingly treated as a reliable base-load supply source."

If Iranian oil returns to market alongside sustained Russian flows, the combined supply pressure could push Brent into the $65 to $70 range — the level at which FGE NexantECA Chairman Emeritus Fereidun Fesharaki said Beijing would likely resume strategic stockpiling. For the Fed, that scenario would provide a tailwind that no rate decision alone could match: a structural reduction in energy costs feeding directly into core inflation readings.

This article is for informational purposes only and does not constitute investment advice.