How a Potential Trump Nuclear Deal with Iran Could Impact Global Oil Supplies and Prices

As negotiations progress regarding a nuclear deal between the United States and Iran, oil prices are experiencing fluctuations that could have substantial implications for global oil markets. On May 16, 2025, oil prices took a significant hit, marking the largest daily drop for the month, as traders speculated on the potential lifting of sanctions against Iran and the subsequent increase in crude oil available on the market.

The Current State of Negotiations

President Donald Trump recently claimed that a nuclear agreement with Iran is within reach following a fourth round of negotiations. However, along with the optimistic tone, Trump issued warnings of potential violence should a deal fail, stating, “There’s two steps: There’s a very, very nice step, and there’s a violent step – violence like people haven’t seen before.” Iran’s commitment to renounce nuclear weapons is contingent upon the lifting of economic sanctions, as confirmed by Ali Shamkhani, a senior Iranian official.

Impact of Sanctions on Iranian Oil Exports

Despite existing sanctions, Iranian oil exports have remained relatively stable, primarily redirected to China. Estimates indicate that Iran exports approximately 1.5 to 1.6 million barrels of oil daily, predominantly through maritime routes. Anas Alhajji, a prominent energy analyst, noted that “almost all Iranian oil is going to China,” a dynamic that complicates the Western sanctions’ effectiveness.

As Trump expressed frustration over Iran’s oil sales, he emphasized that any nations purchasing Iranian oil would face “secondary sanctions.” Yet, analysts contend that even under such pressures, Iran has demonstrated resilience in maintaining its oil trade through indirect sales and relabeling practices, using intermediaries to obscure the origin of its crude.

Obstacles to Achieving a Deal

While lifting sanctions could theoretically lead to an increase in oil supply that would drive prices down, significant hurdles remain. Gerard Filitti, a senior counsel at the Lawfare Project, highlighted that any nuclear agreement must also tackle Iran’s support for terrorist organizations such as Hezbollah and Hamas. This expectation complicates the negotiation process, particularly given Iran’s strengthened ties with nations like China and Russia.

Market Reactions and Oil Price Projections

The immediate market reaction reflects caution: U.S. benchmark West Texas Intermediate crude dropped by 2.4% to $61.62 a barrel, while the July Brent crude settled down at $64.53, reflecting apprehension about the potential ramifications of a nuclear deal on global oil supplies.

Brian Kessens, a senior portfolio manager at Tortoise Capital, referred to a deal that effectively limits Iran’s nuclear capabilities as “remote”, given the decade-long negotiations with little tangible outcomes. If no agreement is reached, it is likely that Iranian oil exports will stabilize around current levels, possibly capping supply expansion.

Potential Outcomes of a Deal or No Deal

If a nuclear deal is finalized and sanctions are eased or lifted, analysts predict that Iranian oil exports could ramp up dramatically, possibly adding an extra 1 million barrels per day to global supply within months. However, even if sanctions are removed, there’s a chance that Iran’s oil sales would simply become “visible” rather than showing an actual increase in production, as pointed out by Alhajji.

On the flip side, if negotiations collapse, the Trump administration may opt to intensify sanctions on Iran, targeting countries such as China that continue to engage in oil purchases. The effectiveness of these sanctions could significantly affect Iranian oil exports, potentially plummeting below 1 million barrels per day if rigorously enforced.

The Broader Implications for Global Oil Supply

U.S. military action against Iran remains a wildcard, as it could severely disrupt Iranian oil production and distribution capabilities, affecting global supplies. Moreover, any heightened military conflict could jeopardize shipments through the highly strategic Strait of Hormuz, a gateway for a significant portion of the world’s oil supply. A disruption in this passage could remove up to 20% of global oil from the market, causing immediate spikes in oil prices.

Conclusion

The unfolding dynamic between the U.S. and Iran looms large over the global oil market. As traders remain vigilant, the outcomes of these negotiations could shape crude oil prices and availability in fundamental ways, influencing economies worldwide. The interplay of sanctions, military threats, and ongoing negotiations suggests a complex path forward for U.S.-Iran relations and the broader energy landscape.