The recent presidential elections in Iran and parliamentary elections in France delivered results that contradicted many pre-election polls. In Iran, the more moderate candidate, Masoud Pezeshkian, secured a surprising victory. Meanwhile, in France, the far-right party Rassemblement National finished third in terms of seats, despite leading in polls. These developments have the potential to exert downward pressure on oil prices in the medium term.

Iran’s election results are particularly impactful for the oil market, given the country's crucial role as a major oil supplier, contributing 4% of global oil supply (including NGLs and condensate) with oil exports averaging 1.5 Mbd in Q2 2024. Masoud Pezeshkian, a relatively unknown figure a few weeks ago, won the presidential race against Saeed Jalili, a hardliner and close advisor to Supreme Leader Ali Khamenei.

Pezeshkian's victory was unexpected. As the only reformist candidate permitted to run after the death of President Raisi, his campaign gained traction among various population segments who feared increased internal repression under Jalili’s leadership. Pezeshkian's moderate stance suggests the potential for improved diplomatic relations and a more stable domestic environment, which could lead to a gradual easing of international sanctions and an increase in Iranian oil exports.

As noted a few days before the first round, what was mainly at stake for Tehran was the participation rate. Turnout increased to 49.8% in the second round, surpassing the record low of 40% in the first round. This higher turnout likely contributed to Pezeshkian's victory, as large, progressive cities like Tehran and regions with significant ethnic minorities, such as Azerbaijan, Kurdistan, and Sistan-Baluchestan, typically favour more moderate candidates. Pezeshkian secured over 80% of the votes in the Azeri-populated provinces and more than 60% in the Kurdistan region. He also won in the densely populated provinces of Tehran, Esfahan, and Shiraz.

Masoud Pezeshkian's presidency could have significant long-term implications for the oil sector. Pezeshkian is closely aligned with former presidents Hassan Rouhani and Mohammad Khatami, who sought to improve Iran's relations with the West. During the presidential debates, Pezeshkian frequently distinguished himself from opponents who opposed talks with the West. Although Supreme Leader Khamenei supports looking to the East, a more pragmatic approach under Pezeshkian could lead to renewed discussions with the West, potentially restoring popular legitimacy for the regime.

However, with the US presidential elections only a few months away, a breakthrough in negotiations is unlikely in the short term. If Donald Trump is elected in November, additional challenges will arise in reaching a deal. Nevertheless, Iran remains a readily available source of oil for the Trump administration, should it need to control oil prices or achieve a broader Middle East compromise. We estimate that crude production averaged 3.26 Mbd in Q2 2024, the highest since late 2018. Production could increase by another 500-600 kbd without additional investment, and all incremental output would be exported.

Iran crude oil production and exports, kbd

Source: Kpler

A compromise with the US would likely lead to at least a partial lifting of sanctions on foreign investment in Iran’s energy sector. Currently, the Iran Sanctions Act limits such investments to $20m per year. Attracting foreign investment and new technologies is crucial for Iran’s upstream industry to reach its full potential. During 2015-2016, under President Rouhani, Iran proposed 52 oil and gas development projects (including 29 focused on oil) to foreign investors, aiming to boost oil output by 1.2 Mbd with a total investment of nearly $50bn in capital expenditure. However, realising these projects faces significant political hurdles and remains highly uncertain at present.

Required capex at Iran’s 29 offered oil projects in 2015-2016 aimed at boosting output by 1.2 Mbd, $bn

Source: Kpler

Another election surprise occurred last Sunday with France’s parliamentary elections. Despite expectations that the far-right party, Rassemblement National (RN), would win, the so-called “republican front” proved the polls wrong. RN finished third in the number of seats (despite winning the most votes on an absolute basis), behind the leftist coalition, le Nouveau Front Populaire (NFP), and President Macron’s centrist alliance, Ensemble.

France National Assembly structure, number of seats

Source: Franceinfo

The situation remains uncertain, as no group holds a majority in parliament. Tradition requires the president to call on the leader of the leading group to form a new government as prime minister. However, it is unclear who from NFP could assume this role, as the coalition lacks a clear leader.

Even if the prime minister is from the NFP group, implementing their economic measures, such as freezing fuel prices at the pump for consumers, would be challenging and would require majority approval from MPs. If implemented, petrol and diesel prices could decrease by around €0.20-€0.25 per litre, boosting demand in the short term.

In the longer term, however, Ensemble’s proposal to extend state aid for EV purchases for poorer households and NFP’s potential reduction of VAT on public transportation tickets could also lead to lower gasoline and diesel use.

France gasoline and diesel consumption, kbd

Source: Kpler

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