Iran, in the post-sanctions era, was expected to attract more foreign capital and technology, especially in energy sector.
Prior to the imposition of sanctions, Iranian officials had, on many occasions, stressed that Iran needs about $200 billion to recover and potentially increase its oil and gas production capacity. Iran has devised a new oil contract entitled Iran Petroleum Contract (IPC) aiming to ease foreign investment in its oil fields.
The majority of oil fields are in the second half of their production and their production capacity is dropping annually to average 8 percent. This is while any attempt at recovering oil fields production capacity requires high technology and foreign investments.
By April 2018, Iran succeeded in signing only two contracts with foreign energy firms to recover and increase its oil and gas production capacity.
One contract was signed with France’s Total and China’s CNP for the development of the 11th phase of South Pars. The other one was signed with the Russian company Zarubezhneft for the re-development of the Aban and Paydare Qarb oil fields.
Iran is also planning to sign agreements with Indonesia’s state-owned Pertamina for Mansouri oil field development. Pertamina is interested in making investments in this field in a bid to produce 60,000 bpd and eyes for possible exports to Indonesia.
For that matter, it is safe to argue that Iran’s priority is to attract foreign technology and capital for development of its oil and gas fields.
However, if the Trump administration decides to withdraw from Iran nuclear deal (JCPOA), Iran will encounter significant challenges in order to attract investments.
Further, if the US decides to impose new or further sanctions on Iran, it is likely that foreign energy firms, whose capital and investments are currently in the US or have mutual projects with American private and federal companies, would shy away from making investments in Iran’s economic and energy sectors.
In 2017 Iran lost its oil market share in Asia to Saudi Arabia, US and Russia in spite of gaining higher share in the EU market. Obtaining higher share in the EU market helps Iran to benefit from “Oil for Investment/Goods” with EU companies even if further sanctions are to be imposed on the country. It already has difficulties to receive its oil revenue.
I believe that Iran is a lucrative target for many foreign private and state energy firms who have sufficient experience and hold enough capital and technology needed to be able to enter the Iranian market.
The real problem, however, is for foreign investments to be made without hindrances. Iran needs a legal framework as well as an efficient and fast decision-making process and, most importantly, political stability in both domestic and international levels.
Iran can use difference-pricing policy to preserve its share in regional and global markets. Accordingly, Iran can offer discounts to major oil costumers, as this policy was pursued during the sanctions period in which India benefited from such discounts.
During the sanctions period, Russia, Iraq and Saudi Arabia captured Iran’s share in global oil market. The quality of Iranian oil is in many respects very similar to Iraqi Kirkuk and Russia Ural crude oil.
The oil industry will be affected by the forthcoming US decisions regarding the future of Iran nuclear deal.
In the post sanctions era Iran increased its oil exports by 1,000,000 bpd. It is thus expected that Iran’s oil export would drop significantly in case of re-imposition of sanctions.
Since supply and demand is the overarching principle ruling the world’s oil market, other major suppliers hold a potential to produce more if Iran or any other country faces a decrease in its production capacity because of sanctions.
In addition, if tensions surface in relations between Iran and other OPEC or non-OPEC producers, they may exploit the situation to raise their production capacity and use it as a viable political leverage against Iran.