Country focus: Iranby Indrajit Sen on Mar 13, 2016
#ImplementationDay - I thank God for this blessing & bow to the greatness of the patient nation of Iran. Congrats on this glorious victory!’ Iran’s President Hassan Rouhani tweeted in celebration late on January 16, as soon as word from Vienna was out that the six world powers — the US, Britain, France, Russia, China and Germany – who had imposed crippling economic sanctions on the Islamic Republic over its controversial nuclear programme, had decided to end it. The nation broke into an emotional jubilation soon after.
Iran’s economy, in particular the oil and gas sector - the breadwinner for the nation - has been the subject of serious restrictions for more than three years, under the international sanctions. Even Iran’s allied nations were coerced by the Western powers to either stop or seriously reduce buying oil and natural gas from it. As a result, the Islamic Republic’s energy revenues plummeted by 36%; from $55.4bn in the last fiscal year to $35.3bn this current fiscal year (Iran’s fiscal year starts on March 21), according to the International Monetary Fund.
A surplus of a million doallrs of oil is being produced each day, something that is widely regarded as the prime cause for the free fall of crude oil prices. A day after the sanctions were lifted, Iran set to work to realise its ambitious plan of raising daily output by 500,000 barrels. The country’s Oil Ministry has already activated this plan, issuing an order to its state-owned companies to increase production and placing the National Iranian Oil Terminals Company on standby.
If achieved, this volume would take Iranian output to around 3.4mn bpd and exports to well over 1.5mn bpd; figures that could further wreak further havoc on the already oversupplied oil market.
“I think we are very concerned about Iran,” Chris Faulkner, chief executive officer of Dallas-based Breitling Energy, said from an American perspective. “The timing of the sanctions being removed is critical. We are hoping that Iran comes back into the market slowly. Iran has pledged to add 500,000 bpd, something that will crush the oil market to their own detriment. We hope they realise that and come into the market slowly,” he told Oil & Gas Middle East.
The lifting of sanctions has removed the constraints that have curbed Iran’s crude oil exports at just over 1mn barrels per day (bpd) over the past four years, and give the country access to billions of dollars frozen in foreign banks – a portion of the money that it desperately needs to develop its below par oil and gas facilities.
However, Iran needs far more than that to repair and boost its ageing and crumbling oil and gas fields and its associated infrastructure, with a recent media report saying the country needs an estimated $150bn in total. For instance, the managing director of Iranian Offshore Oil Co. (IOOC), recently pointed out that the current production rate of its oilfields is about 450,000 bpd and that the company required investment of at least $20bn to implement development projects.
It was optimism injected by the authorities that kept the Iran economy running in its sanctions period, and it is that same optimism that officials are now trying to generate to attract foreign money. A senior Iranian official has estimated that the Islamic Republic will attract $11bn of new investments for its central oilfields, rejecting the notion of low oil prices halting finances in the energy industry.
“In order to achieve the target of increased production during the post-sanctions era, implementation of development projects like increasing recovery factor via EOR and IOR have also been put on the agenda,” Salbali Karimi, managing director of Iran’s Central Oil Fields Company (ICOFC), told the official Mehr News Agency.