Home / ANALYSIS / Country Focus: Iran after sanctions: what comes next?

Country Focus: Iran after sanctions: what comes next?

by Guest on Feb 10, 2018

Iran possesses around 10% of global oil supplies.
Iran possesses around 10% of global oil supplies.

According to the International Energy Agency, 95% of the global economy relies directly on decisions and measures taken by five or six Middle Eastern countries, of which Saudi Arabia and Iran play the leading role. Since the region possesses the world’s largest oil and gas (O&G) resources, their production levels affect market sentiment and outcomes.

The World Bank forecasts that Iran’s GDP growth will exceed 6% per annum in the coming years, mostly due to the upturn in investment in the O&G sectors. Iran’s oil production levels fell by 25% during sanctions, but now it aims to regain its share in the regional market and also recover its key connections with Europe.

Iran currently holds around 10% of global oil supplies and over 18% of gas resources – these facts alone should be a reason for Iran’s role as a leading energy nation. Iran is capable of increasing and intensifying its export potential through the implementation of its recent research and development efforts.

In Europe, oil from Iran was replaced with crude oil from Russia and partly by Saudi Arabian producers. Prior to sanctions being imposed, Total, Repsol and Shell all had agreements with Iran for constructing LNG terminals.

In February 2016, after the lifting of sanctions, Iran scaled up its supplies to China by 1% year on year. The largest Asian oil company Sinopec and state trading company Zhuhai Zhenrong signed a contract with Iran for the supply of crude to China. Total, Cepsa and Litasco became the first European customers for Iranian oil after the lifting of sanctions; Greece’s Hellenic Petroleum also received its first crude flows early that year.

 Iran could end up supplying up to half of the crude consumed in Europe. The contracts will be, for the time being, on a spot basis – this will be the case until all current agreements between European countries and other suppliers expire. At that time, European refiners will be in a position to commit to new long-term partnership contracts. Iran is ready to work according to this procedure and has already discussed such possibilities with Kazakhstan and Turkmenistan.

To achieve these ambitious goals set by the National Iran Oil Company (NIOC), the country would need to extract and produce up to 2 billion barrels of crude per year, which will require increased activity in exploration and increasing its oil recovery rate. One major competitive advantage of oil production in Iran is its relatively low cost compared with other producing countries.

Iran has also been one of the pioneers in developing the new format for oil contracts – the so-called Iran Petroleum Contracts (IPCs) – to replace buy-back agreements; in 2017 the government planned to sign such documents to the tune of $15bn. These contracts require active investment in the country’s energy sector, offering more flexible terms. They will operate like joint ventures with a potential duration of 20 to 25 years.

NIOC requires $134bn of investment for upstream oil and gas projects – all this by 2021 and to meet objectives set in the country’s Sixth National Development Plan. With these new IPC contracts it might be possible to reach this level even sooner. In the first IPC tender that was held in mid-2016 for the South Azadegan oilfield, NIOC also highlighted the transfer of new technologies to the country across all sectors: upstream techniques, engineering, procurement and production and equipment.

In 2017 Iran claimed to have produced about 260 billion cubic metres (bcm) of gas, and by the end of a six year programme (2020) this level should go up to 400 bcm – almost double. Iran set a target for 2017 to maximise oil and gas condensate export. This year they will continue developing projects in O&G fields and finishing up activities on the South Pars/North Dome gas field.

Shortly after the end of sanctions, Iran and India also signed an agreement to jointly develop gas fields and construct several oil refineries − India is ready to invest around $20bn in the development of the Chabahar terminal in Iran.

In 2016 the country’s tanker company, the National Iranian Tanker Company (NITC), announced plans to continue the expansion of bunker fuel transportation. One strategic priority is to diversify the business and get involved in auxiliary industries such as the production of liquefied natural gas (LNG) and the operation of operation of floating LNGs.

Numerous oil tankers from Iran will soon appear in European ports providing a supply of crude and oil products to the region. Last year, NITC had to resolve issues with cargo insurance. Taking into account Iran’s 5,800km of coastline, 90% of its foreign trade turnover emanates via marine shipping, therefore the country’s trade balance relies heavily on its efficiency.


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