Nuclear Deal to Retain Iran Market Share
Iran and six world powers are working to finalize a nuclear deal by a self-imposed end of June deadline. A comprehensive permanent deal between Iran and the global powers, known as the P5+1 (the United States, France, Britain, Russia, China and Germany), will see sanctions eased on the Islamic Republic in return for limits on Iran’s nuclear activities.
As the deadline approaches, speculation is rife about post-sanctions Iran. Lifting of restrictions on Iran would allow the country to sell more oil and get its petrodollars. Some foreign companies have already expressed their willingness to invest in Iran, once the sanctions have been lifted.
Iran Petroleum has interviewed senior energy expert Narsi Qorban to discuss economic aspects of a long-awaited nuclear deal.
Q: Can Iran get more revenue in the aftermath of successful negotiations with P5+1?
A: If the current negotiations with P5+1 end with a comprehensive agreement, in which the sanctions against Iranian sale of petroleum products and banking restrictions are removed, Iran can attempt to regain its lost share in the oil markets in the coming months. Minister of Petroleum Bijan Zangeneh has indicated in the recent OPEC meeting that Iran will get back its market share and OPEC has to cater for that in determining its production ceiling or producers have to be prepared to adjust their output when Iran oil is back on the markets. Increasing oil sales by Iran may not necessarily increase the revenue if the price of oil falls further due to this or other considerations. However it is essential that Iran’s traditional markets be restored as soon as possible. The most important issue is not the oil revenue for this year or next but the position of Iran in the long-term business of oil and gas worldwide.
Q: How important is the role of the international companies in the development of Iran’s petroleum industry?
A: Iran has managed to continue with its oil and gas development, production, refining, distribution and export in spite of sanctions in the past ten years and may be able to manage the industry if the sanctions are to continue, thanks to the expertise gained by the NIOC, NIGC and the involvement of private sector that has gained an important position in the industry in the recent years. However this is not the desirable scenario. Iran holds about 18% of the world gas reserves and about 10% of the world oil reserves and has to find its appropriate position within the world petroleum industry. To reach this desired position, huge investment and engaging the best oil and gas technologies are required. That is why the presence of those international companies with technology and finance could enhance the development of petroleum industry in Iran.
Q: How can we encourage the participation of international companies in the Iranian oil and gas industry and what can Iranian market offer to foreign investors?
A: The international companies are well aware of the importance of Iran in the future of the world petroleum industry and have already indicated their willingness to get back into the projects in Iran. However, it is not only the sanctions that are the barrier to their entrance. International companies are not as political as in the past and are mostly eager to pursue their long term objective of profitable growth. They will look at the opportunities around the world based on the availability of hydrocarbons, the capital needed for the development of these resources, the general conditions surrounding their operations and the profit to gain. The buy-back service contracts that were offered by Iran prior to sanctions are no longer a big incentive for foreign firms to engage in Iran even after sanctions. An alternative is to come to a win-win framework that ensures long term profits for all the parties involved in Iran. The new “Iran Petroleum Contract” recently announced by the oil ministry is aiming to achieve this objective and will be tested soon. This is not the best that the international oil industry would want to see, but given the Iranian reserves and the availability of strong private sector partners to engage in variety of the oil and gas business may have the additional weight to attract technology and finance to Iran.
Q: How important is the role of the oil industry in the realization of Iran's long term objectives?
A: The country's long term objectives are well spelled in the “Vision Plan” which was adopted ten years ago. In this, the emphasis has been placed on reducing sales of crude oil and gas and concentrate on selling products from oil and gas, as well as those products from the gas based industries. Replacing oil products by gas also enhances the revenue through export of crude and petroleum products. The oil industry in Iran has been the heart of development in Iran for decades and its role cannot be diminished easily.
Q: Is dependence on oil income desirable?
A: Dependence on a single commodity is not desirable for any country and many experts have suggested that Iran must try to move away from becoming a country dependent on the sale of oil. This is not a new argument and one can see struggle to move away from dependence on oil for more than 65 years from 1950 when oil industry was nationalized. I believe that the issue is not to ignore or not to develop the oil and gas industry, which is the real strength of Iran. The real issue is how to utilize oil revenues. In the past the oil revenues were used to help with the day to day expenses of governments. This is why we have become so dependent on oil revenues. A mechanism must be found where the income from oil could be used directly or indirectly only as investment in projects that could bring about future income for the coming generations. To that effect, Iran should run its economy without development and utilizing revenue from the oil and gas sector contradicts all definitions of economic development.
Q: How important is the final outcome of the current negotiations?
A: I believe that the future of the coming generation is very much dependent on the current negotiations. Given the political disarray in the region and a clear attempt to undermine Iran’s economic progress, the value of opening Iran’s doors for interaction with the world economy is of vital importance. Those opposing the resolution of the nuclear debate are now openly saying that it is the potential economic strength of Iran after the sanctions and not the nuclear threat that in reality concerns them. Iran’s future with 80 million population, half of them young and educated, sitting on one of the largest hydrocarbon reserves in the world and geographically advantageous location is very bright, provided that it can freely interact with world economy. Investment by the Iranians and international private sector in a variety of projects from energy industry to tourism will be into billions of dollars, creating job opportunities and prosperity for young generation of this country.