Past Imperfect, Future Tense: Iran’s Oil Industry Post-Sanctions
Iran is navigating a myriad of challenges in its efforts to restore oil production to pre-sanctions levels and attract foreign investment amid the worst downturn in oil markets in more than a decade.
Iranian workers make repairs to a unit at Tehran's oil refinery. (AP Photo/Vahid Salemi)
Executive Summary
Iran is navigating a myriad of challenges in its efforts to restore oil production to pre-sanctions levels and attract foreign investment amid the worst downturn in oil markets in more than a decade. Iranian crude oil production has steadily increased since sanctions were lifted in mid-January, to 3.5 million barrels per day (mb/d) in April, up by 500,000 b/d since the start of the year. Plans to raise production to 4 mb/d by the end of the Iranian calendar year in March 2017 appear ambitious and even modest growth of a further 600,000 b/d by 2021, to 4.6 mb/d, may be out of reach given political, legal, and investment challenges.
President Hassan Rouhani, under fire from conservative politicians who argue the Joint Comprehensive Plan of Action (JCPOA) nuclear deal has failed to deliver the economic benefits promised, is banking on the proposed Iran Petroleum Contract (IPC) that will govern new joint ventures with international oil companies (IOCs) to secure tens of billions of dollars from foreign investment in the country’s oil and gas sector.
Political opposition from hard-line conservative politicians to foreign investment has repeatedly delayed the release of the much-anticipated revised model IPC for IOCs, which is now set for this summer. Industry executives are reserving judgment until more details on the contract emerge and remain cautious about entering into new business deals in Iran given significant political, financial, and legal risks.
Indeed, the initial enthusiasm over Iran’s return to the global community following the signing of the historic nuclear agreement on January 16 has given way to a more pragmatic assessment of complex commercial opportunities in Iran.
OPEC+ producers are increasing output in the face of a global economic downtown. This will be a major test for non-OPEC producers, but OPEC+ seems confident that time is on its side.
Global demand forecasts by leading agencies have diverged sharply, reflecting a deepening sense of uncertainty about the future path of the global economy.
Proposed Russian investments may come in handy as Iran attempts to develop its gas infrastructure, but international sanctions and geopolitics pose major problems.
A substantial drawdown on global oil stocks is forecast for the fourth quarter amid record oil demand, accelerating the rise in oil prices to the $100 per barrel threshold.
Saudi Arabia extends steep “voluntary” production cut through August but a weaker-than-expected Chinese economic recovery weighs heavily on market sentiment.
OPEC+ supply cuts starting in May could aggravate an expected oil supply deficit in the second half of 2023 at a period of greater economic uncertainty.
