Sanctions-Free Iran Oil Benefits All

Energy has a significant share in providing the necessary finance for other industries and sectors of Iran’s economy. That is why Iran’s petroleum industry has been focused upon more than any other sector of the economy following the implementation of Iran’s nuclear agreement with world powers, dubbed the Joint Comprehensive Plan of Action (JCPOA).

Meantime, the oil sector has been presented with new opportunities after the agreement took effect last January. Some of these opportunities will materialize in the short-term and some others in the long- term.

Thanks to JCPOA, other countries and big oil companies have had a golden chance for investment in Iran’s oil sector and buying oil from Iran.

This article aims at reviewing the ramifications of implementation of JCPOA on Iran’s petroleum industry on one hand, and on oil companies and oil consumers on the other.

JCPOA; Multiple Chances

Not only is JCPOA considered as a big achievement in the international political domain, but also it presented major economic opportunities for Iran and other countries in the economic sector, mainly energy sector.

Among the JCPOA’s effects on Iran’s petroleum industry, oil companies and oil consumers, the following could be singled out:

  1. Enhanced Cooperation with Oil Majors: After the nuclear deal was implemented, major oil companies rushed to seek cooperation with Iran. Iran’s Deputy Minister of Petroleum for International Affairs and Trading Amir-Hossein Zamani-Nia said at least 150 rounds of talks were held in Iran with foreign companies for investment after the nuclear deal took effect. That is a big figure which indicates the willingness of oil companies to benefit from a new chance of investment in Iran. Based on new mechanisms, foreign companies can establish and register a company in Iran or have an Iranian partner for getting more facilities for operating projects in Iran. This issue provides a good opportunity mainly for oil giants who have faced serious challenges and problems due to oil price fall.
  1. Investment Attraction and Technology Transfer: The JCPOA results in attraction of more investment and transfer of technology for oil exploration. In other words, the JCPOA has provided the chance for benefiting from foreign capitals and Iran’s blocked assets. Before the nuclear deal had been signed, most leading financial bodies in the world refused to cooperate with Iran due to fear of US penalties. Under sanctions, attraction of foreign investment made no sense while ordinary economic operations like money transfer and sale of products faced tough restrictions.

With the implementation of the JCPOA, some oil equipment whose delivery had been blocked due to the sanctions was supplied to Iran. For example, refrigeration, gas condensate stabilization compressors, electro-compressors and thermal transducers, which Iran had purchased from Germany’s Siemens for South Pars gas field, were delivered to the country and development of this jointly operated offshore reservoir took a new lease on life.

The fact is that Iran’s petroleum industry seeks to benefit from superior technology and the implementation of the nuclear agreement facilitated transfer of modern oil technology to Iran. Purchase of equipment from main vendors without resorting to intermediaries also reduced costs of technology transfer. Before implementation of the JCPOA, Iran had to pay higher sums for the purchase of equipment. Therefore, one of the most significant impacts of JCPOA implementation on oil projects was Iran's quicker access to foreign contractors, reduction of costs of implementation of projects while benefiting from modern technologies due to enhanced rivalry between contractors. For their part, major oil companies are benefiting from the JCPOA implementation due to direct investment and purchase of technical equipment.

Iran Oil Outlook

The JCPOA enhanced the export of Iran’s crude oil and petroleum products in the short term. It also contributed to reducing costs of crude oil and petroleum products export. Furthermore, development and operation of hydrocarbon fields would cost lower after the JCPOA implementation. The removal of sanctions on Iran facilitated Iran’s access to international financial markets in order to purchase equipment for the petroleum industry. Banking transactions and insurance cover at international level became possible. Therefore, Iran has clawed back its status in world markets in the short term after the JCPOA implementation.

The JCPOA could also have mid-term and long-term achievements for Iran’s energy industry, chief among the achievements are as follows:

  1. Facilitating financing of development projects;
  2. Expanding exploration activities in order to further underpin oil and gas production and development of oil and gas resources;
  3. Increasing gas production capacity and enhancing the rate of recovery from oil and gas fields in the country;
  4. Maximum development and operation of joint oil and gas fields;
  5. Preventing associated petroleum gas from being flared off;
  6. Enhancing refining capacity in the country;
  7. Enhancing petrochemical production capacity;
  8. Improving the quality of petroleum products;
  9. Creating a secure and sustainable market for Iran’s crude oil;
  10. Bolstering Iran’s effective role in international bodies;
  11. Enhancing Iran’s share in world oil and gas markets; and
  12.  Improving the capacity of Iranian contractors, manufacturers and suppliers in cooperation with foreign companies.