Iran missed its window to attract investment
Despite opposition in the US Congress to the Iran nuclear deal, former president Barack Obama managed to secure the support needed from the Senate to protect it. With it, he had wanted to give Iran the opportunity it had been looking for since the revolution in 1979 to boost to its economy and to normalize its cold relations with West.
With the deal, this window of opportunity opened to Iran in July 2015, when the heavy sanctions on the economy, especially the oil embargo, were lifted. OPEC also excluded Iran from last year’s agreement, which asked members to cut production in order to manage the oil market. It made the exception for Iran in order to give it a chance to reach its pre-sanctions capacity.
Iran enjoyed many of the benefits of sanctions relief up until last week, when President Donald Trump announced the United States was leaving the Joint Comprehensive Plan of Action (JCPOA).
Hearing that countries continuing their business with Iran would be punished, the French company Total, the biggest and most prestigious investor in Iran’s oil industry, announced it would pull out of Iran if it is not excluded from the sanctions.
Iran’s oil minister, Bijan Namdar Zangeneh, quickly responded to Total’s decision, saying the Iranian company Petro Pars and the Chinese are ready to fill the gaps left by the oil giant’s absence.
Tehran signed a contract with Total in 2017, but failed to attract other energy investors when the window of opportunity was open. Hassan Rouhani’s government was too slow to unveil its new Iran Petroleum Contract (IPC), and when it did, potential investors complained that the terms were unattractive.
Oil companies with significant US exposure, such as BP, Total and others, were deterred from seriously investing unless Trump got engaged with a new round of talks with Tehran, which currently is very unlikely.
Hassan Rouhani’s government was too slow to unveil its new Iran Petroleum Contract, and when it did, potential investors complained that the terms were unattractive.
Iran’s oil minister should be reminded that in 2012, the Chinese National Petroleum Corporation was expelled from its South Pars project for non-performance. But in maintaining its oil imports and picking up cheap Iranian barrels, this time China will act to secure its profits from US sanctions on Iran.
Russia, under US and EU financial sanctions, is short of cash and has previously offered Iran oil swaps as a way of evacuating Iranian crude.
The position of Russia is ambiguous, because it will not wish to end its deal with OPEC over the crude exchange in Iran. But it is obvious that, as a major oil exporter, it stands to benefit from higher prices and a reduction in Iranian competition.
It is also a stroke of luck for Russia that Iran’s large-scale entry onto the world gas market is delayed again and has no one but itself to blame. Moscow had gained valuable leverage over high oil prices and the agreement with Gulf Arab states agreement on a non-OPEC partnership.
But a sharp loss of Iranian production could lead to a collapse of the OPEC framework. Saudi Arabia and others would have to increase their production capacity again to prevent prices from skyrocketing, with oil already at $80 per barrel.
At the OPEC ministerial meeting in June, it will be interesting to see if Iraq and Saudi Arabia will fill the gap left by Iran’s possible absence from the market.
An Iranian journalist tweeted that he asked Iran’s oil minister: What is your reaction to those OPEC ministers who have said that OPEC would be able to meet the market demands in case of the reimposition of sanctions?
Zangeneh responded: "We will never forget that."
- Camelia Entekhabifard is an Iranian-American journalist, political commentator and author of Camelia: Save Yourself By Telling the Truth (Seven Stories Press, 2008). Twitter: @CameliaFard