In recent years, oil and gas production in Iran has been largely defined by the impact of international sanctions. The nation possesses the world’s fourth largest proven oil reserves and second largest gas reserves.
However, despite this, production has faltered. Sanctions enacted by the United States and European Union in 2011 and 2012 have crippled an otherwise promising energy sector. The economic impact has been severe — oil and gas export revenues dropped by almost 53% due to significantly decreased liquids export. This figure may make for sobering reading, but all is not lost for the oil and gas industry.
The historic Joint Plan of Action (JPOA) was widely lauded as a positive sign for extractive industries. The removal of certain restrictions and the promise of a permanent agreement have given hope to an embattled oil and gas industry. If sanctions are removed and international investment is allowed to return, reinvigoration of the sector could prove to be a potential goldmine for IOCs and oilfield service providers.
However, movement towards a final agreement on the future of Iran’s nuclear program has been excruciatingly slow. The JPOA’s original 20 July deadline did not culminate in significant progress and negotiations have simply been extended to 24 November.
The next few months will be a critical period for the oil and gas sector. Oil Minister Bijan Zanganah has boldly suggested that production could be boosted by 700,000boe/d within two months of sanctions being lifted. Yet there is growing consensus that this is exceptionally optimistic. Ageing infrastructure will require substantial investment for production to approach anywhere near that figure.
This could, however, provide numerous opportunities for international IOCs and oilfield service providers — if they are allowed to invest. Iran is already planning changes to its oil contract model to allow IOCs participation at all stages of production. However, in the absence of a comprehensive sanctions agreement, all discussion of increased production and investment is purely academic. A final agreement must be reached if the oil and gas industry is to be shaken out of its stupor.