Rewards and risks in post-sanctions Iran

The benchmark blend recovered on Tuesday after falling as much as 2.5 per cent after Iran reached an agreement with six world powers to curb its nuclear program in exchange for ending 12 years of sanctions that have crippled its economy and capped oil exports.

We have developed the first bottom-up analysis of the Iranian fields available for foreign investment and stand ready today to welcome new clients with our fully developed technical and commercial market entry insights (Iran Toolkit). Iran has always denied Israeli and Western charges that it was seeking to build a nuclear bomb, insisting its nuclear programme is for peaceful energy and medical purposes only.

German Vice Chancellor and Economy Minister Sigmar Gabriel plans to travel to Iran this month. Expect long-term worldwide investment to lag.

The many sanctions also include anti-money laundering measure by the US lawmakers and any breach of that could lead to banks being cut from the US clearing house. Iran’s oil exports, its leading source of revenue, were slashed by more than half, its currency plummeted and inflation soared.

Iran’s oil reserves are estimated at 157.8 billion barrels, enough to supply China’s insatiable demand for more than 40 years.

That could happen by late Y 2015 or early 2016, estimate: 6 months.

Moreover, although Iran has around 20 million barrels of oil in storage, some of it is needed for operational reasons domestically and is therefore, not destined for export, the report said.

For major companies a priority is for Iran to be reconnected to the global network of SWIFT banking transactions to enable companies present in Iran to transfer funds directly to and from that country.

Iran’s national Oil company, its ports and national shipping line, its central bank and most of its airlines will be taken off sanctions blacklists. Banks, airlines, construction companies and other entities and individuals that have been sanctioned for supporting terrorism or human rights abuses will remain on blacklists. However, foreign subsidiaries of American firms will be allowed to trade and invest. Aker Solutions, Norway’s biggest offshore engineering company, said it would be interested in returning to Iran. Some critics in Congress want to keep US sanctions in place, but President Obama has vowed to veto any such efforts.

And courtesy the deal, Iran’s sanctions regime is set to begin winding off – over the next few months.

“Doing business in Iran will not change overnight as the country suffers from an outdated legal system, restrictive labour laws and a lack of significant experience in dealing with worldwide investors”, said Firas Abi Ali, an analyst at London-based research firm IHS. “Banks are highly risk-averse and will remain hesitant” for a long period of time, he said.

“While Iran has committed to improving the fiscal terms offered to oil and gas companies, the country’s petroleum bureaucracy remains bloated and inefficient”.

Wood Mackenzie estimates Iran will be able to add 600,000 barrels per day (kb/d) to its oil production by the end of 2017 after lifting sanctions.

Many companies “will probably look with a significant amount of caution based on their previous experiences in Iran as well as concerns about the continuing degree of enforcement of current United States sanctions and exactly how the sanctions will be unwound”.