May 26, 2016

Past Imperfect, Future Tense: Iran’s Oil Industry Post-Sanctions

Iranian workers make repairs to a unit at Tehran's oil refinery. (AP Photo/Vahid Salemi)

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.