iran oil

Billions in oil deals shield Iran from U.S. sanctions

Oil Price | Tsvetana Paraskova: Since many of the Western sanctions on Iran were lifted early last year, Tehran has been trying to restore its crude oil exports to a pre-sanction level and attract foreign investments in its energy sector. Companies are still cautious and not rushing into deals with Iran, but many European, Russian, and Asian firms have signed preliminary agreements or letters of intent with Iran that would turn into billions of dollars of investments.

The pledged and potential investments could help Iran cushion the impact of any move by U.S. President Donald Trump to end the nuclear deal with Iran that the U.S. had agreed together with China, France, Germany, Russia, and the UK.

While the U.S. has slapped new sanctions on Iranian companies in response to a ballistic missile program and President Trump has signed into law an act imposing new sanctions on Iran, some of the biggest European and Chinese oil companies have walked into preliminary deals with Iran’s energy sector.

In recent weeks, the war of words between the U.S. and Iran has intensified, with Tehran warning it could quit the nuclear deal “within hours” if the United States were to impose further sanctions.

If the U.S. does step up sanctions or if it were to revisit the nuclear deal, Iran has a cushion of the investments from companies from France, China, Russia, the UK, and Germany. These countries are crucial to the nuclear accord, and their companies have signaled they want the access to Iran’s market open, according to experts who talked to Bloomberg earlier this week.

“There is pressure coming from the business establishment in these countries to maintain access to the Iranian market,” Sanam Vakil, an associate fellow at Chatham House’s Middle East & North Africa Program in London, told Bloomberg. Many of those governments “recognize that marginalizing and isolating Iran is not in their interest,” Vakil noted.

The deals with European, Russian, and Asian firms are unlikely to be undone, and Iran is betting on that, according to experts.

Iran aims to sign US$50 billion-US$60 billion worth of oil and gas contracts by March 20, 2018—the end of the current Iranian year, its Oil Minister Bijan Zanganeh said last weekend, as reported by Iran’s Tasnim news agency.

Last month, France’s energy major Total signed a contract to develop phase 11 of the South Pars gas field in Iran—the world’s biggest gas field—marking the first Iranian Petroleum Contract (IPC) with a Western major since most sanctions on Iran were lifted. Total has 50.1 percent and Chinese state-owned oil and gas company CNPC owns another 30 percent of the project worth a total of US$5 billion in investments.

Apart from Total’s deal, other European companies have signed provisional agreements to explore the potential of various Iranian oil and gas fields. According to Iran’s oil ministry news service, Shell, Total, Petronas, and Inpex have submitted studies for the potential development of Iran’s biggest oil field Azadegan, which Tehran claims has 37 billion barrels of oil and which is shared with neighboring Iraq.

Italy’s oil and gas major Eni signed last month a memorandum of understanding with the National Iranian Oil Company (NIOC) to explore a potential investment in the Kish gas field in the Persian Gulf and the third phase of development of the Darquain oil field.

Earlier this month, Shell submitted to Iran the results of its feasibility studies for the potential development of the South Azadegan and Yadavaran oil fields.

From Asia, South Korea’s SK Engineering & Construction has signed a US$1.6-billion deal to revamp Tabriz Oil Refining Company’s 110,000-bpd refinery northwest of Tehran.

Last week, Turkish energy company Unit International, Russia’s Zarubezhneft, and Iran’s non-governmental firm Ghadir Investment Company pledged to invest a combined US$7 billion to drill at three oil fields and one natural gas field in Iran.

Iran has also signed deals with European firms in sectors other than energy.

Two of the biggest European carmakers, France’s Renault and Germany’s Volkswagen, are also committing presence and investments in Iran. In the past two months, Renault set up a joint venture, while Volkswagen said it was returning to the Iranian market after more than 17 years.

While the U.S. is stepping up Iran sanctions, Europe, Russia, and Asia are signing agreements—albeit many are only preliminary—to invest in Iran’s energy and industry. This could provide Tehran with a buffer if the U.S. further ramps up sanctions.