By looking closely at five unfolding scenarios, one can get a fairly clear understanding of where things are headed if the implementation of sanctions goes ahead as currently expected meaning no softening of bellicose rhetoric, no top-level meeting like the Trump-Kim Summit in Singapore and no significant pressure from European countries that had alleged to stick to their commitments under the JCPOA. Following the Iran Petroleum Contract (IPC) Summit in November 2015, 18 exploration blocks were appraised by international majors, ranging from Total to Russian companies like Gazprom Neft and Lukoil. Despite their apparent intention to keep Iranian projects intact, European companies seem to be on the retreat from Iran, however, since nature abhors a vacuum, as it seems their place will be quickly replaced by Russian and Chinese national oil companies.
- South Pars 11
Totals participation in the Phase 11 of the South Pars fields development was considered to be one of the major success stories of the brief post-sanctions period. Having signed a 20-year agreement in July 2017, Total took a 50.1% interest in the project, alongside the NIOC-owned Petropars (19.9%) and the Chinese CNPC (30%). However, unless Total secures a waiver, it will leave the $1 billion project, citing dependence on US banks for financing its operations as a major cause of concern. The French companydependsin more than 90% on US banks, American capital represents approximately30%of its shareholding structure, moreover, it has invested $10 billion in US energy projects (including five E&P developments), and therefore it is very unlikely to prioritize Iran over its American commitments.
- Dehloran
Dehloran was another ambitious prospect, under Winterhalls aegis, a5 billionbarrel field close to the Iraqi border with some level of production taking place for more than 30 years already. Even though Russian companies Tatneft and Zarubezhneft expressed their interest in developing the field, the German company was considered a favorite to clinch a deal, all the more that Wintershall submitted the results of its field development study this January. Yet similarly to Total, Wintershall is winding down its operations in Iran,statingthat its parent company BASF has too significant operations in the U.S. not to take them into consideration. With Wintershall loathe to risk any financial restrictions arising from its activities in Iran, Dehloran is likely to end up in Russian hands.
Most likely outcome: Zarubezhneft takes over as operator of the project, with NIOC joining in a non-operator role.
- Yadavaran
The 3 billion barrel Yadavaran field consisting of two fields previously thought to be separate, Kushk and Hussianieh is another example of Chinese penetration into Irans energy sector. In 2004, Sinopec bought in 51% of the project within the frames of a larger deal that also provided for Iranian LNG supplies to China, with project costs estimated at $2 billion. It took eight years to start production, following which talks have started to get the second phase started, with the aim of boosting output to 180 kbpd from the current 100 kbpd. Teheran wanted the second phase contract to be signed within the framework of the IPC. Royal Dutch Shell seemed up for it, yet the sanctions took this option off the table. Given that the fields output is still plagued by asingle-digit recovery rate, Western EOR techniques would be sorely missed.
Most likely outcome: Sinopec leads the second-phase development, too.
- Sardar-e-Jangal
Sardar-e-Jangal is a notable exception amongst Iranian fields in that it is the countrys first project to discover (in 2012) commercial amounts of hydrocarbons in its offshore Caspian Sea territory. According to Iraniansources, the field contains up to 1.4 TCm of natural gas and 10 billion barrels of oil, however, it has to be said that this claim was made only after a partial appraisal of its reserves. Sardar-e-Jangal was expected to be bid out to international majors (as well as offshore blocks 24, 26 and 29), yet just as initial studies of the deposits were concluded, the U.S. sanctions issue has put it on a back burner. With no oil infrastructure around and an investment requirement as high as $10 billion, no international major seems to be interested in it, not even the Russian LUKOIL which has established a very firm footing in the Caspian Sea.
- Ab-Teymour
Lukoil was courting Iran for quite some time, having reached significant progress with regard to two fields in Khuzestan province, the 12 billion barrel Ab-Teymour and the 3 billion barrel Mansouri field, not far away from Iraq where it is ramping up production on the West Qurna-2 project. Its interest seemed natural and provided space for an organic expansion of portfolio, however, in stark comparison to state-owned Gazprom Neft and Zarubezhneft (which are already subject to sanctions, as a consequence they care less), LUKOIL is a private company and as such is much more exposed to the consequences of U.S. sanctions. As a result, the company has put all its Iran-related planson holdand is waiting for any improvement in market conditions to proceed with it any further.
Most likely outcome: project will be stalled.
Thus, one can state the obvious state-owned Russian and Chinese companies stand to benefit from U.S.-imposed sanctions. But why, one would ask? The underlying reasons differ, of course, yet both countries are on a course of antagonism with the United States and are too big to be pressurized into total compliance. Russian state-owned oil companies are sanctioned, anyway, absolving them of any fear, whilst Chinese companies seem to be ready to throw the gauntlet on the back of President Trump initiating a tariff war. Not every state-owned oil major can allow such a frivolity the Indonesian Pertamina backed off all its Iranian commitments in the wake of Donald Trump levying sanctions on Teheran.
