Bourse and Bazaar | David Ramin Jalilvand: The last Iranian year, which ended in March, saw several interesting developments for Iranian energy, both domestically and internationally.

Numerous challenges remain, hampering the growth of the country�s energy industry � not the least due to complex politics in Iran and abroad. In particular, Iranian energy is overshadowed by mounting uncertainty due to the standoff over the future of the nuclear deal. Nevertheless, there has been progress not seen in years.

Internationally, Iran commenced natural gas exports to Iraq in June 2017. This was Tehran�s first successful natural gas export project in over a decade.

Moreover, Tehran concluded its first two international energy contracts following the introduction of a new fiscal scheme, the Iran Petroleum Contract (IPC), and the implementation of the Joint Comprehensive Plan of Action (JCPOA), as the nuclear deal is formally known.

In July 2017, Petropars�formed a consortium�with French major Total and China�s to develop the eleventh phase of the giant South Pars natural gas field. In March 2018, the National Iranian Oil Company�concluded a contract�with Russia�s Zarubezhneft and private Iranian company Dana Energy to increase output at the Aban and West Payedar oil fields.

These events constitute important milestones on Iran�s journey to re-connect with global energy. At the same time, it would be wrong to assume that the obstacles hampering the growth of Iran�s energy sector are now overcome�not only because of Trump and the uncertain future of the JCPOA.

Rather, in each of these cases, the circumstances have been rather unique. As for Iraq, close political ties with Baghdad allowed for the project to succeed. This distinguishes the Iraq project from other export plans, where political and commercial issues remain complicated�for example Oman and Pakistan (ongoing) or the United Arab Emirates (in the early 2000s).

Shortly after natural gas exports to Iraq commenced, the Total/CNPC contract was signed. But here, too, the circumstances are rather unique. First, the company has a long history with Iran and the complicated international politics accompanying the country�s energy sector. Already in the 1990s, the French company�s planned engagement in Iran played a key role in the EU�s action to push back against extraterritorial US sanctions. These were introduced by Washington under the 1996 Iran and Libya Sanctions Act (ILSA). In response to ILSA (as well as US extraterritorial sanctions against Cuba), the EU introduced so-called �Blocking Regulations� legislation and filed a dispute against the US at the World Trade Organisation.

The EU�s moves forced the Clinton administration into adopting sanctions waivers, which suspended the implementation of US secondary sanctions and allowed Total to proceed in Iran. Ever since, despite being forced to leave the country in 2010 due to EU sanctions, Total has remained committed to Iran, openly criticised sanctions against the country, and always kept its office in Tehran open�different from other companies.

Second, Total is able to bring its own finance to Iran. The company affords the initial $1 billion investment from its own reserves. With the reluctance of major international banks to return to Iran, fearing punitive measures by the US, finance for large projects remains a huge problem. �Being able to bring its own finance sets Total apart.

Last but not least, Total is investing in Iranian natural gas, not oil. In the political economy of Iranian energy, the two hydrocarbons differ markedly. More than half of Iran�s oil production is exported, while less than 5% of the country�s natural gas output is sent abroad. An advancement of Iranian natural gas capacities frees some oil for exports. But the link between increases in production and export revenue is much weaker. Thus, investing in natural gas does not immediately lead to more hard currency at the disposal of the Iranian state.

In light of this, a case can be made that investments in Iranian natural gas projects are more acceptable to Washington than oil. At any rate, both before and after the conclusion of the South Pars contract, Total has frequently acknowledged the importance of the US position for its engagement.

Iran�s second international energy contract, with Zarubezhneft, was particular, too. It combined two firsts in one contract: the deal marked Iran�s first upstream contract with a Russian company and also the first international contract awarded to a private Iranian company, Dana Energy.

Beyond this, the deal is further testimony to the fact that Zarubezhneft, controlled by the Russian government, seems unimpressed by the Trump administration�s harshening stance towards Iran. Unlike Western IOCs, Russian (and also Chinese) state-owned companies might benefit from being able to take a different position when it comes to assessing political and economic risks related to Iranian energy.

The significance of different risk-assessments cannot be underestimated: Iran�s energy sector continues being surrounded by multiple and complex political and economic challenges. These include ample supplies in global energy, efforts by conventional producers to keep barrels away from markets, domestic political opposition to international and especially Western companies in Iran, and�almost overshadowing everything else�the prospect of the US leaving the JCPOA.

Parallel to the ups and downs at the international level, the domestic politics of Iranian energy saw interesting developments, too. In January 2018, Supreme Leader Khamenei reportedly told the Revolutionary Guards (IRGC) to divest from those parts of their wide-spanning business conglomerate that are �irrelevant� to their core purpose. If followed up by meaningful action, this would have wide-ranging consequences for Iran�s energy sector, where the IRGC maintain a considerable presence.

However, several economic and political questions in this regard remain unresolved until now. Politically, it will need to be defined which of the IRGC�s economic activities are actually considered being �irrelevant."�Arguing Iran should reduce international dependencies, conservatives might call for the IRGC to maintain a certain presence in strategically vital sectors, including energy. Economically, it is unclear who could actually take over businesses from the guards. Considering the sheer size of the IRGC�s economic holdings, Iran�s private sector seems unprepared to stem a larger IRGC divestment. Meanwhile, foreign ownership remains highly problematic in Iran.

All this suggests that IRGC divestment from the energy sector and the broader economy would at best be slow and gradual. Somewhat, the process has already begun as the administration of president Rohani reduced the number of public contracts awarded to the IRGC in recent years. Still, the IRGC have yet to indicate their willingness to actually divest. It would therefore likely take years until the IRGC have meaningfully reduced their economic profile.

Moving forward, Iran is keen to build on the momentum of last year�s developments. In doing so, the question of whether the Trump administration will stay in the JCPOA and renew sanctions waivers on May 12th will have great importance.

At the same time, a withdrawal of the US from the JCPOA and the re-imposition of nuclear-related US sanctions would not immediately bring Iran back to its pre-sanctions position. In particular, it is unlikely that Tehran�s oil exports would collapse to pre-JCPOA levels.

Europe�s role is crucial here: As long as Tehran fulfils its commitments under the JCPOA, the EU is unlikely to bring back its energy and finance sanctions against Iran. These, however, were deceive in forcing down Iranian oil exports by more than half after 2012.

Some Asian countries, most likely Japan and South Korea, might voluntarily reduce parts of their imports of Iranian oil. But without Europe joining the sanctions effort, the re-imposition of US nuclear sanctions is unlikely to dramatically affect Iranian oil exports.

Nevertheless, if the US decides to withdraw from the JCPOA on May 12th, this would obviously still hit Iranian energy hard. Very likely, it would effectively prevent further European IOCs from engaging in the country�and thereby significantly hamper the growth of Iran�s energy sector.

This article was adapted from a report�originally published by the Oxford Institute for Energy Studies.