Iran’s Re-Emergence on Global Energy Markets: Opportunities, Challenges & Implications
The Islamic Republic of Iran's energy wealth and geo-strategic location – a bridge between East and West – allow it to export energy resources to European and Asian energy markets. However, due to various internal and international political, economic, and security constellations, Iran could not successfully exercise its energy potential internationally. Two main blocking factors – the Iranian oil contract regime which is not attractive to the International Oil Companies (IOCs) and international sanctions, imposed on Iran due to security concerns about its not fully transparent Nuclear Programme ─ are being presently redefined. The international agreement of July 2015, preconditioning the lifting of sanctions, and the preparation of a new more competitive oil contract framework in Iran signal a significant change in the international and domestic environment, allowing Iran to re-emerge on the global energy stage in a new atmosphere. This study examines the opportunities, challenges, and implications of Iran's re-integration into international energy markets and re-opening of its energy sector to foreign investors.
This study looks at the Iranian energy sector, its current and future up and downstream projects, policies and strategies. It aims to examine Teheran's energy potential, to draft scenarios for its future development and to analyse the obstacles in front of it. The domestic political environment and the historical, political, and economic factors influencing the management of Iran's energy resources and evolution of its petroleum fiscal regime are some of the main topics of this study. An attempt is also made to draft potential challenges that may occur for international oil and gas investors in Iran's energy sector.
The shortcomings of the present buy-back contracts are analysed and their competitiveness in comparison with the oil contracts offered in Iraq and Iraqi Kurdistan Region is assessed. The potential new terms of the Iranian Petroleum Contracts (IPCs) are outlined and compared to the buy-back contracts. This analysis aims to evaluate the extent to which the IPCs could suggest more satisfactory terms for the IOCs.
Finally, this study drafts some of the potential implications of Iran's re-integration into the global oil market, for the EU and other major oil producers and consumers, such as Russia, the U.S., China and Saudi Arabia. It also refracts the analysis through the prism of the EU’s energy security, in order to track the opportunities that the development of the Iranian energy potential may open to the EU's gas supply security.
The findings of this study show that Iran has enormous energy potential, but its development has suffered greatly from its international isolation. After international sanctions are lifted Iran, once being a major oil producer and exporter, could re-emerge on global oil markets as a leading oil power in the short to mid term, while in terms of natural gas, it will take longer time to see Iran as a key exporter.
Iran, the world's largest natural gas reserves holder, has also a vast domestic consumption. Teheran's policy has and will continue to encourage gas allocation to the domestic market. However, the state is working to improve efficiency and increase production, which in a longer term will allow it to become a natural gas exporter.
Re-opening Iran's energy sector will offer many new opportunities for the IOCs. The speed with which Iran will regain and increase its previous oil production and export levels will depend on the investment flow, the state of the industry and its management. The development of Iran's downstream and petrochemical sectors continued under the sanctions. Teheran is expected to become gasoline and basic petrochemical products key exporter in the short term.
Therefore, it could be concluded that Iran has potential to develop in three main energy branches: oil, gas, and refinery and petrochemicals. Successfully exercising its potential, Iran could become a leading energy ''superpower''.
The above Executive Summary is from a study by Kalina Damianova, published by the European Centre for Energy and Resource Security (EUCERS) and Konrad-Adenauer-Stiftung (KAS), which you can read in full here.
Kalina K. Damianova is one of the KAS Fellows 2014/15 at EUCERS and conducted her research on Iran in the context of (re-) emerging energy superpowers. She holds a MA in International Peace and Security of King’s College London, focusing on the EU's energy security and the security of the Black Sea Region.