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Post sanctions Iran must redefine its economy

Oil&Gas Materials 31 July 2015 21:00 (UTC +04:00)
An Iranian former top oil official believes that Iran should redefine its economy in the post sanctions era.
Post sanctions Iran must redefine its economy

Baku, Azerbaijan, July 31

By Dalga Khatinoglu - Trend:

An Iranian former top oil official believes that Iran should redefine its economy in the post sanctions era.

Expectations are that sanctions imposed on Iran will be lifted by the end of the year, and European delegations, headed by top officials, have been visiting Iran intensively. A German delegation visited Iran last week, while delegations from France, Italy, Austria, UK and Poland are to visit this country to discuss economic ties in coming weeks.

Iran hopes to attract about $600 billion in investment for its energy-related projects mid-term.

This is while, according to OPEC's estimation, OPEC would need to invest an average of close to $40 billion annually in the remaining years of this decade. This figure was $120 billion in 2014 or three times more than the annual investment amount. However, according to Wood Mackenzie's estimations, the plunge in oil price since last summer caused the suspension of 46 big oil and gas projects. The cost of suspended projects in 2015 is estimated to reach about $200 billion.

"In fact most OECD members are now contemplating their relationship with post sanction Iran. To the best of my knowledge the EU is already more creative and is trying to redesign its economic relationship with a post sanction Iran,' Fereydoun Barkeshli, the former general manager of National Iranian Oil Company (NIOC) in OPEC and International Affairs told Trend July 31.

"I believe that the West is doing its job with re-engaging in Iran well but my worry is that on the domestic side in Iran we are not preparing ourselves for a post sanction relationship with the world. The way I see it now a pond is going to connect with an ocean. This is not easy. The world does not restart where we left it. We have to redefine our economy too. As for oil and gas, we created a review committee and a group of experts are taking time to redraft the contracts and a kind of strategic approach has been adopted. This needs to be done for the entire economy".

Iran had also defined a long-term (20-25 years) new model contract that it calls its integrated petroleum contract (IPC) to replace the old, less popular buyback agreements to attract foreign companies. However, it's not clear whether IPC could compete with production sharing agreements (PSA) that is popular with companies, but is banned in Iran.

Barkeshli who is a member of Iranian team in drafting the IPC, believes that "In 2012 Iran stood at 137 among 183 countries that were evaluated for investment risk by the International Bank for Resettlement. In 2013 the same ranking was maintained because of UN sanction that did not allow any inflow of capital into Iran. However in 2014 the bank decided to do a ranking despite continuous sanction where Iran's standing was raised to 121, a 16 point improvement from two years before. We have not seen any new rankings from international banks or institutions for 2015 yet. However most observers expect a positive jump".

Barkeshli says, "I do not personally see a very big jump though, because Iran's economy needs to be rewardingly accessible. Iran is now already a big producer of many industrial products. Iran is the fifth largest automobile producer in the world. As such Iran does not want to import finished goods that are already produced but technology, know-how, management and capital plus access to world markets to export with the help of western companies. This is something that will not come in easily and can not get a big share of EU's $250 Billion foreign investment".

The European Union has put about $250 billion direct investment abroad in 2014, while the total amount of global foreign direct investment was about $1,600 billion.

On the other hand, Iran has tens of billion dollars of blocked assets abroad.

Barkeshli, who is currently a private energy consultant and president of the Vienna Energy Research Group says, "I am afraid Iran will have a good chance of converting her assets abroad into capital goods. Most host countries prefer to barter the money with consumer goods".

"Iran's total GDP stands at around $400 Billions. This puts Iran at 31st largest economy in the world. Iran has to urgently enter $1000 Billions nations club in order to be among the top twentieth. If this objective materializes, Iran can expect to attract some 20-25 percent of the EU's foreign investments on a regular basis. However, we have to note that Iran is now the last remaining greatly populated country with a large and diversified economy".

The former top oil official added that Iran has easy access to several neighboring countries to export goods and services and integrate into a large economic block. "For this Iran will need some 6-7 percent of continuous GDP growth rate. then Iran could join as the seventh member of the BRICS, perhaps: IBRCS", he said.

Edited by CN

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