Which companies to stay in Iran with possible US sanctions?

Oil&Gas Materials 7 May 2018 14:22 (UTC +04:00)

Baku, Azerbaijan, May 7

By Leman Zeynalova – Trend:

Trump’s possible move to not renew the Joint Comprehensive Plan of Action (JCPOA) will be destructive to existing and future projects in Iran, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend.

“This is not only to oil and gas projects, but to all other commercial activities at the same time. The only ones expected to continue operations will be China, India and possibly Russia. These countries will however be possibly facing new additional sanctions or sanction fines on their US-European operations or companies,” said the expert.

He noted that the new IPC contracts (Iran Petroleum Contract) will be effective only for countries not taking into account the possible US sanctions.

At the same time, the expert believes that most projects will be hit, as most oilfield services technology and other project issues are always linked to US companies or European companies using US technology.

For sure, due to possible US sanctions, the companies signing new contracts are taking over older contracts, such as the possible Total retraction, will be hit by US sanctions too, as financing of all projects will all be out, said Widdershoven, adding that most US and EU banks will not be able to take part in funding.

“Russians are expected to stay, as this will be a geopolitical commercial consideration by Moscow. Gazprom, Rossneft and others will stay in Iran, but could be facing extreme penalties in Europe or US related operations. Financing also will need to be done via Russian banks, which also have been hit lately severely by European and US sanctions. They will continue however, as Putin will need Iran to be on his side, as this is part of his Syria strategy. It also will keep some additional influence for Russia in Iraq, due to Iran’s involvement,” said the expert.

He expects European companies to leave or put on hold their operations.

“As stated by Iran, most of these contracts however then will be taken away by Tehran and handed to other operators,” said the expert.

Widdershoven noted that for Iran’s oil and gas sector, the situation is dire, as technology from the West is needed to improve production and operations.

“At same time, the capabilities of Total, Shell, ENI and others is much better and higher quality than Chinese or Indian operators can deliver. Production in Iran will be going down, while exports also will be hit (as all is normally done in US dollars or Euros),” he added.

The US president Donald Trump may re-impose US sanctions on Iran that were lifted in 2015 in exchange for Iranian commitments to curb its nuclear program.

He has given UK, France and Germany - which still back the deal - a May 12 deadline to fix what he views as its flaws. These include its failure to address Iran’s ballistic missile program, the terms by which inspectors visit suspected Iranian sites, and “sunset” clauses under which some terms expire.

Tehran, immediately after removing the country’s oil sanctions, introduced the Iran Petroleum Contract (IPC) in a move to replace the old buyback model.

National Iranian Oil Company (NIOC) later said it launched serious talks with potential foreign suitors in order to hold tenders to hand out the development projects.

The country’s shared fields with Iraq, including the West Karoun region, which has five major fields of North Azadegan, South Azadegan, North Yaran, South Yaran and Yadavaran, were among the prioritized projects to be developed in the framework of the new IPC tenders.

Iranian oil ministry plans to boost the output of the region to 700,000 barrels per day (bpd) by March 2019.

However, the oil ministry has seemed slow in implementing the IPC model due to two main reasons - investors’ fear over the fate of nuclear deal and domestic opposition by hardliners.


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