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DW Monday: Iranian Oil to Return to the Market?

By February 15, 2016September 7th, 2022No Comments

DW MondayIran’s position in the international O&G market was expectedly one of the highlight topics of IP Week. Approximately one month after the lifting of EU and US nuclear sanctions on Iran, the country’s Energy Minister has announced Tehran needs to attract a huge $200 billion in international investment to modernise its existing oil infrastructure.

Unwinding of sanctions, coupled with discussions over a new Iranian Petroleum Contract offering more flexible terms and conditions, serve as direct incentives for international investors. Oil majors and former business partners of Iran including Total, ENI and Repsol have already expressed clearly their interest to resume business in the country. A sustained return of 500,000 barrels per day to the crude markets from Iran would create significant downside risk on Douglas-Westwood’s (DW’s) expectation of a slow-paced 2H2016 price recovery. The importance of Iran was confirmed recently by the US EIA’s Short-Term Energy Outlook: “most of the increase in global surplus crude oil production is attributed to Iran”.

DW holds a conservative view on the sustainability with which Iran can return significant additional crude volumes to the market. A degree of uncertainty on the timing, structure and implementation of the new oil contract model remains. Given the level of required investment, significant involvement will be required from international parties who will need clarity on the new Iranian operating environment before committing capital and resource. Given the remaining uncertainties and the enduring risk attached to operating in Iran, the sector will take time to attract required investment.

Nevertheless, as outlined in the recently published “Iran Oil & Gas Market Forecast 2015-2019”, DW anticipates a meaningful upside potential for drilling and production over the next five years from projects that were stalled, delayed or under-invested during the sanction period. Notably, the North Pars, Goldham and Ferdowsi gas fields, as well as the South Pars oil layer are likely to tender for international investment. Any immediate growth in Iranian petroleum exports, however, is likely to originate from existing storage capacity, whereas more significant rises in production will be coming to the market after depletion of storage oil reserves.

Marina Ivanova, Douglas-Westwood London
+44 20 8382 3684 or [email protected]