Iran, ready to flood the world market with oil

The Iranian parliament voted on October 13 the go-ahead for the implementation of the agreement on lifting the international sanctions on the export of oil, in exchange for the commitment to reduce its nuclear programme over a period of ten years. The powers of the Group 5+1 (the United States, the UK, France, Russia, China and Germany) and Iran signed on July 14 in Vienna an agreement aimed at limiting Iran’s nuclear programme to its civilian component, in return for the gradual and reversible lifting of international sanctions imposed on Tehran since 2006. Thus, the Iranians are already making plans to flood the international market with oil, although the sanctions will not be lifted until Iran proves that it has stopped the nuclear programme.

Bijan ZanganehRecently, Iranian Oil Minister Bijan Namdar Zanganeh said his country intends to increase oil production by 500,000 barrels per day within days after the sanctions are lifted. The Iranian plan is that in five to six years to reach an output of 4.7 million barrels per day, plus another million barrels of condensed oil, which puts the output to 5.7 million barrels of Iranian oil, i.e. more than twice Iran produces today.

After the signing of the agreement on removing the sanctions against Iran, Tehran announced its plans on increasing oil production and exports. “Iranian oil exports could reach 2.5 million barrels per day right after the coming into force of the agreement on the nuclear program,” said Bijan Zanganeh.

The National Iranian Oil Company (NIOC) is ready to increase the oil production of all wells as of this year. “After the lifting of sanctions, Iran will try to maximize oil exports and to recover the market share in Europe of 42-43%,” said Mohsen Kamsari, NIOC Director responsible for international relations. “However, the country does not intend to divert the flow of oil from the Asia-Pacific region. The Asian market is closer to Iran and will remain essential for us,” said the NIOC representative.

Currently, the market share of Iranian oil in the world does not exceed 1.5% and the crude oil exports are about 1.1 million barrels per day. Also, even in 2012, before the sanctions against the country were imposed, the exported volume was of 2.5 million barrels of oil per day.

Iran’s potential

After the sanctions against Iran were imposed, most of the country’s market share went to Saudi Arabia and the smallest part to Iraq. Crude oil reserves are estimated to about 157 billion barrels, while natural gas reserves amount to almost 34,000 billion cubic meters, being appraised right below those held by Russia. According to the Energy Information Administration (EIA) in the US, in terms of oil reserves Iran ranks fourth in the world, and in terms of natural gas reserves it ranks second in the world. Also, Iran is the only country close to Europe’s borders having natural gas reserves to rival Russia’s dominance on the market. Deputy Oil Minister for International Affairs Ali Majid declared that the European countries can import natural gas from Iran through three separate routes: Turkey, Iraq or through a pipeline to cross Armenia, Georgia and the Black Sea.

OPEC and the output cuts

According to Iran, the Member States of the Organization of Petroleum Exporting Countries (OPEC) should cut the crude output so that the price of oil barrel increases to USD 70-80 per. “No one is happy with the current price level. OPEC should decide to manage the market by reducing the output,” said Oil Minister Bijan Namdar Zanganeh during a conference on oil industry organized in Tehran. However, Zanganeh admitted he did not expect OPEC to cut production at the next ministerial meeting to be held in December this year.

The European Union (EU) adopted in early 2012 unprecedented sanctions against the Tehran regime, suspected of seeking to obtain the nuclear bomb. The set of European sanctions meant immediate ban on signing new oil contracts with Iran. The contracts in force were honoured only until July 1, 2012. Romania was not directly affected by the EU sanctions against Iran, given that in the last 25 years, the economic and trade relations have fallen sharply against the extraordinary boom during the communist era, and Romania has not imported Iranian oil since 2008.

Russia, directly hit

The Russian government budget for 2016 is based on an average annual oil price of USD 60/barrel. However, Iranian oil exports growth next year could lower world prices below USD 40/barrel, and some experts even predict a fall down to USD 25, according to the Russian newspaper Nezavisimaya Gazeta. Given Russia’s dependence on oil prices, the country’s economy may be affected even more severely by the steeper decline of the international oil market. Economic analysts noted that since the international embargo on Iranian oil exports, Russia has seized Iran’s traditional markets in Asia and Europe, but this trend can be reversed.

There are also question marks about Iran’s return on the natural gas global market, but the Russians are not afraid of the threat. Iran’s re-entry on this market will have no impact on Gazprom’s positioning, Russian Energy Minister Alexander Novak believes. “I am sure that Gazprom’s and Russia’s volumes and market shares in Europe are absolutely competitive. It is unlikely to lose this niche,” the Minister underlined in a televised interview.

Increased interest in resuming cooperation with Iran

International oil and gas companies are already preparing to resume their cooperation with Iran envisaging the lifting of the embargo imposed by the United States and by the European Union. Also, European energy companies have lately intensified contacts with the authorities in Tehran in anticipation of sanctions lifting.

In the first part of the year, representatives of the French company Total attended a conference in Tehran, and in September Rainer Seele, OMV’s CEO, paid a visit to the Iranian capital in order to re-launch the trade relations between Austria and Iran, on which occasion the Iranian Deputy Oil Minister, Amir-Hossein Zamani-Nia, said Iran is ready to resume relations with OMV. “As the pressure of sanctions decreases, we are preparing to resume cooperation with OMV. We are open to foreign investors. Using available cutting edge technology, OMV is able to double Iran’s oil and gas output, by advanced methods of oil recovery from mature fields or hard to reach deposits,” the official said. He added that gas export to Europe is an issue which demands a long-term approach. “There is no short-term plan for export of gas to Europe. Our priorities are the neighbouring and regional countries because of political and economical considerations.”

Also in September a business meeting was held between the Iran’s Oil Minister and Lukoil CEO Vagit Alekperov, during which it was established that Russia’s Lukoil energy group will sign a memorandum with Iran for exploration and extraction of crude oil. The Russian company expressed readiness to take part in producing oil from Iranian fields through EOR/IOR techniques, being also interested to purchase crude oil and petroleum products from Iran. Lukoil is negotiating with the Iranian authorities to resume the project of developing the Azar oil field in the Anaran block, a deposit with reserves of crude oil estimated to about two billion barrels, operated by a consortium made up by Norwegian group Statoil (75%) and Lukoil Overseas (25%).

Romanian-Iranian bilateral relations

On December 16, 1880 the Romanian government empowered Knight Keun from Dutch legation in Tehran to represent the interests of Romania in Persia, as honorary consul general. In 1881 and 1887 Persia opened an honorary vice-consulate in Galati, respectively an honorary consulate in Braila. On July 11, 1902 the two countries established relations at the level of legations; the relations were discontinued during October 14, 1941 - July 27, 1946. On October 25, 1965 the relations were established at the level of embassy.

Romania was among the first states to recognize the regime accessing power after the Islamic Revolution in February 1979, after the removal of monarchy.

Trade and economic cooperation for development

Bilateral trade in 2013 amounted to USD 158.08 million, of which USD 151.88 million Romanian exports, down from previous years (USD 375 million in 2011 and USD 340 million in 2012) due the coming into force of EU sanctions against Iran. The equipments for oil and gas represented until 2012 (when the specific sanctions came into force) about 15% of the export.

Its principal imports from Iran are represented by oil (intermittently, until 1995, and sporadically after 2006), petrochemicals (acyclic hydrocarbons, poly-acetate, polyester, PVC resins), fresh and dehydrated fruits.

According to data from the National Trade Register Office (ONRC), on June 30, 2010 some 2,584 joint ventures with Iranian capital were registered, with an overall subscribed share capital of USD 25.6 million (41st place in the foreign investment rankings). In recent years, the number of new companies with Iranian capital registered in Romania has dropped. However, due to the international sanctions against Iran, implemented and expanded by the EU level on the basis of Regulation 961/2010, the Romanian-Iranian cooperation stagnated and commercial transactions were affected as well, even for products not included on the sanctions list, by the restrictions on banking operations.

This year, following the initiative of the Embassy of Iran in Bucharest and upon the call from the Bucharest Chamber of Commerce and Industry (CCIB), took place a business visit of an Iranian delegation during September 29 - October 3. The delegation was made up of 20 Iranian companies, from various sectors, including oil and gas, directly interested in developing business relations with Romanian partners. On this occasion, a cooperation agreement was signed between the Bucharest Chamber of Commerce and Industry and the Tehran Chamber of Commerce, Industry, Mines and Agriculture (CCIMA Tehran).

“I am convinced that the signing of this agreement will support the development of economic, trade and academic exchanges with the Islamic Republic of Iran and the turning to account of business opportunities offered by the two markets. In the near future we need to identify one or two projects for implementation so that this document becomes operational,” said University Prof. Dr. Eng. Sorin Dimitriu, President of the Bucharest Chamber of Commerce and Industry. The signing took place in the presence of His Excellency Hamid Moayer, Iran’s Extraordinary and Plenipotentiary Ambassador in Romania, and was part of the professional programme of the CCIMA Tehran economic mission to Romania.

The cooperation agreement signed by the chairman of the Bucharest Chamber of Commerce and the president of CCIMA Tehran, Masoud Khansari, will give the business community in Bucharest the opportunity to be informed on the opportunities offered by Iranian market for import, export and cooperation in various sectors.

“I hope that this document is a first step in resuming deepened bilateral relations. Our organizations aim to facilitate communication between the private sectors in Romania and Iran, which is not an easy task, because we need to identify the problems and fix them so that the companies’ projects in our countries become operational,” said Masoud Khansari. The economic potential of the two countries could be harnessed also through business forums organized in Romania and Iran, events that would give both the two business communities the opportunity to connect, identify and develop joint projects, but also to participate to fairs and exhibitions.

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