The historic agreement on Iran's nuclear program and the lifting of international economic sanctions last year created high hopes for Tehran's reintegration into the global economy. The energy sector, in particular, has shown impressive growth since the Joint Comprehensive Plan of Action, as the nuclear deal is known, came into force over a year ago.
Iran managed to add 1 million barrels to daily crude oil output within a few months of the lifting of restrictions, much to the dismay of rival producers in the region, and is now pumping close to pre-sanctions levels of 4 million barrels a day. Moreover, exports have been expanded to previously inaccessible destinations in Europe and billions of dollars in frozen oil revenues have been repatriated.
Numbers indicate Tehran has cashed in on the nuclear deal in its key oil sector. But there is still a long and difficult path ahead: the return of international oil majors.
After the introduction of tougher US and EU restrictions in 2011 and 2012, most European companies, including energy heavyweights Total and Shell opted out.
To make up for the setback, President Hassan Rouhani's government delivered on its promise of striking a global deal to ease financial and banking barriers and also devised a new model of contracts to attract foreign firms to develop the oil and gas fields.
The long-awaited 'Iran Petroleum Contract' was unveiled in late 2015 as government officials spoke with high confidence of sealing major deals under the IPC framework in the following year. But the early euphoria almost disappeared as the IPC faced its first major hurdle at home as powerful political opponents of the Rouhani administration took issue with the terms of the IPC.
Tehran so far has failed to launch a single oil/gas tender under the new contracts. As things stand now, big oil deals seem unlikely anytime soon.
Foreign Deals Pending
Scenarios do not look encouraging either from the international perspective. The confluence of Donald Trump's presidency in the US and the Iranian presidential election next month has triggered uncertainty among foreign companies over Tehran's political and economic direction.
In February, chief executive officer of Total S.A. did not play with words when he announced that his company's ties with Iran hinges on political, rather than economic factors.
"There are two executive orders that are supposed to be renewed before summer. So, either the waivers are renewed … or they (the US) decide to tear up the Iran nuclear agreement. In that case, we'll not be able to work in Iran," Patrick Pouyanne said.
Total has signed a $4.7 billion agreement to develop a major offshore project as part of Iran's giant South Pars Gas Field.
Germany's BASF, the world's largest chemical producer, is also taking a backseat in closing Iran deals.
"We are trying to assess whether it's possible for our oil and gas business to gain a foothold in Iran," said BASF chief executive Kurt Bock said in February, adding that "We can't see that the lifting of sanctions is being implemented at the speed that was initially expected."
Both reactions came after the White House put Iran "on notice" in February and blacklisted several Iranian individuals and entities in a move which can and will have major economic ripple effects. The new US president has proven to be as unconventional as he is unpredictable, and any major economic deal between Iran and multinationals could be in jeopardy as long as he is in the Oval Office.
Some analysts assert that had it not been for the nuclear deal, Iran's economy could have floundered like that of Venezuela, a close political and economic ally to Tehran under the previous administration. But it is time to adjust economic contours to reality, as there is much to do before some of the biggest deals in Iran's energy sector become a reality.
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