Economy, Domestic Economy

Russian Companies Rush to Post-Sanctions Iran

Russian Companies Rush to Post-Sanctions IranRussian Companies Rush to Post-Sanctions Iran

The biggest supplier of pipes to oil and natural gas producers, Moscow-based Tube Metal Company, or TMK for short, which is being hurt by weak energy prices like many players in the oil patch, contends it has an edge in a relatively untapped market, Iran.

The country has warm political relations with Moscow and tens of billions of dollars in newly unfrozen money to spend on oil infrastructure.

During the Soviet era, TMK was the dominant provider of pipes to Iran. At present, Russian companies are gearing up to get back into Iran, wrote the New York Times in a recent article.

Sukhoi wants to sell its Superjet airliners to a market starved for transportation. Avtovaz has started talks to open an assembly plant for Lada cars in Iran.

The oil and natural gas giants Gazprom and Lukoil are weighing investments in a liquefied natural gas project on the Persian Gulf, and an oilfield.

The Eurasia Drilling Company, an oilfield services business, and Tatneft, a second-tier Russian oil company based in Tatarstan, a predominantly Muslim region east of Moscow, both have good prospects.

“If you have dry firewood and the wind is blowing, the fire will get going,” Sergei G. Chetverikov, director of the pipe factory here, said of TMK’s prospects in Iran. “All you need is the match.”

Under the nuclear deal, authorities in Tehran agreed to open their nuclear program to stepped-up inspections and to ship enriched uranium to Russia, which led to the lifting of international sanctions on Jan. 16.

  US Sidelined

Many countries have sent delegations to explore business opportunities, but the United States still has sanctions on Iran.

Those sanctions prohibit most commercial ties with Iran, so American companies are not permitted to vie for contracts with its oil and natural gas industry.

The US is allowing trade only in Persian rugs and commercial airplanes.

European companies are better positioned, as much of the region tries to develop diplomatic ties with Iran.

With ink still drying on the comprehensive nuclear deal last July, Germany’s Vice Chancellor Sigmar Gabriel escorted to Tehran a delegation of executives from his country’s largest companies, including Daimler, Volkswagen and Siemens.

Last month, Hellenic Petroleum, a Greek oil refiner, struck the first deal to buy Iranian crude oil after sanctions were removed.

Airbus, the France-based aerospace manufacturer, also brokered a $27 billion during the visit of Iranian President Hassan Rouhani to Paris.

  Russian Advantage

Russia, however, has an advantage. It has long backed Iran diplomatically and nurtures deep military ties.

After the nuclear deal, Vice Prime Minister Dmitry Rogozin of Russia said his country was beginning to supply S-300 antiaircraft missile systems to Iran.

“This contract is now executed and paid for,” Rogozin said.

He noted that the deals between Russia and Iran were not just in the military arena.

The S-300 supply, he added, would “open the entire road for cooperation with the Islamic Republic of Iran”.

Like other countries, Russia sees opportunity in a country long starved for capital.

Iran’s economy is expecting a jumpstart from $29 billion in frozen offshore assets, unfrozen as a condition of the deal. The International Monetary Fund projects that Iran’s economy will grow 5.5% in 2016 and in 2017.

The energy industry is especially attractive for overseas companies.

Iran holds the Middle East’s second-largest oil deposits, after Saudi Arabia, and by some estimates the world’s largest reserves of conventional natural gas. Even before sanctions were lifted, Iran signed deals to export gas to Iraq and Pakistan.

But its industry lacks the pipes to deliver that gas, as companies woefully underinvested during the era of sanctions. In total, Iran could spend as much as $100 billion rebuilding its natural gas pipelines, analysts said.

TMK says it is in a good position to provide much of that business.

At its gigantic metal works, it pours, grinds and welds the huge steel straws that pull much of the world’s oil out of the depths.

The company says 20% of the global oil brought to the surface at one point or another flow through a TMK tube, including high-end varieties of pipe made for the insides of oil wells.

“We make the pipe Bentleys,” Vladimir Shmatovich, vice president for strategy, said in an interview.

Russia does face some challenges as it prepares to jump into Iran.

With its own set of western sanctions over the Ukrainian conflict and weak oil prices, the Russian economy is suffering and companies are having a tough time raising money.

That could make it difficult for companies like Lukoil and Gazprom, their revenues shrinking, to immediately revive their production deals in Iran.

“The general feeling is still cautious,” said Ildar Davletshin, an oil and gas analyst at Renaissance Capital, a Moscow investment bank.

With low oil prices, the budgets of Russian oil companies are under huge stress.

TMK views Iran as an antidote to the industry woes.

After the United Nations imposed sanctions on Iran in 2006, Russian companies like TMK had to retreat. TMK’s bottom line suffered.

So TMK shifted gears, moving to the United States. As the shale boom took off, the company bought 12 factories in North America.

Now, the pendulum is swinging the other way. With energy prices falling, shale companies are suffering. TMK’s North American division, Ipsco, has idled two plants and plans to lay off 40% of its 2,700-person workforce.

At home in Russia, TMK is hunkering down.

It has put in place incentives for workers to cut costs on the factory floor, such as vacations in Sochi, the Black Sea resort. TMK is also nudging its Russian workers to adopt the timesaving ways of the Toyota production system, a Japanese industrial philosophy.

More important, TMK wants to increase production. And it is looking to the past for how important Iran could be.

In the Soviet period, the plant provided up to 40% of the pipes used in Iran’s oil industry, including casing set into oil wells and pipes carrying natural gas over the desert.

“The idea is simple: They lift the sanctions, we send the pipes,” said Chetverikov, the TMK plant director.