As the U.S. moves closer to pulling out of the Iran nuclear deal and re-imposing sanctions, Iran could see some of the recent progress in its energy industry being rolled back.
The Iran nuclear deal in 2015 was an economic windfall to the country, removing international sanctions and opening up Iran to greater engagement with the rest of the world. Crucially, the deal promised to pave the way for more investment from international oil companies, something Iran desperately needed in order to develop new oil and gas fields.
Yet, some lingering sanctions and uncertainty from U.S. policy clouded the prospects of investment in Iran. Most western oil companies stayed away even after the nuclear accord was signed. Only French oil giant Total SA rolled the dice, signing a deal to develop the next phase of the massive South Pars gas field in the Persian Gulf, in partnership with China’s CNPC. It was the first oil agreement to be completed after the nuclear deal and the first under the Iran Petroleum Contract.
However, Iran had hoped to have made much more headway at this point. Several years on from the nuclear deal, much of the Iranian populace has grown impatient over the disappointing benefits stemming from the accord, which have fallen far short of its sky-high expectations.
Obviously, much of the focus from the oil market will be on the immediate impact to Iran’s oil supply. The OIES report predicts that the lack of cooperation from the EU in Washington’s quest to ratchet up tensions probably means that the withdrawal from the nuclear deal by the U.S. won’t “directly translate into bringing Iranian oil exports down dramatically.” A separate report from Columbia University’s Center on Global Energy Policy from March predicted that U.S. action to re-impose sanctions might knock 400,000 to 500,0000 bpd of Iranian oil offline within a year.
Either way, the hawkishness from Washington will almost certainly block the long-term investment that Iran had hoped to secure to boost oil and gas production beyond current levels. And it could even scare away Total’s planned investment, essentially putting a halt to the progress that Iran has made over the past year.
So what is the Iran Nuclear Deal?
The Iran Nuclear Deal is framework officially titled “Joint Comprehensive Plan of Action” (JCPOA) signed in 2015 after two years of intense negotiations by Iran and several world powers, the US, UK, Russia, France, China, and Germany being lead by the US under Barack Obama. The aim of the deal was to stop Iran from ultimately producing nuclear weapons - a growing fear at the time by international powers - by reducing their ability to produce plutonium and uranium. In return for Iran agreeing to the Iran Nuclear Deal economic sanctions on the country were lifting.