While key Iranian individuals and entities are facing sanctions from the United States, which have been touted as a first step in their pushback against Iran’s regional ambitions, Iran is reaching out to European nations to meet its plans of maintaining oil production at around 3.8 million bpd, the level that was agreed upon by OPEC last November. In order to reach their goal, Iran needs billions of dollars worth of foreign investment, as their oil fields are aging and the infrastructure is in need of major repairs.
Iran has been very dismissive of the new round of sanctions, calling the Trump Administration “inexperienced”. While both sides are determined not to back down, the question is how will these sanctions impact Iran’s ability to get the necessary foreign investment necessary to get that oil out of the ground.
According to the ZeroHedge writer Tyler Durden, “The announcement of the new sanctions caused a slight tremor in prices, which was offset by inventory reports and reviving U.S. output. If tensions between the U.S. and Iran were to escalate, it would place upward pressure on prices.”
Iran, whose tenders were originally set for January release, are set to now be released in mid-February. Internally, Iran is debating the best methods for attracting the necessary foreign investment, especially in a country that has long distrusted foreign oil companies. Currently, foreign companies are only making small inroads into Iran. Shell signed a provisional deal in December to develop three oil and gas fields, but the company hasn’t moved forward.
French oil major Total “plans to make a final investment decision on a $2 billion gas project in Iran by summer, but the decision hinges on the renewal of U.S. sanction waivers,” said Chief Executive Patrick Pouyanne in an interview with Reuters on February 9, 2017.
“There are two executive orders that are supposed to be renewed before summer. These are supposed to last about 18 months. So President Trump will have to, or not, renew these sanction waivers,” Pouyanne said.
The question of how President Trump will proceed has resulted in a delay for those companies considering doing business with Iran. Prior to the election of President Trump, Iran announced a $4.8 billion deal with Total SA. However, the Trump administration has been seen as a threat to Iran’s energy revival, as President Trump has threatened to reinstate some or all of the economic sanctions. The deal would allow Total to develop the massive South Pars natural gas field to meet Iran’s demand for clean-burning fuel.
“I hope the international companies that are still hesitating to come to Iran will be encouraged to take the leap,” said Iranian Oil Minister Bijan Zanganeh after the deal with Total was announced late last year. Yet, the thicket of U.S. sanctions has made banks less inclined to do business with Tehran, despite the July 2015 nuclear accord. This is because many of the state entities remain under sanction and many are active in the Iranian economy. IRGC (Iranian Revolutionary Guard Corps), for example, is heavily involved in the energy sector and their sanctions remain in place. Additionally, the U.S. is considering a proposal to put the IRGC on the blacklisted terrorist list, which would further limit capital flowing into Iran.
Iran continues to try to woo new investment into the country, but for many potential investors, the rocky relationship between the Trump administration and Iran will continue to impact the economy of Iran due to the potential for sanctions moving forward.