Iran’s national oil company signs $2.2 billion deal with Persia Oil & Gas Industry Development Co.
Iran continues to look for ways to rejuvenate its oil and gas sector following news from Algiers last week that the Islamic Republic would be one of the few OPEC members allowed to continue increasing output, even as the group looks to reinstate a production cap.
The announcement marks a major turning point for OPEC and its de facto leader Saudi Arabia, which eschewed its traditional role of maintaining prices in a bid to increase market share.
Because Iran was forced to withstand the burdens of international sanctions before the price in oil ever collapsed, the country was much better prepared for low oil prices, giving it a strong hand in bargaining with Saudi Arabia and other OPEC members. Saudi Arabia will suffer a fiscal deficit equal to 13.5% of gross domestic product this year, compared with one of less than 2.5% of GDP for Iran, the International Monetary Fund estimates. The IMF says the Saudis need oil close to $67 a barrel to square the books. For Iran, it’s lower, at $61.50.
As the Islamic Republic looks to increase its output back to pre-sanction levels, it has been increasingly focused on attracting foreign investment. National Iranian Oil Company (NIOC) agreed to a framework of a $2.2 billion deal with Persia Oil & Gas Industry Development Co. to boost output at three fields along the country’s western border with Iraq, reports Bloomberg. A second contract will be signed with a local company on Wednesday. Iranian Oil Minister Bijan Zanganeh said the new type of contract, designed to better reward investment in crude and natural gas production, is crucial to increasing the country’s long-term export potential.
Rising oil prices caused by Saudi Arabia and OPEC’s talks of a production cap, and increased production from new contracts will go a long way in helping Iran recover. The IMF said Monday that economic conditions in the country are improving substantially and forecast growth of at least 4.5% in 2016-2017. The quickly improving economic situation in Iran appears to coming at the expense of regional rival Saudi Arabia as the kingdom looks for new ways to raise capital and bridge the budget shortfall made by lower oil prices.
Saudi officials in New York looking for capital less than a week following 9/11 bill targeting the kingdom
One of the primary strategies being pursued by the Saudis to bring capital back into the kingdom is overseas cash. Saudi Capital Market Authority Chairman Mohammed Al-Jadaan and Tadawul stock exchange Chief Executive Officer Khalid Al Hussan are among officials attending a two-day event organized by JPMorgan Chase & Co. less than a week after the Senate overruled a veto from President Obama on a bill that will allow the families of 9/11 victims to sue Saudi Arabia and other countries that do not have the official sponsor of terrorist designation.
The bill “could dent investor demand in near term,” said Kaan Nazli, who helps oversee $4.8 billion of emerging-market debt at Neuberger Berman Europe Ltd. in The Hague. “It would subject the new bonds to some headline noise but ultimately the U.S.-Saudi relationship is very deep and the thinking would be that this issue would be overcome somehow.”
The country’s stock market has taken a hit following the bill’s passing. The Tadawul All Share Index, which fell to the lowest level since 2011 this week, climbed 2% in Riyadh on Tuesday. The gauge is the worst performer in the six-nation Gulf Cooperation Council this year, down about 20%, according to information from Bloomberg.
The OPEC/Saudi decision to increase production in the face of declining global demand, put in motion to favor market share over price, had the effect of throwing 90 E&Ps and 80 Oilservice companies into bankruptcy.
