Iran’s energy sector will feel the repercussions of renewed sanctions

Iran has the world’s fourth-largest proved crude oil reserves and the world’s second-largest natural gas reserves, but production in the country has been suppressed by international sanctions and underinvestment.

Iran’s Short-Lived Oil and Gas Boom

Although some sanctions targeting the energy industry were temporarily lifted, and oil production reached ~3.8 MMBOPD in 2017, growth has remained slow.

According to an EIA report published in April 2018, Iran ranked among the world’s top 10 oil producers and top five natural gas producers. Iran produced almost 4.7 MMBPD of petroleum and other liquids in 2017, and an estimated 7.2 Tcf of dry natural gas in 2017.

Iran’s Short-Lived Oil and Gas Boom

Despite Iran’s abundant reserves, crude oil production stagnated and even declined between 2012 and 2016, as nuclear-related international sanctions targeting Iran’s oil exports hindered progress, affecting upstream investment.

At the end of 2011, the United States and the European Union imposed sanctions as a result of Iran’s nuclear activities, which went into effect in mid-2012. These sanctions targeted the Iranian energy sector and impeded Iran’s ability to sell oil. According to the EIA, the sanctions resulted in a near 1 MMBPD drop in crude oil and condensate exports in 2012.

When the oil sector and banking sanctions were lifted in January 2016, Iranian crude oil and condensate production and exports rose to pre-2012 levels. The International Monetary Fund said that Iran’s oil and natural gas export revenue was $33.6 billion in 2015-2016 – having decreased nearly 40% from $55.4 billion in 2014-2015.

Iran’s Short-Lived Oil and Gas Boom

In order to increase revenue and production, a steady stream of investment is needed to maintain and improve oil and gas operations.

Billion-dollar project halted

International sanctions have affected Iran’s energy sector by limiting the foreign investment, technology and expertise needed to expand production and capacity. Mature oil fields with declining production also suffer, due to the lack of (up-to-date) enhanced oil recovery operations. Local companies, such as the National Iranian Oil Company (NIOC), primarily develop Iran’s oil and gas fields. Only a few international companies have partnered up with Iran and with renewed sanctions, the outcome of previously announced projects is up in the air.

Total S.A. (ticker: TOT) and China National Petroleum Corporation (CNPC) reached an agreement with Iran to develop Phase 11 of the massive South Pars field. Located in the Persian Gulf, part of South Pars is in Qatari waters, where it is called North Dome. With an estimated 1,800 Tcf of gas and 50 billion barrels of condensate in place, it is by far the largest gas field in the world. According to CNNMoney, the deal was first signed in late 2016 after the sanctions were eased. However, the renewed sanctions have put the contracts on ice.

Iran’s Short-Lived Oil and Gas Boom

The first phase of the $2 billion-dollar South Pars project would have consisted of 30 wells and two platforms, with two pipelines connecting to existing onshore treatment facilities. Estimated production was 1.8 Bcf/d, or 370,000 BOE. The produced gas would have been fed into Iran’s energy infrastructure.

Middle East economist Jason Tuvey told CNNMoney that though some countries were granted exemptions from steel and aluminum tariffs, it would be very unlikely that a waiver would be given to the South Pars project.

Total said it spent less than $47 million on the project. The produced gas would have hit the market in 2021.


Russia’s Zarubezhneft Company signed a $674 million deal with Iran’s Dana Energy Company and NIOC. The 10-year deal targets the Aban and Paydar-e Gharb oilfields west of Iran and aims to increase production from 36 MBOPD to 48 MBOPD. Zarubezhneft will hold an 80% stake with the remaining 20% held by Dana Energy. Indirect costs, in addition to the $674 million, are projected to reach $68 million.

As of May 21, 2018, Zarubezhneft’s company website has not announced any changes to the contract.

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