Progress, challenges, uncertainty: ambivalent times for Iran’s energy sector

After more than a decade of announcements and negotiations, the launch of natural gas exports to Iraq and the conclusion of oil and natural gas contracts with Chinese, French, and Russian companies mark significant positive developments for Iran. These initial steps remain below the hopes and expectations of Iranian officials and executives as expressed in the context of the Iran Petroleum Contract (IPC) and the Joint Comprehensive Plan of Action (JCPOA). But, they do constitute important initial successes on Iran’s journey to reconnecting its energy industry internationally. Iran is keen to build on these developments but the future of relations between Iran and the global energy industry will depend to a large extent on how the standoff over the JCPOA unfolds. As long as Tehran abides by the JCPOA, it does not appear likely the EU will reinstate its energy and financial sanctions against Iran. Thus, despite opposing predictions by some analysts, it seems unlikely that a withdrawal from the JCPOA by the US would directly translate into Iranian oil exports falling dramatically – even though some US partners, especially in Asia, may voluntarily choose to partially reduce some of their Iranian oil imports. Nevertheless a US withdrawal from the JCPOA, and the potential re-imposition of extra-territorial US sanctions, would hit Iran’s energy sector hard. Potential penalties on US energy and financial markets would also certainly result in European IOCs effectively being unable to invest in the country. Arguably, the way in which events on the global stage develop will also have direct implications for the domestic political debate surrounding Iranian energy. The lower the level of investment and commitment from international companies to Iran’s energy industry, the weaker the position of President Rohani will be in his attempt to reduce the economic profile of the Revolutionary Guards (IRGC).

By: David Ramin Jalilvand

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