Distinguished Fellow, Energy, Environment and Resources

Iran’s oil and gas sector remains critical to the country’s economic prospects. Its future depends not only on the removal of sanctions but also on the terms Iran is prepared to offer to international oil companies.

A local couple ride a motorcycle past oil installations on Kharg Island in the Persian Gulf off the coast of Iran. Photo by Kaveh Kazemi/Getty Images.Photo by Kaveh Kazemi/Getty Images.
  • Iran’s oil and gas sector remains critical to the country’s economic prospects. Its future depends not only on whether, and how quickly, sanctions are removed, but also on the terms that Iran is prepared to offer to the international oil companies (IOCs). Latterly, the low oil-price environment may mean that the sector’s appeal to investors is diminished, even if sanctions are revoked.

  • Iran has struggled to attract investors. In the 1990s attempts to secure international investment were ineffective because of the unfavourable terms on offer to IOCs and the operational problems that arose as the sector became increasingly politicized and less well organized.

  • The current administration under President Hassan Rouhani is echoing opinions from that era on the need to increase the involvement of the private sector in the economy, although it is unclear how seriously such statements should be taken. Iran is in severe need of the technology and capital that would be available from IOCs for its oil and gas sector. Yet, while there has been much hype from the Iranian side about the high level of interest, the IOCs are only likely to be interested if the terms are advantageous.

  • Iran has indicated that it could help Europe move away from over-reliance on Russian gas through the export of liquefied natural gas, and has proposed various pipeline routes. However, the drop in world oil prices from the latter part of 2014 reinforces Western countries’ reluctance to commit to investment of this scale and complexity. Iran’s own need for domestic gas and for gas for reinjection into oilfields, as well as the export deals planned with Oman, Iraq and Pakistan, would also reduce the volumes available for export to Europe. In this context, Western countries may well not consider such offers as anything other than a prospect for a decade’s time.