Iran faces brutal fight to regain its oil economy

Iran Oil Minister Bijan Zanganeh made a big storm on Dec. 3 when he arrived in Vienna to attend the 168th OPEC Oil Ministerial Meeting.

The country’s economy had long depended on oil production. But international sanctions have not only paralyzed Iran’s economy, but also damaged and harmed its production ability.

From a production of almost 4 million barrels per day (bpd) in 2012, the output fell dramatically after the sanctions were imposed, and now stands at about 2.7 million bpd.

Maybe when the Syria talks end, the oil talks will need to commence.

Camelia Entekhabi-Fard

The economic impact of this was compounded by Iranian foreign bank accounts being frozen, and the departure of the foreign investors.

And so the moderate President Hassan Rouhani, elected in 2013, promised the nation that he would fix the damage and boost the economy.

All eyes on Oil Ministry

Political leaders in Tehran first put all the burden on the Foreign Ministry, in the effort to resume nuclear talks with the Western powers. But now with the nuclear accord in hand, all eyes are on the Oil Ministry to play its part.

And so one of the first things Zanganeh told reporters in Vienna was that Iran will increase its production by 500,000 bpd immediately after sanctions are lifted. This could happen as early as January.

Zanganeh was there in a publicity drive, to draw oil consumers’ attention to Iran’s powerful return to the market. The oil market already has excess production; yet other producers have no desire to cut their output in order to create extra room for Iran, or help increase the prices.

But oil will not necessarily return as such a huge force in Iran’s economy. Today with no quota obligation on OPEC members, even if Iran can reach its former production of 4 million bpd, it may still not be such a good earner in this age of low oil prices.

And Iran still has much more progress to make before other energy giants consider it as a major player in the energy sector.

Zanganeh is trying to offer lucrative contracts to foreign oil companies but attracting foreign direct investment (FDI) requires rapid reforms in rules and regulations.

In addition to offering lucrative contracts, Iran needs to take steps that would help create a conducive environment for investors. Recent arbitrary arrests by Iranian security forces – of which even administration officials have been critical – sends the wrong message to potential investors.

Regional tensions

Mistrust between neighbors is another negative point to have hit the oil market and weaken the cartel. Today Iran and Russia stand side-by-side over the conflict in Syria. But soon, with the lifting the sanctions on Iran and upcoming competition in the oil market, there will be no guarantee that the two countries will remain at the same friendship level. Once sanctions are lifted, Iran’s efforts to regain its market share might be a brutal fight.

Since Iran understands that OPEC will most likely will maintain current production levels, it also recognizes the need to focus on other ways to attract FDI.

This capital will enable Iran to upgrade its outdated production facilities. Some experts say the Iranian mining industry can generate more revenue than its crude industry, especially when the market is overloaded and facing a major battle with American shale oil producers.

On Dec. 4, after seven long hours of discussions behind closed doors, the OPEC oil ministers walked out tired, with nothing to say to reporters. Maybe when the Syria talks end, the oil talks will need to commence.

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Camelia Entekhabi-Fard is a journalist, news commentator and writer who grew up during the Iranian Revolution and wrote for leading reformist newspapers. She is also the author of Camelia: Save Yourself by Telling the Truth - A Memoir of Iran. She lives in New York City and Dubai. She can be found on Twitter: @CameliaFard

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Last Update: Wednesday, 20 May 2020 KSA 09:45 - GMT 06:45
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