Will These Oil Companies Invest in Iran?

Brian Hicks

Written By Brian Hicks

Posted December 5, 2013

The fact that Iran is meeting with oil companies is a signal that President Rouhani means to establish long-term positive relations with the West to get his country’s economy thriving again.

And Iran wants to attract the majors: BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS-A), Total (NYSE: TOT), and ENI (NYSE: E). Iran is talking with various European companies, and more talks are expected in March of 2014.

iran gasSo far, U.S. companies have not engaged in talks with Iran.

Oddly enough, Iran is already conducting talks with European companies instead of firms from Russia or China, known allies of the defiant nation.

But Iranian oil minister Bijan Zanganeh says Iran is open to European and U.S. companies, with others from Asia and Russia following soon.

Iranian focus on Western companies is a way of testing the waters under a new deal in which Iran would suspend elements of its nuclear program in return for $7 billion in economic relief and $4.2 billion in released assets abroad, Bloomberg reports.

Above all, Iran wants to uplift as much economic restriction as possible for the sake of boosting oil output. In its pre-sanction days, Iran pumped 4 million barrels of oil per day into the global market, but now it only produces a little over 2 million bpd.

Iran and Oil Prices

The Iranian oil minister may have made some investors jittery by claiming Iran will pump oil even at the expense of oil reaching $20 a barrel.

But Iran has a long way to go before that will happen.

As of now, sanctions are so entrenched in the nation that leaders would have to make massive concessions to get most restrictions lifted.

And just because Iran has the potential to become a major supplier does not mean it will.

Take Iraq, for instance – a nation with the production capability to outmatch Saudi Arabia were it not plagued with corruption and security issues. In Iraq, you’ve got Exxon Mobil (NYSE: XOM) in the north dealing with the Kurds and Turks, and you have Shell in the south, choosing to do business with the southern government.

Shell would run the risk of angering its Saudi business patterns should it decide to partner with the Iranians. Even though they are OPEC partners, the Saudis and Persians have traditionally been adversaries, and this could force companies to choose sides, as is the case with Exxon being forced to choose between the Kurds and Iraqis.

Saudi Arabia is not keen on Iran’s intent to become an oil powerhouse again. If Iranian production were in full swing, it would force the Kingdom to cap production. As of now, however, the Saudis are not concerned with Iran given its current problems under Western sanctions.

But what if Iran were able to get out from under the thumb of the West?

This would surely pose more problems for North American oil production, as more supply from Iran would ruin any hopes of exporting abroad. Unless Americans foster high demand for shale oil consumption, domestic prices could slump, damaging production.

If that happens, your best bet is to go international.

Invest in Iran?

Iran investment is only ideal if sanctions are lifted, but there is still risk. Even if Iran managed to get most of its sanctions overturned, there is the possibility that Western wrath could return if Iranian leaders defy agreements.

This could result in the loss of assets for companies invested in Iran as they are forced to withdraw. Since Western companies are in sync with Western policy, companies like Shell and BP would be forced to comply with sanctions, since they would face the risk of having their assets frozen in their host counties.

However, as is the case with Iraq, major companies may be willing to dive in if more progress is made on the nuclear front. Representatives from BP and Shell have gone on record saying that they are watching the situation carefully but will comply with any sanctions in place. If given the opportunity, these companies would claim Iranian assets in a heartbeat.

Iran has 157 billion barrels of oil, the world’s fourth largest in reserves, and 1,187 trillion cubic feet of natural gas, comprising 18 percent of the world’s gas makeup. This would rival the Chinese reserves at 1,115 trillion cubic feet.

With such heavy resources at stake, major companies would be foolish not to take advantage of a fully capable Iran if given the opportunity.

If Iran provides a safe and assured atmosphere of foreign investment, it has a chance of shaking the foundations of the oil world to its core.

Stay tuned to see if Iran’s words will follow into action.


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