Oil and Gas Emerging from Under Nuclear Rubble

The presence of representatives from Total (France) and Shell at a visiting business delegation in Tehran indicates Europe's readiness to gradually lift sanctions on the predicted date for the implementation of the JCPOA (October 17 and the expiration of the 90-day preparedness deadline). It is expected that the lifting of unilateral U.S. sanctions will begin after receiving a report from the International Atomic Energy Agency on Iran's compliance with the commitments accepted in the July 14 nuclear agreement, starting from the end of spring next year. Thus, Iran's oil and gas will have the opportunity to gradually emerge from the burden of the nuclear development program for the first time in 20 years and serve the country's crisis-stricken economy. During the mid-point of the 8-year Iran-Iraq war, Iran pursued an expensive nuclear development program to maintain a balance of power against its neighbor, which led to sanctions against Iran due to concerns over military objectives. With the rise of Mahmoud Ahmadinejad's right-wing government in 2005 and the resumption of uranium enrichment in Natanz that same year, the exit of major oil companies from Iran, which began during Mohammad Khatami's second term with the withdrawal of Japanese firms from the Azadegan oil field development project, accelerated. Since January 2012, with the imposition of unilateral sanctions against Iran's oil and gas by the U.S. and the European community, Iran's oil and gas have effectively been buried under the rubble of nuclear development plans. It seems that the pursuit of the Islamic Republic's nuclear program, which in the mid-1980s was based purely on military-security considerations without a comprehensive review of its economic and financial consequences, has been influenced over 20 years by various external and internal factors and miscalculations regarding the costs of the program. The incomplete calculations of the government and prioritizing nuclear development plans (even after the war ended), which had no significant economic value, have kept a large share of oil and gas capacity, which should have maximized Iran's economic engine, out of the production and export cycle. Over the past fifteen years, the growth of Iran's gas production, which according to BP statistics is considered the world's largest reserve ahead of Russia, has been very minimal, especially compared to neighboring Qatar, which shares the largest gas field with Iran. Iran's oil production capacity has decreased from nearly 4 million barrels per day in 2012 to 2.8 million barrels, and Iran's crude oil exports today are 1.4 million barrels per day less than at the onset of unilateral sanctions. In pursuing its nuclear program, Iran has incurred costs without any economic or political benefits. Simultaneously, the exit of a significant portion of oil and gas production capacity has plunged Iran's economy into poverty and a state of stagflation. At the end of a bitter and costly twenty-year experience, the Iranian government has apparently concluded that oil and gas, as two valuable sources of wealth and national power, should not be influenced by the security-military priorities of nuclear development programs, and agreeing to the July 14 nuclear deal symbolizes this strategic shift in the Islamic Republic's assessments over the past three years. The Islamic Republic of Iran, due to its active and effective presence in global oil markets and reliance on a significant share of OPEC crude oil exports, which ranks second after Saudi Arabia, did not believe it would become a serious target of sanctions. To bear the cost of removing Iran from the global oil market without consequences, at a time when global demand for oil had decreased and Iraq had joined the ranks of major crude oil exporters, the sanctions gradually reduced Iran's oil exports to less than half. To restore crude oil production capacity to pre-sanction levels, Iran needs at least one year and 100 billion dollars in costs. Collaboration with major oil companies can help cover some of the costs and speed up the recovery of Iran's lost oil markets. The reality is that Iran's oil wells have exceeded 70% of their maximum production pressure, and their production is declining. The recovery rate of oil from wells, due to minimal investment, avoidance of costs, and the use of simple technology, is the lowest among Gulf oil-producing countries. Nevertheless, the outlook for the production and development of Iran's oil and gas resources is very bright due to the unparalleled size of resources (the fourth largest reserve in the world after Venezuela, Canada, and Saudi Arabia) and the very low production costs. The return of major oil and gas companies to Tehran is to assess the real value of the opportunities that foreign investors are seeking in Iran, and the Islamic Republic hopes to showcase the attractions of foreign participation in the development of Iran's oil and gas resources during an oil conference scheduled to be held in London.