Oil and Gas, Victims of the Extension of the Nuclear Agreement

The seven-month extension of the Geneva nuclear agreement, due to the failure of the Vienna negotiations to reach a comprehensive agreement, will solidify the current situation of Iran's oil (and gas) production and sales and stabilize its lost position in global markets. Before the imposition of unilateral sanctions by the US and Europe, in retaliation for the Islamic Republic's nuclear program, which ostensibly aimed at fuel production but is viewed by the international community and the International Atomic Energy Agency as having suspicious military dimensions (the potential to build a nuclear bomb), Iran's crude oil production was 4.2 million barrels and its crude oil exports exceeded 2.5 million barrels per day. Before 1979 and the fall of the monarchy, Iran, with known reserves of less than 100 billion barrels of oil, produced 6 million barrels of crude oil daily and sent 5.2 million barrels to global markets. Currently, Iran's known oil reserves exceed 154 billion barrels, and its oil production is about 2.7 million barrels per day. Thus, while Iran's oil reserves have increased by 50 percent over the past 35 years, its oil production has decreased by more than 100 percent compared to pre-revolution figures and by fifty percent compared to the period before the imposition of unilateral sanctions (2012). Leaders of the Islamic Republic claim that they pursue nuclear programs to produce nuclear fuel and conserve oil (and gas) consumption to facilitate greater oil exports. Hassan Rouhani, the President of the Islamic Republic, also reiterated uranium enrichment as a "national right" and "the red line of the people" in his first reaction to the seven-month extension of the nuclear agreement. Last month, Bijan Namdar Zanganeh, the Minister of Oil of the Islamic Republic, announced that Iran's oil production capacity would be increased to 5.7 million barrels per day within four years. Over nearly two years since Rouhani's government took office, the reduced oil production capacity has not changed, and Iran's crude oil exports have fluctuated between approximately 800,000 to 1 million barrels per day. These figures represent only 25 percent of Iran's crude oil exports over the past 35 years. The cost of increasing production capacity by one million barrels of crude oil per day for Iran is estimated to be nearly 50 billion dollars, and the cost to reach the claimed production capacity of 5.7 million barrels per day by Mr. Bijan Zanganeh is about 130 billion dollars. The cost of maintaining the current oil production capacity in Iran is estimated to be at least 10 billion dollars annually. Saudi Arabia spends about 40 billion dollars annually to maintain a production capacity of around 9 million barrels per day and plans to spend 400 billion dollars over the next ten years to maintain its oil production. According to the extended agreement, the Islamic Republic will receive 700 million dollars monthly from Iran's blocked reserves for seven months. Thus, Iran's receipts over the next seven months will be less than 5 billion dollars and less than 9 billion dollars over the course of a year: one billion dollars less than the cost of maintaining the current oil production capacity in Iran. Oil and gas are considered the most important raw materials. Major raw material owners have a special strategic position in international relations. Major oil and gas producing countries use the importance of these two materials as leverage to achieve their foreign policy goals. The presence of Russia and Saudi Arabia at the table of the world's top leaders, and the presence of smaller countries like Qatar, Kuwait, and the UAE among the most reputable and influential regional countries, is largely due to energy production capacity and the wealth accumulated from it. Iran, before the revolution, was an undisputed leader and a decisive power in the region by properly utilizing this capacity. With the loss of this capacity, in addition to imposing economic poverty on the people, Iran's global and regional position has practically been lost. Oil (and gas) will only have real value when extracted from the well. Gas is a colorless substance inside the well, and crude oil is a foul-smelling substance, and nothing more. The Islamic Republic is eager to increase oil and gas production and benefit from it, but in the current situation, due to pursuing its nuclear programs, it has missed this advantage. With the seven-month extension of the temporary nuclear agreement, Iran's lost crude oil markets will become established markets for Iran's oil rivals (Iraq, Saudi Arabia, and Russia). Due to the continued decline in economic strength and the inevitable reduction in investment in the oil industry, Iran's oil production capacity will remain at best in its current state, and Mr. Zanganeh's dream of producing 5.7 million barrels of oil per day will never be realized during this government's term. Iran, once a decisive power in global oil markets, has become the fifth wheel of this institution on the brink of the annual OPEC meeting and has fallen to the level of a third-tier producer. The seven-month extension of the temporary nuclear agreement paves the way for the gradual decline of Iran's position among major oil producers and sellers.