Iran To Approve Terms Of New Oil Contract ‘This Week’

Petroleum Minister Bijan Namdar Zangeneh has said that Iran’s government will approve the terms for new investment in the country’s oil industry by Wednesday, according to a report by the official IRNA news agency.

The development is eagerly awaited by international oil companies (IOCs), who have watched while Iran has missed a series of previous deadlines for the launch of the Iranian Petroleum Contract (IPC), as the new model is known.

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An outline of the contract was unveiled at a conference in November last year in Tehran, but a planned follow-up event in London in February was cancelled at the last moment. At the time the authorities said this was due to the difficulty in securing visas to the UK, but domestic opposition to the contract was also building up, meaning the delay was politically useful for the government.

In May, officials said the contract should be approved in June or July, but that target was also missed. If the approval process does now go ahead this week, it should open the way for the world’s oil majors to pour back into the country.

Iran’s Petroleum Minister Bijan Namdar Zangeneh (L) attends the 169th meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria on June 2, 2016. (Photo: JOE KLAMAR/AFP/Getty Images)

There has been a heated debate inside Iran about the contract and what concessions Iran can and should make to encourage investment in its oil infrastructure. The latest comments from Zangeneh, which were made on the sidelines of a ceremony to mark the 50th anniversary of foundation of National Iranian Gas Company, suggest that a compromise has been reached or that the critics have been sidelined – which of those is true should soon become apparent.

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The new contract is expected to provide more enticing terms to international oil companies than the short-term ‘buyback’ contracts that Iran used to offer. In particular, the new contracts are expected to last for 25 years or more, rather than the 5-10 year period of the old contracts. IOCs are also expected to have a greater say in the development of oil fields as they will be joint venture partners with their Iranian counterparts. IOCs may also be allowed to book the reserves. All this should make it easier for them to make a profit on their investments.

Zanganeh has previously said that Iran’s oil industry needs $200bn of investment in the wake of international sanctions being lifted. Of that total, $130bn would go into upstream projects and $70bn into downstream refineries and petrochemical plants. It is not just a matter of money though. Iran also needs international expertise and technology if it is to make the most of its hydrocarbons riches.

Even if the contract’s terms are published later this week, there will still be some other important elements that have to be put in place before oil companies’ capital starts to flow into Iran, most notably the need to restore full banking links between Iran and the rest of the world. In addition, some oil companies may decide to wait until after next year’s presidential election, due to be held on May 19, before fully committing. Even so, the publication of the IPC should mark an important point in Iran’s gradual progress back into the international mainstream.

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