The Australian Government’s export credit agency, EFIC , has reported that escalating sanctions are squeezing Iran’s economy, particularly its oil and gas sector.
Western firms withdraw from Iran
EFIC chief economist, Roger Donnelly, reports in the new World Risk Developments newsletter that Western firms are disinvesting from Iran under pressure from escalating sanctions and concerns about the nuclear stand-off.
Financial and non-financial firms alike now have to contend with sanctions from the UN, US, EU and the OECD’s Financial Action Task Force on Money Laundering (FATF), which include bans on proliferation-sensitive activities, curbs on energy investment and restrictions on export credit and money transfers.
In future, the sanctions could be extended to new areas such as LNG and export credit agencies.
Blaming ‘too much political risk’, France’s Total, the last Western company still interested in Iran’s gas reserves, announced it was withdrawing from development of Iran’s huge South Pars gas field in July. This followed decisions by the Anglo-Dutch Shell and Spain’s Repsol’s to pull out in May.
“These companies would have been aware of America’s Iran Sanctions Act, which threatens to impose sanctions in the US on non-US companies doing petroleum investment in Iran,” Roger Donnelly says.
“In addition, uncertainty is growing about financing prospects for large investments in Iran. Under American pressure, 40 banks worldwide have reportedly agreed to end their business with Iran, and European export credit agencies are also scaling back their activities.”
Non-Western oil and gas companies lose interest
According to Roger Donnelly, it remains to be seen whether non-Western firms can capitalise on the opportunity.
“Non-Western companies often lack the technology, if not the finance, needed to develop large oil and gas projects. Besides, as many non-Western companies 'go global', they are likely to think twice about operating in breach of US sanctions.”
Non-Western companies that Tehran has turned to include Russia's Gazprom which signed a memorandum of understanding with the National Iranian Oil Company on 13 July. Gazprom is already involved in South Pars, along with Malaysia's Petronas. Tehran has also signed agreements on oil and gas field development with Asian companies, such as India's Hinduja-ONGC Videsh group and Petrovietnam.
However, Chinese and Russian oil and gas companies have failed to agree oil and gas development and LNG supply contracts that would otherwise have gone to Western competitors. The reason seems to be aggressive financial demands by Tehran.
The result, according to many analysts, is that Iran will face uphill work sustaining its current oil output of 4.2mb/d, let alone raising it to the government target of 8½mb/d by 2015.
“The current high oil price is disguising Iran’s longer run difficulties. But they will become apparent over time, and come to the surface if the oil price falls sharply,” Roger Donnelly says.