President Rouhani won the Iranian presidential race with 57% of the vote accounting for 23.5 million votes. His landslide victory brought to close a fiercely fought election campaign. In winning the election, President Rouhani sealed the fate of the nuclear agreement- it is here to stay.
The hard work begins now, for investors to heed the call and for Iranian policymakers to ramp up efforts, starting with the oil industry. Incumbent president’s decisive victory and renewed mandate should provide the impetus for much needed progress in negotiations between NIOC and IOCs that have slowed down for the lack of clarity about the fate of nuclear agreement, sanctions and contractual framework.
President’s administration will need to deliver on his campaign promise of attracting foreign investment into the country and creating local jobs. The oil industry in Iran works like an engine for growth. If new investments find their way to the oil sector, it should invigorate the rest of the economy and boost economic output.
What are the key messages from this election victory for international Oil Companies?
Investors need to understand what features on the top of the Iranian people’s agenda and ensure they design their value proposition around it. This is becoming a reality in many places around the world and Iran is no exception.
Iran is keen to attract international finance to its large and mostly conventional projects. Delivering demonstrable progress is going to be key in the coming years. Job growth in the associated services sector is a key target for the Government as the by-product of investment into new field development.
Increasing Iran’s production capacity in West Karoon and South Pars will continue to be the priority as Iran tries to catch-up with its neighbours. Attracting technology and investment into Iran’s homegrown service sector will be much needed.
Improving the existing infrastructure and ensuring the sustainability of current production through the application of EOR technologies will remain a top priority for the oil ministry. There are many opportunities in this space for EPC contractors with access to financing and relevant experience.
Social responsibility and making a meaningful difference in the communities where oil companies intend to operate has been rising in the agenda. Oil companies need to learn more about NIOC’s plans in this regard and ensure they can add value.
Energy efficiency and reducing energy intensity will continue to be supported by the Iranian Government. The President, despite all the political pressure, refused to make promises around increasing fuel and food subsidies. Iran has embarked on a significant reform of the subsidy regime which success relies majorly on cutting energy waste. Investors eyeing opportunities in this sector must take the time to learn about ongoing pilot projects in the country.
The environment continues to feature heavily in political manifestos of all politicians in Iran. In fact, issues like water and environmental protection, stand above political bickering. Decision-makers in Iran are fully aware of the risks that are associated with environmental degradation and its dire consequences witnessed in the Middle East today.
Human talent is the other important issue. The oil companies investing in Iran must encourage talented Iranian engineers (some of whom have left the country) to return and be part of renovating the industry.
I believe once investors have been able to produce a feasible value proposition and secured development contracts, banks will have no choice but to find ways of doing transactions with Iran. As it has been demonstrated before by international auto manufacturers in Iran, it is possible to transact, but requires encouraging your bank to put the required effort into doing their homework and ensuring compliant transactions can be delivered.
We are doing a lot more on sanctions compliance now and if you are interested to learn more about our compliance offering please do get in touch. As always I will be pleased to hear from you.
Afraz Advisers Founder