Iran will not be able to become the chief player in the global oil market

4 july 2016 | IA REGNUM

Russian oil and gas companies may take an interest in the Iranian oil market. There is a lot of interest in a special economic zone in Iran. Analytical Center expert Irina Pominova said that in an interview given to a REGNUM correspondent.

Irina Pominova
Irina Pominova
Department for Fuel and Energy Sector

The expert noted that Russian oil and gas companies’ interest in Iran is very much real. Prior to the imposition of stricter sanctions in 2010, a number of Russian companies such as Lukoil, Gazprom Oil and Tatneft were taking part in oil production projects in Iran.

“It is quite possible that they may show interest in projects having to do with oil and natural gas processing if certain preferences and exemptions were offered and if the national strategies for the development of the oil and gas sector sought to increase the added value by expanding the processing of raw materials,” Ms. Pominova said. - “Nevertheless, it would appear that at the moment Russia would be much more interested in creating a free trade zone between Iran and the Eurasian Economic Union that would help boost trade between Russia and Iran and efforts to create such a free zone were kicked off in December 2015.

As for the prospects of the special economic zone in Iran and the attention that international companies are paying to it, special economic zones are a characteristic trait of Iran’s economic policy, the expert explained. Meanwhile, SEZ Lavan is focused primarily on the petrochemical industry. As Iran’s oil and gas sector opens up for investments (following the lifting of the sanctions) and given Iran’s oil and gas reserves (some 9% of global natural gas reserves and 18% of global oil reserves) and the exploration potential that exists there, it is only natural that now the sanctions have been lifted investors are taking an interest.

“Especially if you take into account the fact that Iran is also currently making every effort to lure investors back into its oil and gas industry, specifically by announcing new investment contracts for foreign investors. Promotion of special economic zones (that offer favorable conditions for foreign investors) will help Iran to rebuild its international economic ties in the shortest amount of time possible,” Ms. Pominova stated.

At the moment, there is a trend towards expanding production and exports of oil in Iran. And Iran is already supplying oil to Europe and there are projects being implemented in cooperation with foreign companies. Thus, global media are talking more and more about whether Iran will be able to become the chief player in the global oil market. Ms. Pominova believes that the structure of today’s global oil market would prevent Iran from becoming the largest player capable of dictating its terms to the other players.

“First of all, no single country can dictate terms to everyone else in this market. This is also true of the US that managed to become a marginal supplier thanks to the shale oil revolution. Secondly, Iran still remains a member of the OPEC, whose influence on the global oil market is currently being called into question. And as a member of the OPEC, Iran has a lot more levers to exert influence on the oil market through. So in this context, Iran is not trying to dominate the global oil market but rather its goal is to regain the positions that it had before, prior to the sanctions,” Ms. Pominova explained, adding that this is confirmed by the country’s willingness to coordinate its efforts with other OPEC members once it has got back its market share.