Iran Already Negotiating With Potential Western Oil Customers

Iran already is holding meetings with potential European and other Western customers about buying its oil, a further indication of the country's confidence that most or all of the UN sanctions imposed on it will be lifted soon.

Hossein Vafaee, the managing director of Iran's Pars Oil Co., says his company has held indirect talks with one giant energy company, Royal Dutch Shell, which has expressed a desire to resume its work in the country. According to the Iranian Oil Minister, other Western firms from Germany, Italy and the Netherlands, are likely to follow in Shell’s footsteps.

At the same time, though, Vafaee stressed that a flood of potential energy partners could be problematic for Iran. “If sanctions are removed, many rivals will enter the Iranian market and this will make tough conditions for us,” he was quoted as saying in the newspaper Forsat Emrooz.

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Nevertheless, Vafaee emphasized , as he has before, that his country is regaining the share in the world's energy markets that it began to lose when the first sanctions were imposed nine years ago as a result of Iran's nuclear program. Iran’s oil exports have been cut by more than half since the West slapped sanctions on in 2012, falling to nearly 1.1 million barrels per day from 2.5 million barrels per day.

Part of the interest from Western energy companies, as well as Russian and Chinese firms, is being generated by Iran's new format for oil contracts, according to Mehdi Hosseini, who has been directing a team at the Ministry of Petroleum to modernize the contracts.

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“International oil majors have strongly welcomed Iran's new format of oil contracts,” Hosseini said. “They are waiting for the results of Iran's nuclear talks [on] the removal of sanctions.”

Details of the new contracts won't be announced until an energy conference in London in September, but in broad strokes, they will be based on Iran's traditional buy-back contracts, but modified to make them more attractive to foreign energy companies by easing the process of repayment on investments that don't pan out.

Even U.S. oil companies are beginning to talk with Iran's energy leaders about the future of trade. Last week a group of American oil company executives and investors reportedly went to Tehran to discuss resuming operations in Iran if and when the sanctions are lifted.

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The reports in Iran's state media didn't identify the executives or the companies they represent, but the country's deputy oil minister, Abbas Sheri-Moghaddam, said the visit is persuasive evidence that the world's oil industry is eager to resume doing business with his country.

And – if the sanctions are lifted – there's a lot of business to do. Iran has as much as 30 million barrels of oil now in storage because of the sanctions' export restrictions, and without sanctions its production could grow by about 700,000 barrels per day in 2016, according to a report issued last month by the US Energy Information Administration.

This isn't the first time Iran has expressed near certainty that the sanctions will end soon. On April 14, Oil Minister Bijan Zanganeh urged OPEC to cut production enough to make room for Iran's full return to the global oil market. The cartel's next meeting to discuss such a decision will be June 5 at its headquarters in Vienna.

By Andy Tully of Oilprice.com

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