Trump Disavows Iran Deal: What's at Stake for Oil Markets
Trump’s focus on Iran’s Revolutionary Guards Corps, could become a particular problem because energy companies will probably have to do “a lot of extra due diligence before committing to any deal,” Wood Mackenzie’s Falakshahi said.
Which companies are most exposed to Iran?
International companies have been wary of signing new contracts with Iran because sanctions on financial transactions with the country remain in place. Total agreed to develop Iran’s share of the world’s biggest gas field, the offshore South Pars deposit, in the country’s only deal with a foreign energy major since sanctions were scaled back. Paris-based Total estimates the project needs an initial $1 billion to get started.
“Total is the only company with long-term commitment and investments and interest in Iran” right now, FGE’s Nasseri said. “There will be extra risks.” Total can pay for the South Pars project with its own funds, instead of borrowing from banks, to minimize its exposure to the U.S. financial system for Iran-related matters, Nasseri said.
Officials at Total didn’t immediately respond to a request for comment. “We are respecting international laws,” Chief Executive Officer Patrick Pouyanne said in a July interview. “If rules are changing, we will have to adapt.”
Royal Dutch Shell Plc, Italy’s Eni SpA and Russia’s Rosneft Oil Co. PJSC are among more than 30 foreign companies that have qualified for oil and gas projects in Iran since sanctions were eased. The list includes Schlumberger Ltd., an oil-field services business with principal offices in the U.S. and Europe. American citizens can’t do business with Iran, and U.S. companies are prohibited from working there except through foreign subsidiaries.
Wood Mackenzie’s Falakshahi expects Iranian service companies to do most of the work for the first phase of South Pars, partly due to minimum requirements for local staffing and content in the project.
What does this mean for Iran’s oil and gas production?
Iran’s gas reserves, estimated by BP Plc at 1,183 trillion cubic feet (33 trillion cubic meters), are the world’s largest and almost four times the size of U.S. deposits. Iran has raised oil output by about a third to some 3.8 million barrels a day since sanctions were eased in January 2016, and it’s seeking to boost production capacity for crude to 4.7 million barrels a day over the next five years.
Trump’s position may “curb the enthusiasm of European and some Asian corporates for following through with plans to invest in the Iranian upstream sector,” said Helima Croft, global head of commodity strategy at RBC Capital Markets LLC in a note published before Trump’s announcement. This, in turn, could “force foreign refineries to source less crude from Iran, especially if the threat of being locked out of U.S. capital markets was revived.”
With assistance from Francois de Beaupuy and Meenal Vamburkar. To contact the reporters on this story: Angelina Rascouet in London at firstname.lastname@example.org; Anthony DiPaola in Dubai at email@example.com. To contact the editors responsible for this story: James Herron at firstname.lastname@example.org; Nayla Razzouk at email@example.com Jim Efstathiou Jr., Steven Frank.
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