International oil companies have a problem: but, after Tuesday’s nuclear deal, Iran is suddenly looking like a solution.
With oil and gas prices likely to weaken again as Iran returns to the international oil market, the majors’ core skill — developing large, technically challenging and commercially complex projects in difficult locations — looks more like a liability, The Financial Times reported on Thursday.
As the ink dries on the nuclear accord, the western oil companies will no doubt seek to return to Iranian projects they were interested in before sanctions were stepped up: ENI to Darquain, Shell to Yadavaran (where it operates the linked Majnoon field across the border in Iraq), and Total to Azadegan. They will also be interested in gas exports from the supergiant South Pars field.
Asian oil companies, mostly Chinese, which continued to operate at a low level during the sanctions period, will remain, but they have not covered themselves in glory and their technical capabilities are not rated highly by the Iranians. Politically-important Russians, though, will play a role. Gazprom Neft has already negotiated for the Azar field, an extension of its Badrah project in Iraq.
But the US majors are perhaps the most interesting to watch. They have no recent experience in the country, but for political reasons the Iranians would very much like them on board: ExxonMobil, Chevron, ConocoPhillips and perhaps Occidental being the obvious candidates. The Americans will continue, to their chagrin, to be constrained by US sanctions, but they may negotiate options to enter as and when possible.
Being in Iran is a necessity for the largest oil companies. But it will only help solve their dilemma if they can manage the multiple contractual, legal and political risks, both outside Iran and within.