Syed Rashid Husain A new round of output battle seems just round the corner! With a less-hungry world – the battle to capture oil markets is not only a possibility but indeed close too. Induction of Iran – if and when – remains a major unknown. Tehran in the meantime, is sending out feelers – it is ready to take on the markets – and recapture its lost share. Interesting days ahead, indeed – with a lot on OPEC plate – in the coming months! Tehran has done its homework. It desperately wants to win back its crude customers. But in order to achieve this, it first needs to loosen the strangle hanging around its neck – in the form of sanctions. To pile pressure on Washington and its Western allies to get the sanctions eased, it seems working on a two- pronged strategy, dangling carrots in various forms. Iran is reportedly planning to offer international companies more lucrative contracts to attract at least $100 billion worth of investment in its oilfields over the next three years, the Financial Times said last week. And in order to attract buyers back in its fold, Iran was also hinting it was ready to cut prices. Tehran is reportedly sending strong signals to oil markets about its pricing policies should it make headway in the nuclear talks with the West. Tehran might have to set or accept lower prices to go back to the market, Mohsen Qamsari, director of international affairs at the National Iranian Oil Co., conceded recently. “Naturally, a resupply of Iran's crude oil on the world markets will result in oil price cuts. The current figures show that the demand for oil is 30 percent lower than in normal conditions,” he told Shana. And this has the potential to generate a price war, one does feel here. Oil Minister Bijan Zanganeh has, in the meantime, also set up a special committee to review and improve its buy-back investment model so as to attract oil majors. He has put his advisor Hosseini, a negotiator trusted by Western oil firms, in charge. Hosseini has now been quoted by the Financial Times as saying that the Islamic republic would scrap its current system of “buy-back” contracts, which do not allow foreign companies to book reserves or take equity stakes in Iranian projects. A new “win-win” type of contract, to be announced in London next March, was in the works and leading companies could benefit, “whether American or European,” Hosseini added. “We hope that with these preparations the language of our contracts will be very, very close to international norms and that we will see them (international companies) queuing up once again,” Hosseini further said. On their part, oil company top brass have also been urging Washington to lift the unilateral sanctions. Conoco, Chevron, Exxon Mobil and Anadarko have all shown varying degrees of interest in the Islamic Republic ever since Tehran nationalized its energy sector in 1979. And now with a possible thaw in relations between Washington and Tehran, oil majors appear lining up to woo Iran, if and indeed when, sanctions finally end. Encouraged by the new tone in Tehran, US oil firms in fact planned to meet the Iranian Oil Minister while at the United Nations last month. “We're willing to talk: Iran's got tremendous potential,” a senior executive from a major US oil company who requested anonymity while preparing for exploratory talks told the press. “Once sanctions are removed, we'd definitely be interested in investing, but the contract terms have got to be attractive.” And although that meeting didn't materialize due to the absence of the Iranian oil minister from the Rouhani entourage, executives from US and European companies were reportedly seeking new opportunities to meet with Iranian oil officials on neutral ground, industry sources said. “There is no embargo on talks,” a senior European oil executive told Reuters, requesting anonymity. Indeed everyone agrees that getting the sanctions eased is a time consuming process – indeed not an overnight process. The Administration in Washington too has urged not to be overly optimistic on the front. It will take time to work out any relaxation of sanctions on Iranian oil exports and banking access, the Obama administration has been cautioning. The International Energy Agency (IEA) too has underlined that few expected sanctions to be eased soon, despite the first high-level talks between Iran and the United States since Iran's 1979 revolution. “Most expect that turning the clock back on sanctions will be a drawn-out process based on tangible diplomatic progress with regard to the issues at hand, which many still view as a remote prospect,” the IEA said. And people in Tehran also understand it well. “I agree that sanctions may not be lifted formally, quickly, simultaneously and immediately,” Hosseini said. But he asserted there were ways companies and governments could circumvent them, such as being granted waivers. He hence underscored that even if sanctions remain in force, the country should still be able to implement a new contract system that would attract investors, he added. Hosseini also acknowledged that unattractive contracts had long deterred western companies from investing in Iran. And he wanted that to change. “These problems did not let us keep good relations with oil companies in the long run. We will use all our previous experience . . . to understand and accommodate the logical expectations of oil companies.” And the ball though has started to roll. Media reports said Western diplomats in Tehran and industry officials are saying that international oil companies that once had a presence in Iran are negotiating with the new government to return, and several European companies have sent delegations to explore oil opportunities. “A large number of traditional buyers of Iranian crude oil are making preparations for raising their crude oil purchases from Iran,” Qamsari said last week. Iran also issued its first tender in two years to import fertilizers, in what traders said could be a test ball for the easing of sanctions on funding import-export operations with the country. Quality of the Iranian crude could also play an important role in the re-assimilation of Iranian crude into the world markets. Iranian oil competes with Russian and Iraqi grades of the same heavy, sour quality, which has become prized since the US shale oil boom increased global supply of previously scarce light oil. “If I'm allowed to buy again, I will jump on it straight away,” a European refiner, who asked not to be named, told media. “Europe is terribly short of sour, heavy crude; the only one available is Russia's Urals, and it has become very expensive.” Olivier Jakob at consultancy Petromatrix too agrees, stressing Europe's struggling refiners will not hesitate long before buying Iranian crude oil, especially at cheaper prices. OPEC could soon be faced with a battle for market share. An ominous development in some senses indeed!
