World  Business and Economic Analysis 



By Benoît Faucon and Kjetil Malkenes Hovland

TEHRAN--When Iran's oil minister, Bjian Zanganeh, took office in 2013, he laid out a grand vision for his country's oil business after Western sanctions ended, proposing to double production to levels not seen since the energy industry's heyday here before the 1979 revolution.

Now nuclear-related sanctions are gone, and the fate of Iran's crippled economy and its ability to retake its place in the global energy market rests on an oil industry that is underfunded, politicized and starved of Western technology and know-how. Iran needs $30 billion of foreign investment to reach Mr. Zanganeh's targets, but Western companies remain wary.

Iran's race to pump up its production has major stakes for President Hassan Rouhani, who sold the country on curbing its nuclear program in exchange for lifting Western sanctions on a promise that foreign investment would be an economic boon.

Parliamentary elections this week are Mr. Rouhani's first major electoral test since the nuclear deal. Mr. Rouhani retains the support of 82% of Iranians, according to, an independent, Toronto-based opinion polling organization, but a large number of reformist candidates have been blocked from the ballot.

Oil revenue makes up 25% of Iran's coming budget. The energy industry's success is crucial for Mr. Rouhani, who was lifted into office in 2013 by a youthful population that wanted him to tackle unemployment. He faces opposition from hard-line conservatives who don't want excessive concessions to foreigners.

Iran is bringing its production back during the most severe oil-price downturn in a generation, with Brent crude, the international price benchmark, down more than two-thirds since summer 2014. The slump has squeezed the economies of oil-producing countries such as Iran and Venezuela, where the economy contracted 5.7% in 2015 and inflation surged 181%.

The Organization of the Petroleum Exporting Countries, the 13-nation cartel that counts Iran as a member, is weaker than ever, with surging production from the U.S. and Russia constraining its ability to reduce supplies and raise prices. Iran and Saudi Arabia, OPEC's two most influential members, are on opposite sides in multiple Middle East violent conflicts and no longer have diplomatic ties.

Iran's new production will only add to a supply glut that now exceeds oil demand by more than one million barrels on any given day, sinking prices to less than $27 a barrel last month, the lowest in 12 years. Iran refused to join OPEC and Russia this month in freezing production to January levels.

The price rout, OPEC and Iran's ability to add to the oil industry's woes are expected to be a major topic in the hallways of IHS CERAWeek, a Houston conference beginning Monday that draws energy chief executives and government officials from across the world.

Iranian officials say they have already increased production 14% in the past month to more than three million barrels a day, and are on pace to reach their goal of a one-million-barrel-a-day increase by the end of the year.

Those new barrels are relatively easy to pump, Iranian officials say. The full return to even presanctions production levels, let alone the long-term goals of Mr. Zanganeh, will require equipment, expertise and money that don't exist here now to fully exploit Iran's estimated 158 billion barrels of proved oil reserves--fourth-largest in the world.

Iran has courted Western companies for more than a year to drum up interest with limited success. Tehran oil- ministry officials beseeched Norwegian diplomats last March to invest in Iran, laying out a bleak assessment of the state of their own energy sector, according to a previously undisclosed diplomatic cable from Norway's Iranian embassy.

"The situation is already critical after years of huge investment backlogs," said the Norwegian cable, viewed by The Wall Street Journal.

European oil companies such as Royal Dutch Shell PLC, Eni SpA of Italy and Total SA of France have said they are interested in Iran but need to know the terms for working there. U.S. oil companies such as Exxon Mobil Corp. and Chevron Corp. have said they are still studying the legal landscape for working there.

The prospect of the companies returning to Iran has sparked a national debate that mirrors larger divisions between Mr. Rouhani and hard-liners. The tensions burst into the open when Iran canceled a forum this month in London, where the oil ministry had planned to unveil new terms for international energy companies to work in the country.

Iran's presanctions contracts with Western companies had been seen as onerous money losers, but the new terms would allow companies to work on fields longer and earn more money from them. Sweetened contracts were seen as necessary during a period of sharply lower oil prices, when companies are slashing investment, not starting it.

The new deals sparked protests by the Basij, a hard-line militia formed to uphold the principles of the Islamic Republic.

Behind the scenes, oil-ministry officials couldn't agree on the fine print in the contracts, contributing to the forum's cancellation.

"The political opposition is using this topic" against the oil ministry, said Erfan Ghassempour, a contract- management expert and chief executive at Tehran-based consultancy IranFIC.

Any delay in the contracts pushes back the time frame for international oil companies to return.

Iran needs those companies to achieve its long-term goal of increasing crude-oil production to nearly six million barrels a day by 2020, making it the second-largest producer in OPEC--behind Saudi Arabia.

Since sanctions were imposed, Iran has relied on domestic contractors and Chinese oil companies to service its fields, but only Western companies have developed technology known as "enhanced oil recovery" to boost output at some of Iran's older, tougher-to-pump fields.

"Iran doesn't really have a luxury of creating further risks for investors by throwing a political fight over the approval of its investment framework," said Sara Vakhshouri, a former adviser to the state-run National Iranian Oil Co. who now runs a Washington-based consultancy, SVB Energy International.

Ms. Vakhshouri said companies and banks are nervous about continuing American sanctions on Iran.

Western companies could also find themselves in trouble with the U.S. government if they become entangled in business ventures with local firms that have ties to the Iranian Revolutionary Guard Corps, a paramilitary force of political hard-liners that has been targeted by American sanctions.

For instance, the state-run National Iranian Oil Co.--by far the largest company in the country--can't find a major bank to resume its trading operations in London.

Iran has already found ways around potentially significant problems, working out deals with large oil companies such as Shell to reimburse the country for billions of dollars for oil purchased just before sanctions.

The country has some of the world's most impressive oil infrastructure. Its main oil terminal on the tiny Persian Gulf island of Kharg is among the busiest global oil-trade entrepots, and it has set new records for oil exports in recent weeks, Iranian officials said.

But without any help from the West, Iran can only get less than half the way to its planned production increase in the long term, said Robin Mills, a nonresident fellow for energy at the Brookings Doha Center.

"After that, they will need more investment," Mr. Mills said. "That will take a significant time to negotiate."

Summer Said contributed to this article.


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Tehran Stock Exchange’s main index TEDPIX jumped 668 points or 0.87% to settle Monday trade at 77,377.5.
More than two billion shares valued at $134.8 million were traded, with daily trade value growing about $20 million compared to Sunday.
The Price Index gained 256 points or 0.87% to end at 29,667.1.
The First Market Index advanced 650.70 points or 1.22% to reach 53,938.1.
The Second Market Index rose 339.80 points or 0.20% to register 170,448.8.
The Industry Index added 309.20 points or 0.49% to post 63,995.8.
The Free Float Index jumped 1,252.99 points or 1.46% to record 56,974.70.
The TSE 30 Index was up 46.20 points or 1.43% to close at 3,278.6 while the TSE 50 Index gathered 26 points or 0.84% to settle at 3,118.2.
The benchmark was given a boost by 68% of the listed companies.
Islamic Republic of Iran Shipping Line, with a P/E ratio of 43, gave the biggest lift to TEDPIX by 102.53 points, followed by Bank Saderat and Bank Mellat with 68.8 and 58.81 points respectively.
Persian Gulf Petrochemical Industries Company was the worst performer with -142.37 points followed by Esfahan Oil Refining Company and Parsian Oil and Gas Development Company with -69.08 and -45.37 points respectively.

  IFX Up 1.4%
Iran Fara Bourse’s main index gained 11.17 points or 1.4% to settle at 810.61.
Over 457 million securities valued at $50.5 million were traded in 36,000 transactions, as the number of traded shares nearly doubled and trade value grew about 20% compared to Sunday.
Esfahan Steel Company recorded the highest number of traded shares in addition to trade value, as 155 million of its shares worth $13.6 million changed hands.
Iran Ghasem Distribution Company, Marjankar Company and Mavad-e Vizhe Lia Company posted the highest increase in shares’ value, while Chaharmahal and Shirvan sugar companies and Niroo Sarmayeh Company experienced the highest decline.
More than 58 million securities valued at $3.6 million were traded at the First Market, with the highest number of shares traded belonged to Tehran Housing Investment Company.
The Second Market witnessed the trading of 332 million securities valued at $26 million, with Esfahan Steel Company recording the highest number of shares traded and highest trade value.
Etemad Fund, with the transaction of 12.5 million shares valued at $4.2 million, registered the highest trade volume among listed exchange-traded funds. Moreover, 262,434 Islamic Treasury Bills valued at $629,444 were sold out.
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Iranian stocks have climbed to their best performance in a year, buoyed by international rush for business in the wake of a nuclear deal which went into effect last month.

"Since the implementation of the nuclear deal last month, the stock index has experienced 15% growth in terms of share turnover alone," Tehran Stock Exchange (TSE) spokesman Hamid Rouhbakhsh was quoted as saying.

The volume of daily trading has increased from $40 million to $133 million since the implementation of the deal, he told the Associated Press.

Rouhbakhsh said the trade value “is a very good indication that foreign investors are now more enthusiastic about our market than before."

According to TSE Chief Executive Officer Hassan Ghalibaf Asl, the value of transactions by overseas investors, mostly European, increased to about 500 billion rials ($16.6 million) in the 10 days through Jan. 26.

Cited by Bloomberg, Ghalibaf Asl said about 500 trading codes had been issued to foreigners by Iranian authorities, enabling them to actively buy and sell shares.

Around 100 of the codes belong to institutional investors and 400 to individual investors, he said.

Ghalibaf Asl said the nuclear deal “has generated optimism about the future because the picture is clearer for investors.”

According to ACL Assets Management, an investment firm that focuses on Iran, inflows to the country may reach as much as $1 billion after six to eight months.

Moody’s Investors Service said in a new report that Iran’s gross domestic product will grow 5 percent in 2016-2017.

With its $417 billion economy, which is the second-largest in the Middle East and more diversified than other regional oil exporters, Iran has a solid foundation for rapid economic development and growth, it said.

The country benefits from a young, well-educated labor force and a large industrial base, it said.

Moody’s said Iran won’t suffer from capital flow volatility amid US interest-rate increases because it has had minimal exposure to external debt and foreign direct investment.

Iranian and Persian Gulf Arab stocks have moved in opposite directions since the implementation of the nuclear deal.

In the Persian Gulf states, panic has gripped traders in response to a fresh tumble of oil and global equity prices.

The nuclear deal has allowed Iran to ramp up oil production after years of sanctions.


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