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Since Iran refused to suspend it uranium enrichment program in 1979, various international sanctions have been imposed on this country in order to restrict its policies of developing nuclear weapons. The cost of such military development is the loss of the oil production capacity, which decreased from over 7 million barrels per day in 1979 to around 4.2 million in 2003. Iran has realized the need to boost its oil output for economic growth and it has agreed to curb its nuclear program. In July, Iran signed a historic nuclear deal with six global powers to waive the sanctions, which are expected to be lifted in early 2016. The country is now preparing for the expected economic growth in the coming year.
The country has started drafting a new control model for international oil companies seeking to invest in the oil industry. The Iran Petroleum Contract (IPC) sets forth a buyback model, under which international oil companies invest, and the oil field is handed over to the National Iranian Oil Company (NIOC) when production starts. Iran will try to use this contract to attract foreign investments by allocating operating costs and diminishing exploration and exploitation risks for foreign companies. If the model is successful, we will expect major multinational oil companies to slow down their production in other OPEC countries and invest in new fields in Iran. In doing so, they will bear fewer costs and risks but receive a comparable rate of return by developing new fields in Iran. Iran’s move to increase oil output will also challenge the global oil price, which has already been at low level.
Home to 19 UNESCO registered historical sites, Iran has been hit hard by the sanctions because tourists were restricted from visiting the country. In the post-sanction era, Iran plans to remove obstacles for tourists and issue visas on arrival for 190 countries. The need for boosting the tourism industry is obvious since tourism can be the driving force to get Iran’s economy out of recession, as the vice president of Iran stated. In an aim to grow the industry to $30 billion by 2025, Iran is facing challenges as it lacks sufficient accommodation and transportation for the influx of tourists. We expect the country to allocate more of its government spending to improve infrastructures. The country might also come up with favorable investment policies to attract foreign investors to help in the infrastructure renovation process.
In all, we expect that the waving of sanctions will bring growth to Iran’s oil and tourism industry. Whether Iran will realize its goal of economic growth depends on cooperation from all sides, from governments to local businesses.
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