On the penthouse floor of Iran’s Ministry of Petroleum tower, I found a man clearly on a mission.
After seven years under a restrictive sanctions regime, tightened each year like a noose to bring Iran back to the bargaining table, Petroleum Minister Bijan Namdar Zaganeh is making preparations to cut the country’s energy industry loose onto the world energy market.
Zaganeh was petroleum minister in the government of Mohammad Khatami, when Iran hit its pre-sanctions peak of over 4 million barrels a day last decade, the second highest in Opec.
He’s back again but the timing of Iran’s potential return to the market is less than ideal, with prices having collapsed 60 per cent in the past 14 months; but Zaganeh said the government cannot afford to delay going aggressively after its pre-sanctions market share.
“Can we wait and not produce after lifting the sanctions? Who can accept it in Iran,” asked Zaganeh. “Do you believe that our country will accept not to produce, to secure the market for others? It’s not fair,” he added with an impassioned tone.
If all goes to plan after the September 17 vote in the US Congress, Iran should be given the green light to re-enter the export market by mid-January, six months after the July 14 interim agreement.
Zaganeh, in our exclusive interview, clarified his near and medium term agenda. He plans to release 1 million barrels a day of exports to the market by March — starting with half a million in the first month of the New Year. That would take overall production to 3.8 million barrels a day.
And here’s the news headline and what many consider an overly ambitious number, he wants to hit his pre-sanctions peak by the close of 2016.
A number of industry sources I spoke with expect the Opec producer to add between 600,000 and 1 million barrels to output once sanctions are lifted, but Zaganeh is much more bullish.
“Around the end of next year we will be close to this figure,” he said. And those who remain sceptical, he added, should just wait months for him to deliver on his goal.
Even before Iran picks up steam, some Opec members have called for an emergency meeting to review the group’s November 2014 decision to keep pumping at any cost. But Saudi Arabia shows no signs of blinking.
Zaganeh said the Kingdom’s strategy was not working and he indicated Iran was pressing for a reassessment. “After one year the reaction of the market and shale oil producers shows us it has no important effect. And I think we are going to the point to decide how to manage the market.”
Investors were surprised this week when in the Opec monthly bulletin, the secretariat suggested there was a continued imbalance in the market. This is the first time since last year’s decision that the 12-member group did not shy away from expressing concerns of many of its membership.
Zaganeh told me the lower price is not deterring investors from blazing a trail to his ministry. Six country delegations have already made the journey from Germany, Italy, France, Britain, South Korea and Japan.
No matter where I turned in Tehran, I ran into energy investors. While being fingerprinted at the airport for visa clearance, I met two oil traders from Tokyo and while finishing an espresso at breakfast, an executive from OMV — the Austrian oil refiner — was making final preparations ahead of her CEO’s visit in the delegation led by the President of Austria this weekend.
The stakes are high in what many describe as the last low-cost energy frontier. The government is still drafting the so-called Iran Petroleum Contract to finalise terms for investment. It is well aware of the delays faced by neighbouring Iraq after not providing what many described as less than generous terms for the international energy giants.
The ministry has already outlined the first phase of projects, now pegged at $185 billion.
Zaganeh told me that Iran learnt survival techniques during the last seven years of sanctions, pointing out with a sense of pride that they can now lay one kilometre of pipeline a day to connect their giant fields in the south. That skill did not exist before.
But the industry veteran admitted to get from today’s output to their medium term target of 5.7 million barrels daily, Western expertise, technology and capital, is needed. In the next few weeks we will find out if this energy frontier will be allowed to open up.
The writer is CNN’s Emerging Markets Editor.
