This update aims to provide a brief overview of key developments which have occurred in Iran during the past month and to highlight areas of future interest. In particular, the update covers notable developments in both the political arena and key economic sectors.
1. POLITICAL DEVELOPMENTS
A number of significant political events affecting Iran have taken place in the past month:
- Implementation Day – On Saturday 16 January 2016, the International Atomic Energy Agency released its report confirming that Iran has met its commitments under the Joint Comprehensive Plan of Action in order for sanctions to be lifted. This marks "Implementation Day" and the beginning of the next phase under the nuclear deal. Billions of dollars of Iranian assets will be unfrozen and legislation has come into effect relaxing certain US and EU sanctions. US Secretary of State John Kerry, Iranian Foreign Minister Mohammad Javad Zarif, and other officials involved met in Vienna on Saturday as the diplomatic and political achievement unfolded. For further details on the sanctions relief that has taken effect from Implementation Day and a discussion of the practical implications, please refer to our recent e-bulletin on Implementation Day here.
- Delay in imposing missile related sanctions – The US Treasury Department announced on 30 December 2015 that it was preparing to impose new financial penalties on nearly a dozen companies and individuals for their role in supporting Iran's ballistic missile programme. The statement followed calls, both national and international, to respond to missile tests conducted by Iran in contravention of a UN Security Council Resolution. However, the administration back tracked later the same day citing "evolving diplomatic work" between the White House and the Iranian government. The abrupt reversal came as Iranian President, Hassan Rouhani, publicly ordered his military to dramatically scale up the country's missile program if the sanctions went ahead. Moreover, Iran had warned in recent months that any moves by the US to impose sanctions in relation to missile development would be viewed as a violation of the deal reached in July.
- Tension over new US visa laws – Tensions also mounted between Iran and the US as the latter approved a new law limiting visa free travel, a move that Tehran regards as a sanction and tantamount to a violation of July's nuclear accord. The law applies to nationals of 38 countries who would otherwise be eligible to travel to the US without a visa. Under the new rules anyone who has visited Iran in the past five years, or who holds Iranian citizenship, would be denied this privilege. The fear is that many Europeans who now enjoy visa free travel to the US may be deterred from visiting Iran if doing so would disqualify them from easy access to the US. In response, Iran has made clear that it will take reciprocal steps if the US proceeds to implement the new measures.
- Iran lobbying to join the World Trade Organisation ("WTO") – In recent weeks Iran has become increasingly vocal about its ambitions to join the WTO. As part of such efforts the tenth WTO Ministerial Conference, which took place between 15 and 18 December 2015, was attended in an observational capacity by Iran’s Minister of Industry, Mines and Trade, Mohammad Reza Nematzadeh. Here Nematzadeh reiterated that finalising its WTO membership is a “priority” for Iran and rallied support for this move amongst his counterparts from Finland, Spain and Russia.
- Iran in diplomatic row with Saudi Arabia – Relations between Iran and Saudi Arabia deteriorated following Riyadh's execution of a Shi'ite cleric, Nimr al-Nimr. Protestors in Iran, a country with a significant Shi'ite majority, responded by attacking and setting ablaze the Saudi Embassy in Tehran. This incident led to Saudi Arabia severing diplomatic ties with Iran, with others such as Bahrain and Sudan quickly following suit. Other allies of Saudi Arabia, such as the UAE and Kuwait, have "downgraded" their political relations with Iran.
- Iran prisoner deal – President Obama pardoned three Iranian-Americans charged with violating sanctions against Iran. Iran also agreed to free five Americans sentenced to imprisonment on various charges including undermining Iran's national security. It is reported that four of the Americans have not yet left Iran due to on-going logistical issues.
2. DEVELOPMENTS IN KEY ECONOMIC SECTORS
This month, Iran continued to progress existing projects notwithstanding wider concerns about falling oil prices.
- Iran Oil Contracts ready for execution – Last November, Iran hosted a conference in Tehran to unveil the Iranian Petroleum Contract ("IPC") and to brief foreign companies on details of the new contract. Bijan Namdar Zanganeh, Iranian Minister of Petroleum, confirmed that this new model contract has now received final approval from the government’s Regulations Adjustment Panel. As such, contracts based on the new model are now ready for execution. Further details relating to the IPC will be made available at the second IPC conference being held in London on 22 - 24 February 2016. This event is intended to constitute the formal international launch of oil and gas opportunities in Iran following the lifting of sanctions.
- Iran forges ahead with oil projects – In addition to the above opportunities, Iran is continuing to progress various other projects to develop its oil production capacity.
- Iran and Russia sign agreement to build oil rigs in the Persian Gulf – On the sidelines of the Russian National Industrial Exhibition Trade and Industrial Dialogue, Russian shipyard, Krasnye Barrikady ("KB"), entered into an agreement with Iranian ship building company, Iran Shipbuilding and Offshore Industries Complex Company ("ISOICO"). As part of the agreement the parties are to cooperate in the construction of oil rigs, share technology and partake in engineering discussions. Managing Director of KB, Alexander Ilyichev, added that his company is prepared to send shipbuilding equipment to Iran based on the financial and insurance support of the Russian government.
- Drilling of 20 South Azadegan wells put to tender – Project Manager of the South Azadegan development, Mahmoud Marashi, confirmed that the drilling of 20 new wells at the South Azadegan oilfield has been put out to tender. The first phase of the South Azadegan oil field is expected to come online in 2017.
- Lifting sanctions could push oil prices down by between $5 to $15, IMF says – On 21 December 2015 the International Monetary Fund released a report predicting that a boost in Iranian oil exports, following the prospective lifting of sanctions, could lead to a further slump in oil prices. It is expected that Iran will supply an extra 500,000 – 600,000 barrels of crude oil per day into global markets over the course of 2016. The IMF noted that, although the expected increase in supply has been partly factored into current prices, lifting of sanctions could nonetheless drive prices down by between $5 to $15 a barrel. In anticipation of Implementation Day on Saturday 16 January 2016, prices dropped to below $30 per barrel.
This month also saw Iran continue with its efforts to establish and entrench its position as a key player in the global gas market:
- Iran and India in talks to build $4.5 billion gas pipeline – Alireza Kameli, Managing Director of the National Iranian Gas Export Company ("NIGEC"), said that Iran and India are currently discussing a 1,400km undersea gas pipeline to transport gas via the Oman Sea and Arabian Sea. This pipeline would bypass the exclusive economic zone of Pakistan, transporting gas from Iran's Chabahar Port to Porbandar in Gujarat. It is expected that the pipeline would be built in two years following conclusion of an agreement with South Asia Gas Enterprise at a cost of $4.5 billion. It has also been reported that the possibility of a second pipeline, to transport gas to India via Pakistan, has now been abandoned.
- Siraf Refinery Project progressing as planned – Alireza Sadeghabadi, Managing Director of Siraf Refineries Infrastructure Co., confirmed that the biggest refinery project in Iran, the $2.8 billion Siraf Refinery Project, has attracted interest from major investors. He added that land is currently being prepared for construction, a phase which is expected to last eight months. Following this, it is anticipated that construction of eight refineries, each with a capacity of 60,000 b/d, will start.
- National Iranian Gas Company ("NIGC") meets with Gazprom – The first co-ordination between NIGC and Gazprom was held in Tehran on 23 December 2015. A delegation of 25 people headed by Alexander Medvedev met with Hamid Reza Araqi, Managing Director of NIGC, to explore the possibility of cooperation capacities within the areas of joint engineering, commercial and research projects.
- China to finance Iranian petrochemical projects – Amir Fallah, Director of Investment at Iran's National Petrochemical Company, said that Chinese financing of Iranian petrochemical projects was gathering momentum in the wake of meetings between presidents of the two countries. Amir Fallah confirmed that, so far, the Central Bank of Iran has authorised petrochemical projects worth $12 billion to be financed by Chinese investors.
- Iran signs agreement to boost electricity cooperation – Tehran recently entered into an agreement which will see it synchronising its power grid with the grids of Armenia, Georgia and Russia until 2019. If fully implemented, Iran will be able to connect its electricity grid to that of Russia. However, even in its initial stages of implementation, the agreement has the potential to significantly increase power supply in Iran through the synchronisation of Iran's power grid with that of Armenia. At present, electricity transmission lines between Iran and Armenia are capable of transmitting 300 megawatts (MW) of electricity. Following the establishment of a third transmission line, this could increase more than threefold to 1,000 MW.
- China looking to build a high-speed rail link to Iran – It has been reported that China Railway, China's state owned railway company, has proposed a high speed railway to connect Iran and China. A 2,000 mile route was proposed for the project at a meeting of the China Civil Engineering Society. Urumqi, the capital of China’s western Xinjiang province would be the proposed starting point with Tehran being the end point. The railway would carry both passengers and freight, thereby bringing Iran deeper into China's sphere of economic influence. The project could have transformative effects in terms of transport costs when compared to ocean freight alternatives.