Zanganeh: Iranian Economy Averted Oil-for-Food Crisis

EghtesadOnline: Iran's economy could have plunged into an "oil-for-food" crisis if sanctions against its banking and energy sectors were still in place, Oil Minister Bijan Namdar Zanganeh said in an interview.

News ID: ۷۴۳۰۶۶

30 July 2017

"Under the international sanctions regime, crude oil production had fallen to the lowest possible levels and we were close to selling oil to provide food and other supplies. The situation was propitious for oil mafia and brokers," Zanganeh made the statements in an interview with the Persian daily Iran, the National Iranian Oil Company's news portal reported on Saturday.

International sanctions imposed against Iran's nuclear dispute cut its crude output from 4 million barrels per day in 2011 to 2.5 million bpd. The country was allowed to sell limited amounts of crude to a handful of countries, such as China and India, under special waivers while billions of dollars in revenues remained locked in offshore banks because of economic restrictions.

Zanganeh said the impasse created a windfall for a small group of brokers, according to Financial Tribune.

"Our money for oil exports was frozen in foreign banks and couldn't be repatriated easily. To receive the dues or purchase goods and equipment with that money, we were forced to pay much higher transfer and transaction costs," he said.

The minister further said these imposed expenses consumed by "a string of brokers along the way" translated into an annual loss of nearly $3 billion for the treasury".

"We incurred additional costs for money transfer as well as purchase of cheap goods from secondary sources … some Iranians sold expensive and poor equipment without spare parts when we were in need. They'd refuse responsibility for repair maintenance," he added.

--- Gas Deal With Total

Zanganeh also indicated that Iran's gas deal with French energy major Total S.A. will have conducive economic and political implications.

Total signed a $4.8 billion contract this month to develop Phase 11 of the giant South Pars Gas Field in the Persian Gulf in collaboration with China National Petroleum Corp. Tehran hopes the first major deal with a western company after the lifting of sanctions in 2016 will pave the way for other big names in Iran's energy sector.

"Major international firms, including non-oil companies, have asked Total executives about their agreement [with Iran], signaling that they are waiting to see how the deal will play out before making a move," Zanganeh said.

"The presence of CNPC, as one of the world's largest oil companies, is no less important than Total."

Total is expected to start production from South Pars Phase 11 by early 2021.

Zanganeh noted that foreign companies have fared far better than domestic contractors in previous South Pars projects.

Total, Italy's Eni and Norway's Statoil have played a role in developing phases 1-10 of the mega gas project.

According to Zanganeh, these companies have incorporated more domestically-manufactured equipment in their projects than Iranian contractors assigned to develop SP phases on their own.

Total is forecast to earn close to $13 billion by the end of the contract's 20-year term, and with crude oil at $50 per barrel and gas at 20 cents per cubic meter, Iran's revenues from South Pars Phase 11 revenues are estimated to reach $85 billion.