Iran stands to gain the most from the growing integration of commodity-related trades within South Asia (India-Pakistan-Iran), according to 34% of respondents to a Gulf Intelligence Industry Survey of 250 energy professionals operating in the Middle East.
The lifting of sanctions on Iran on January 17 will have a far-reaching impact on both political and energy dynamics within South Asia and the wider Silk Road, which stretches from Beijing to Lagos. Iran is highly ambitious about its plans to utilize its vast oil and gas resources, with the Oil Minister Bijan Namdar Zangeneh saying the country can bring as much as 1 million barrels a day of oil to the global market by the end of 2016. The announcements reveal Tehran’s confidence in their growing energy network within South Asia and the Gulf countries, although 500,000 barrels a day of oil is a more likely target. Iran still needs significant investments to improve its energy infrastructure after years of sanctions mean must has been unused.
Iran is especially keen to leverage its position as the owner of the world’s second largest gas reserves, which includes the giant South Pars field. A sanctions-free Iran means the oft-delayed plans to build a 2,700km gas pipeline stretching from the South Pars field, through Pakistan to India’s New Delhi may gain traction this year. The historic China-Iran trade relationship is also regaining momentum following the lifting of sanctions, with the two countries signing a 10-year deal on January 24 to boost bilateral trade worth up to $600 billion.
India (16%) and Pakistan (12%) will also benefit from greater integration in South Asia. India’s recent fiscal reforms have lifted direct foreign investment ceilings in key sectors – defense, insurance and transportation – and inflation, interest rate and current account deficits have reduced. With revenues also expanding, energy investors are increasingly taking note of India’s potential and hopes of becoming a refining superpower by 2025. India’s economic growth – distinguishing it from fellow BRIC members; Brazil, Russia and China – illustrates the country’s ability to take advantage of Iran’s energy offerings this year, if the often turbulent politics with Pakistan allow.
Iran’s economy, along with other major gas producers like Qatar, will likely take a hit from lower gas prices in 2016. Investments in new capacity projects, coal-fired power plants switching to gas in the US and China, plus the EU saying – yet again – it will diversify from Russia’s supply are unlikely to generate enough price support, 69% of respondents to the GI Industry Survey said. It is still unclear whether a sanctions-free Iran will adopt long-term gas sales pricing formulas, or revert to its preference for an annual price reopener – a condition that has dissuaded investors and stymied previous contract discussions.
Meanwhile, oil prices continue to hover around $30/bl, putting considerable fiscal pressure on energy companies and governments and triggering redundancies worldwide. Half (51%) of respondents to the GI Industry Survey said oil prices are unlikely to rise above an average of $40/bl this year, while nearly a third of respondents (28%) cited $30/bl.