Tehran sweetens oil deals to counter sanctions, oil plunge

ANKARA/LONDON - Reuters

Iran is easing the terms it offers in oil development deals to attract more FDI as the country seeks to recover its economy, hit by sanctions and the oil slump. REUTERS Photo

Iran is sweetening the terms it offers on oil development contracts to draw the interest of foreign investors deterred by sanctions and low crude prices, as its pragmatic president seeks to deliver on his promise of economic recovery.

Tehran is engaged in talks with world powers about its disputed nuclear program as it tries to strike a final deal to lift the sanctions that have halved its oil exports to just over 1 million barrels per day since 2012 and hammered its economy.

To prepare for any agreement, it has already circulated new draft oil contracts to foreign firms to attract business once the restrictions end, Iranian oil officials and Western diplomatic sources said. Such deals would involve helping Iran revive ageing fields and develop new ones, they added.

But there is no certainty about the outcome of the nuclear negotiations. The contracts offer far more favorable terms than those offered pre-sanctions as many companies would be hesitant to sign even a preliminary deal which U.S. and European governments could regard as jumping the gun.

Companies may also require greater persuasion to invest in Iranian fields due to low crude prices, which have more than halved since June, and the turbulent relationship Iran has had with foreign firms in the past, especially after the 1979 Islamic revolution.

“The new contract is more competitive than other oil producers. It provides higher potential profits and lower investment risks,” said a senior Iranian oil ministry official who declined to be named due to the sensitivity of the matter. The contract offered a favorable rate of return and joint venture options with local Iranian firms, he added.

The new contracts will offer long-term durations of up to 25 years, oil officials say.

The new oil contracts will allow investors to be involved in production, giving them far greater control and certainty over long-term revenue in a country where foreign ownership of oil resources is banned.