Q&A: Will new Iran sanctions dent Iran's oil industry?
The EU today implemented tough new Iran sanctions aimed at curbing Iran's nuclear ambitions. The sanctions specifically target Iran's oil industry, which accounts for roughly 80 percent of Iranian exports but faces numerous challenges.
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The European Union also agreed last month to impose its own sanctions, including bans on new investment; technical assistance; and the transfer of technology, services, and equipment to Iran's energy sector. The EU sanctions were finalized yesterday and go into effect today.Skip to next paragraph
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Cliff Kupchan, Eurasia director at the Eurasia Group consultancy, called the sanctions "unprecedentedly strong."
"Heretofore, European IOCs [international oil companies] played a key role in … bringing in advanced technology and keeping production at least on a plateau," he said in an interview before they were finalized. "That golden bullet for the Iranians is about to disappear."
But many large international oil companies have already exited Iran, so the main impact of the EU's move may be in shutting out the smaller companies that help sustain Iran's oil industry. The investment ban could pinch Iran, since its aging oil fields and infrastructure need huge investments just to maintain current output.
"It would be hard for Iran to maintain its current production without a serious influx of foreign investment, and it's hard to imagine that happening under the current circumstances," says Iran expert Suzanne Maloney at the Brookings Institution in Washington.
But Flynt Leverett, director of the New America Foundation's Iran Initiative and the Geopolitics of Energy Institute, says the sanctions will not hugely affect Iran's energy sector because Chinese companies are already filling the void left by Western investors and companies.
They have signed deals worth billions in the past few years to develop Iran's oil and gas fields and infrastructure and, Dr. Leverett says, in most cases have or can develop the technical know-how to help Iran do it. "I wouldn't assume that the Iranians don't have options ... to keep things rolling along," he says.
But Mr. Kupchan disagrees, saying that "a lot of what Iran needs, China cannot provide."
How much influence does Iran have in OPEC and world markets?
As the second-largest producer in the Organization of Petroleum Exporting Countries (OPEC), Iran wields considerable influence, but Kupchan says it is declining.
Saudi Arabia has enough spare capacity that Iran can't manipulate the supply and price the same way it could several years ago, when supply and demand were much tighter. "Iran doesn't have a trump card anymore," he says.
Could Iraq's growing oil industry reduce Iran's influence?