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US sanctions and the dynamics of Iran’s petroleum sector

While US sanctions are hitting Iran’s key energy sector hard, the industry remains set to advance, albeit at a slower pace and with a lower level of technology.
Iran's Oil Minister Bijan Zanganeh talks to journalists at the beginning of an OPEC meeting in Vienna, Austria December 6, 2018.   REUTERS/Leonhard Foeger - RC1F5D012E50

Between 2016 and 2018, Iran’s energy sector was the main beneficiary of the lifting of nuclear-related sanctions. Increased oil production and exports, the return of international oil companies (IOCs), massive investments in renewable energies, introduction of new technologies into upstream and downstream sectors, etc., were among key developments in the industry. The reimposition of US sanctions has reversed most of these processes.

It is evident that a decline in Iran’s energy sector will severely undermine the country’s overall economic development, not only because of this sector’s role in generating hard currency revenues but also its function as an engine for technological and industrial development. The reimposition of US secondary sanctions will have a negative impact on two levels: access to Western IOCs as main technology and capital providers, and Iran’s ability to export crude oil and petroleum products. Both these phenomena will restrict the development of the energy sector and undermine the economy as a whole. This article won’t address the Iranian policies to circumvent sanctions on the sale of crude oil, but rather focus on the emerging strategies that will determine the direction of the country’s petroleum sector in the longer run.

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