Iran Deal Clears Way For More Cheap Gas

That's bittersweet.
A part of Iran's Azadegan oil field is seen close to the border with Iraq, some 480 miles (800 kilometers) southwest of the capital, Tehran, Iran, Tuesday, April 15, 2008. (AP Photo/Vahid Salemi)
A part of Iran's Azadegan oil field is seen close to the border with Iraq, some 480 miles (800 kilometers) southwest of the capital, Tehran, Iran, Tuesday, April 15, 2008. (AP Photo/Vahid Salemi)

NEW YORK -- If approved, the historic nuclear deal with Iran could be a boon for U.S. consumers and a bust for environmentalists.

The deal, which would place strict limitations on Iran's nuclear program in exchange for relief from economic sanctions, must now get the green light from U.S. Congress. But as Iran, the country with the world's fourth-largest oil reserves and second-biggest gas fields, revs up its output, analysts expect the cheap prices that defined 2015 to extend "well into 2016."

"This is good news for consumers, and bad news for people trying to promote non-fossil fuel alternatives or renewables," Tom Kloza, global head of energy analysis at the Oil Price Information Service, told The Huffington Post on Tuesday. "It means fossil fuels will remain cheap, and that inhibits some efforts to reduce carbon."

It may be some time before Iran returns to the oil market. Sanctions will only ease once Iran has scaled back its nuclear facilities, likely sometime next year. Major oil projects are unlikely to start before 2017, Amrita Sen, an analyst at London-based consultancy Energy Aspects, told the Financial Times.

But while cheap gas may hurt oil giants' bottom lines in the short run, a newly opened Iran would be fertile ground for investments as the sanction-crippled country looks to update its facilities and tap new projects. Already this year, executives from the British-Dutch behemoth Royal Dutch Shell and Italy's Eni visited Iran to discuss possible partnerships. Patrick Pouyanné, CEO of French giant Total SA, met with Iranian oil minister Bijan Zanganeh in Vienna last month.

Exxon Mobil, the world's largest publicly traded oil producer by market value, hired lobbyists to monitor Iranian sanction in May, marking the first time the Texas-based company enlisted outside lobbyists to track the country, according to Bloomberg.

"Iran requires a high level of investment to maintain and develop its oil and gas fields, many of which are aging and in need of maintenance and repair," Jason Carnovale, an analyst at the market research firm Freedonia Group, told HuffPost in an email. "Some estimates indicate Iran will need well over $100 billion in foreign investment in drilling, infrastructure, and technology over a period of years."

U.S. companies are still barred from doing business in Iran.

"With respect to companies that want to rush to do business in Iran, it is absolutely true that because of the embargo by the United States, American companies will not be part of that rush -- unless specifically exempted, and very few are," Secretary of State John Kerry said Tuesday in a speech.

In the short term, oilfield services companies -- the biggest of which are Schlumberger and Halliburton -- will benefit the most. European oil companies such as Eni, Shell and Total -- which already operated in a strictly-limited capacity in the country -- would likely be next to invest directly in Iranian oil and gas fields.

"Those companies with a history of investment in the country are probably the most likely to resume activity there in the short term," Carnovale said, "although most major oil companies have been mentioned in connection with the possibility of participating in the country's oil industry."

But one major industry with an enormous potential market in Iran -- the arms trade -- will have to wait.

Iran's military is long overdue for a facelift. First, Iran must wait another five years for a United Nations arms embargo to expire. A separate ban on missile sales will remain in place for eight years. State-owned Russian and Chinese arms producers will likely be the first leap at a chance to sell weapons and equipment to Iran.

"Iran desperately needs to replace just about everything," Ben Moores, an analyst at the London-based military research firm IHS Janes, told HuffPost. "Iran spends a lot of time making announcements about highly technologically capable weapons that they have. But having watched Iran PR closely since 1997, I can say it's exactly the same. All they ever announce is reengineered Russian equipment from the 1960s."

Outfitting Iran's air force with modern equipment alone would cost up to $30 billion, Moores said. As it stands, Iran has been using notoriously shoddy parts from China to maintain its small fleet of American-made F-14 Tomcat fighter jets. Finally reopening trade between its manufacturer, Virginia-based Grumman, and Iran could change eventually change that.

"Iran has had no spare parts for those planes since 1979," Moores said, referring to the year Iran's Islamic Revolution deposed the U.S.-backed dictator and captured the U.S. embassy. "The amount of money they must be spending to keep those aircraft in the air -- to keep aircraft that are probably not actually of any real use in the air -- must be enormous."

Andrew Lord contributed reporting.