Iran pumps around 3.5 million barrels a day and exports around 70 percent of that, according to OPEC figures
Foreign firms dealing with Iran's oil and gas sector admit that severe Western sanctions are taking their toll on business, despite Tehran talking up its ambitions at the opening of an international industry exhibition this week. © Behrouz Mehri - AFP/File
Iran pumps around 3.5 million barrels a day and exports around 70 percent of that, according to OPEC figures
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Marc Burleigh, AFP
Last updated: April 18, 2012

Foreign firms say times tough in Iran's energy sector

Foreign firms dealing with Iran's oil and gas sector admit that severe Western sanctions are taking their toll on business, despite Tehran talking up its ambitions at the opening of an international industry exhibition this week.

The International Oil, Gas, Refining and Petrochemical Exhibition, held in northern Tehran, was three-quarters filled by Iranian companies working at every level of the industry, from the biggest to ones involved in peripheral activities such as instruments, quality inspections and oil barrel manufacturing.

There were 315 foreign stands, down from the 496 present at last year's trade show.

Some of the biggest foreign companies that had been major partners in the industry, such as the Anglo-Dutch group Shell and Italy's ENI, were not present.

Others, such as the China Petroleum Technology and Development Corporation, the French-Iranian joint venture Beh Total and Norway's Statoil, did have stands -- but representatives there told AFP they had been instructed by their bosses to give no comments at all to journalists.

Nevertheless, an executive with one European company and several representatives of smaller foreign firms acknowledged on condition of anonymity that the sanctions were proving problematic.

Companies trading in services or equipment from Europe, the United States and Japan were having the most difficulty, they said. Other Asian companies were doing somewhat better.

Big foreign groups seeking to be repaid for credit or services extended to Iran were having to convert the debt into deliveries of oil or gas -- in some cases to the tune of hundreds of millions of dollars -- because of the impossibility for Iran to transfer hard currency to them.

A representative at an exhibition stand for John Crane, a subsidiary of the British-based industrial technology group Smiths that sells engineering parts to the gas and oil industry, said his company had been forced to stop supplying certain hi-tech valves manufactured in the United States, Britain and Japan.

A European oil executive, speaking on condition he not be identified, said the sanctions were resulting in "high-end, sophisticated parts and services lacking from Iran's oil and gas industry."

The Chinese, he added, were willing to try to fill the gap. "But many (Chinese companies) leave. Why? Because the contract terms are just not viable. The Iranians are not giving terms to allow a profit."

Seung-Hwan Jung, an export manager for Kiswel, a South Korean welding parts firm partnered for years with an Iranian company, was one of the few foreigners to speak on the record.

His company's dealings with the country were "good" but were hobbled by the "political problems," he said.

Stepping in to fill a vacuum left by departing German companies, Kiswel has doubled its Iran earnings projection to $1.5 million compared to last year, he said.

"We want to be number one in the market, up from maybe 3rd of 4th last year," he said.

He added: "Iran can't do everything by itself. It needs reserves from other countries."

Those accounts contrasted with the official message from Iran, which asserts that its position as the second-biggest exporter in OPEC and the owner of the world's second-biggest gas reserves mean sanctions will not work in cutting it out of the global market.

"Finding substitutes for (Iranian) oil is unthinkable," Iranian Oil Minister Rostam Qasemi said in a speech officially opening the four-day industry exhibition.

He added that "we plan to produce five million barrels of oil per day by 2015" as part of a development plan for the sector.

Currently, Iran pumps around 3.5 million barrels a day and exports around 70 percent of that, according to OPEC figures. Production has been declining for years, the cartel's numbers showed.

The United States and the European Union have since late last year been sharply ramping up severe sanctions targeting Iran's oil sector and the Islamic country's ability to transfer oil revenue through international transactions.

The sanctions are scheduled to be upped further by the beginning of July, when an EU embargo on Iranian oil is to be fully enacted.

The economic restrictions are designed to pressure Iran over its disputed nuclear programme, which Tehran has now agreed to discuss in talks with world powers.

A substantive round of the negotiations is due to be held on May 23 in Baghdad.

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