In a sign that frosty relations between Iran and the West continue to thaw, David Cameron met Hassan Rouhani at the UN in New York late last month – the first encounter between a British prime minister and an Iranian president since the 1979 Islamic revolution. The meeting is the latest indicator that, after years of isolation, Iran is positioning itself for the potential lifting of international sanctions, a move that would revive the Islamic republic’s ailing energy industry, pave the way for its return as a major oil exporter and provide much-needed stimulus to the domestic economy.
Pending a final, comprehensive deal on the country’s controversial nuclear programme between Tehran and the five permanent UN Security Council members plus Germany (P5+1), relations with the rest of the world for the Islamic republic could return to normal as early as next year, a development that would not only reverse the fortunes of its struggling economy; it would also open the biggest bonanza for international energy companies since the removal of the Iraqi president Saddam Hussein in 2003.
Iran, holder of the world’s fourth-largest proved oil and the second-largest proved natural gas reserves, has been hard hit by UN and international sanctions imposed on the country in 2006 and 2010 on top of existing US sanctions. But it was the latest set of even more stringent measures enacted by the US and the European Union in late 2011 and 2012 that had the most devastating effect.
According to the IMF’s latest Article IV Consultation report on Iran, published in April, the sanctions have constricted the economy, with real GDP declining by almost 6 per cent year-on-year in 2012-13 and by about 2.5 per cent during the first half of 2013-14. Between June 2012 and February 2014, Iran recorded negative GDP growth for seven consecutive quarters.
The embargoes have prevented Iran’s energy sector from securing much-needed foreign investment, technology and expertise, stymying developments, especially in upstream oil and gas. Many projects have been cancelled or delayed. As a result, the country has struggled to expand production capacity at its oil and gasfields, and to halt and reverse declines at its mature fields.
Since the latest round of stringent sanctions was levied on Tehran, the situation has dramatically worsened. The sanctions led to a 1 million barrel per day drop in crude and condensate exports in 2012 versus the previous year. Once Opec’s second-largest oil producer, Iran now ranks behind Iraq in terms of oil and liquids production, averaging only about 3.2 million bpd in 2013, compared with about 4.2 million bpd in 2011.
The economic price of falling oil production and exports in particular has been hefty. According to IMF figures, Iran’s oil and gas export revenues slumped by 47 per cent to US$63 billion in the 2012-13 fiscal year from $118bn a year earlier. The IMF estimates that oil and gas export revenues declined by another 11 per cent to $56bn in the 2013-14 fiscal year.
Few would disagree that Iran has the potential to reclaim its status as an energy giant. But it won’t be an easy task. The sector’s infrastructure is in dire need of rehabilitation and upgrading worth tens of billions of dollars. Moreover, decline rates at the country’s oilfields are high, ranging from 8 to 11 per cent, while recovery rates are quite low at 20 to 25 per cent, according to the energy consultancy FGE and the Arab Oil and Gas Journal. The country will have to introduce and apply advanced technologies and techniques such as enhanced oil recovery (EOR), which it hasn’t been able to get its hands on because of sanctions, on a much greater scale to maintain and boost output.
The need for Iran to invest in its oil and gas sector is obvious. In a bid to create an environment more conducive to attracting foreign investment, the oil minister Bijan Namdar Zanganeh – appointed following last year’s election of the president Hassan Rouhani – has started working on a new oil and gas contract model for international companies.
The Iran Petroleum Contract (IPC) is set to replace the unpopular buyback contract that was introduced in the 1990s. Mohsen Shoar, the managing director at Dubai-based Continental Energy DMCC and an expert on Iranian energy, says the new IPC varies markedly from the buyback model in that it proposes the establishment of a joint venture between National Iranian Oil (or one of its subsidiaries) and a foreign partner for field exploration, appraisal, development and – for the first time since 1979 – production.
Unlike the short nature of the buybacks, the IPC model will offer extended contract duration of 20 to 25 years, allowing for much longer cost recovery after first production. There will also be a provision for the contract to extend into EOR phases. On top of this, there will be, for example, a risk-reward element linked to the complexity of fields that pays companies higher fees for “very high risk” on and offshore fields compared with “low-risk onshore” fields.
Overall, the increased flexibility and improved terms offered under the IPC will provide some incentive for foreign investors to consider a return to Iran’s oil and gas sector if and when sanctions are lifted. However, challenges remain. Mr Shoar says, among other issues, IOCs may be concerned over too much interference into operations by the local joint venture party.
Iran’s new contract model has the potential to change the country’s economic fortunes. It all depends now on world powers and Tehran to come to an agreement that will result in the lifting of sanctions.
Sean Evers is a managing partner at Gulf Intelligence, a strategic communications company based in Dubai
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Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
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SPEC%20SHEET%3A%20APPLE%20TV%204K%20(THIRD%20GENERATION)
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COMPANY PROFILE
Company name: BorrowMe (BorrowMe.com)
Date started: August 2021
Founder: Nour Sabri
Based: Dubai, UAE
Sector: E-commerce / Marketplace
Size: Two employees
Funding stage: Seed investment
Initial investment: $200,000
Investors: Amr Manaa (director, PwC Middle East)
UAE currency: the story behind the money in your pockets
MATCH INFO:
Second Test
Pakistan v Australia, Tuesday-Saturday, 10am daily at Zayed Cricket Stadium, Abu Dhabi
Entrance is free
Things Heard & Seen
Directed by: Shari Springer Berman, Robert Pulcini
Starring: Amanda Seyfried, James Norton
2/5
The specs
Engine: 3.0-litre 6-cyl turbo
Power: 374hp at 5,500-6,500rpm
Torque: 500Nm from 1,900-5,000rpm
Transmission: 8-speed auto
Fuel consumption: 8.5L/100km
Price: from Dh285,000
On sale: from January 2022
The Uefa Awards winners
Uefa Men's Player of the Year: Virgil van Dijk (Liverpool)
Uefa Women's Player of the Year: Lucy Bronze (Lyon)
Best players of the 2018/19 Uefa Champions League
Goalkeeper: Alisson (Liverpool)
Defender: Virgil van Dijk (Liverpool)
Midfielder: Frenkie de Jong (Ajax)
Forward: Lionel Messi (Barcelona)
Uefa President's Award: Eric Cantona
Iftar programme at the Sheikh Mohammed Centre for Cultural Understanding
Established in 1998, the Sheikh Mohammed Centre for Cultural Understanding was created with a vision to teach residents about the traditions and customs of the UAE. Its motto is ‘open doors, open minds’. All year-round, visitors can sign up for a traditional Emirati breakfast, lunch or dinner meal, as well as a range of walking tours, including ones to sites such as the Jumeirah Mosque or Al Fahidi Historical Neighbourhood.
Every year during Ramadan, an iftar programme is rolled out. This allows guests to break their fast with the centre’s presenters, visit a nearby mosque and observe their guides while they pray. These events last for about two hours and are open to the public, or can be booked for a private event.
Until the end of Ramadan, the iftar events take place from 7pm until 9pm, from Saturday to Thursday. Advanced booking is required.
For more details, email openminds@cultures.ae or visit www.cultures.ae
Race card:
6.30pm: Baniyas (PA) Group 2 Dh195,000 1,400m.
7.05pm: Maiden (TB) Dh165,000 1,400m.
7.40pm: Handicap (TB) Dh190,000 1,200m.
8.15pm: Maiden (TB) Dh165,000 1,200m.
8.50pm: Rated Conditions (TB) Dh240,000 1,600m.
9.20pm: Handicap (TB) Dh165,000 1,400m.
10pm: Handicap (TB) Dh175,000 2,000m.
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
Killing of Qassem Suleimani
