BMI View: Schlumberger , the world's leading oilfield services firm (OFS), is finally going to be leaving Iran, as it concludes its final contracted work there in 2013. The announcement represents a muted victory for US and international sanctions, as the company is the last Western OFS company to operate in the Islamic Republic after years of alleged sanctions evasion. Although long in the making, Schlumberger's exit from Iran will have a measurable impact on the country's energy sector as it becomes even more isolated from international technology and expertise.
Schlumberger has announced that 2013 will be its last year operating in Iran. The world's leading oilfield services firm (OFS) has managed to maintain a presence in the country since the 1940s, with operations continuing during and after the Iranian Revolution in 1979. For the majority of that time, Schlumberger was not alone ; i ndeed, several international companies worked with the National Iranian Oil Company (NIOC) through out the 1980s, assisting the Islamic Republic in harness ing its massive oil and gas endowment. However, with years of sanctions having dramatically increas ed the cost s and risks when doing business in Iran, all others have since left. This year, Schlumberger will conclude its remaining contracts, the last of which were signed in 2009, leaving the struggling Iranian oil sector even more isolated - with limited access to international technology and expertise.
A Long-Awaited Exit
Schlumberger's exit can be seen as a muted victory for US and international sanctions, as it comes on the back of years of alleged sanctions evasion. Indeed, Schlumberger is currently subject to an ongoing US grand jury and regulatory investigation into its business dealings with several sanctioned countries, including Iran, Syria, Sudan, and Cuba.
With regard to its specific business with Iran, Schlumberger was initially able to avoid the imposition of sanctions under the Clinton Administration due to the company's registration in the Netherlands Antilles, followed by the re-direction of its shipments of US equipment to Dubai's Jebel Ali free trade zone -- a preferred location for illicit goods transhipment and international sanctions evasion. In recent years, as both US and international sanctions, as well as the political environment around them, have become harsher, Schlumberger and many other companies have come under increasing pressure. In February 2009, the company's executives promised US officials that it would not take on any new work in Iran, although it announced that it would complete its existing contracts. Those contracts are now expiring. In 2012, Schlumberger reported a net income of US$208mn from its work in Iran.
The Iranian energy sector has been badly damaged by ever-tightening sanctions, which have become increasingly discernible due to a significant drop in Iranian production and exports, particularly since the imposition of new , sweeping sanctions in the summer of 2012 ( see our online service, June 20 2012, 'Rupee Payments Highlight Iranian Oil Export Challenges' ). Indeed, Schlumberger's impending exit will have a measurable impact on the country's energy sector , as it becomes even more isolated from international technology and expertise.
Iran's oil minister, Rostam Qasemi told reporters in January 2013 that up to US$400bn of investment w ould be needed over the next five years in order to raise production capacity while also protecting the Islamic Republic's 'place in OPEC' . As a result of international sanctions, the country has lost its position as OPEC's second-largest producer to Iraq, with its Gulf rivals - namely Saudi Arabia, Kuwait and the UAE - hav ing filled the void left by the fall in Iranian exports ( see 'Ambitious Goals Challenged By Reality Of Sanctions' , January 15 2013 ).
There are also indications that the Iranian leadership is beginning to accept the current dynamics as the new norm. Indeed, it was widely reported that the government was considering basing its FY2013 budget, which begins in March, on oil exports of just 1mn barrels per day (b/d), a significant reduction on pre-sanctions exports of over 2mn b/d. Furthermore, given the unlikely resolution to the Iranian nuclear challenge in the short-term, companies such as Schlumberger are unlikely to return, further compounding the problems in the energy sector as it falls further behind its peers in terms of technology, expertise, and capital.
|Output And Exports Struggle Under The Weight Of Sanctions|
|Iranian Oil Production, Net Exports, & Percentage Change Y-o-Y, '000b/d|