That is to say, Moody’s international credit rating agency has determined that even if NIOC’s claims are accurate, the Islamic Republic will have a hard time making any further meaningful gains over the initial 500,000 barrel boost. According to IFA Magazine, these prospects are made dim in part by the fact that Iran needs as much as 200 billion dollars in capital investment to modernize its oil industry, and many international oil companies will have a hard time making investments in light of historically low oil prices.
Those prices are also expected to remain depressed as Iran strives to increase its output to regain market share, thus potentially defying an international agreement between the other OPEC countries and Russia, aimed at freezing global output at January’s levels. Some international media outlets have emphasized Iran’s ostensibly blessing of that agreement, but others have focused on the fact that Iran has specifically avoided making any commitment to constraining its own output.
Indeed, IFA Magazine notes that as recently as Saturday, an Iranian deputy oil minister made clear the country’s plans to raise output by 700,000 barrels per day “in the near future.”
While the regime’s confidence in such plans may very well be overblown, it is also buttressed by the strength of foreign interest in investing in the country. This interest is not at all limited to the Iranian oil industry but also includes transportation and industrial development, two areas that could be affected by the Germany company Siemens, which has formally stepped up efforts to explore business opportunities in Iran, according to Reuters.
Siemens is only one of a number of Western companies to make similar announcements, although others have made it clear that they are holding back investment until it is more certain that Iran will not cheat on the July 14 nuclear agreement or otherwise become subject to new or renewed economic sanctions by the United States or the United Nations.
This wariness may limit Iran’s economic prospects, and the economic policies of regional rivals may challenge those prospects directly. Although Saudi Arabia is leading OPEC in attempting to formulate an oil-output deal that includes both Russia and Iran, there have also been various suggestions of economic warfare emerging between Iran and its main rival in the Middle East.
And as was made clear by the Jakarta Post on Monday, this potential economic conflict reaches well beyond the immediate geographic area. The Shiite Islamic Republic of Iran and the Sunni Kingdom of Saudi Arabia are reportedly competing against each other for a stake in the economy of Indonesia, the world’s most populous Sunni Muslim country. This competition includes but may not be limited to Indonesia oil refinery and crude supply businesses, and a victory for Saudi Arabia could further constrain Iran’s ambitions for increased output and reclaimed market share.
As of now, the Indonesian government says it is placing no restrictions on its relationship with Iran. But this could change if the global political situation changes to reflect less trust in Iran’s future behavior. Depending on the level of Iranian cooperation over OPEC oil output, Saudi Arabia may or may not push its Western allies for a more aggressive Iran policy. That is, the Saudi-Russia deal suggests a relative cooling of relations within the Middle East, but other factors highlight the persistent tensions between the Saudis and Tehran.
The two countries severed diplomatic relations after Iranian mobs stormed and set fire to the Saudi embassy following Riyadh’s execution of a well-known Shiite dissident cleric. The Saudis potentially recalled attention to this situation on Monday when the Associated Press reported that 32 individuals were being put on trial in Saudi Arabia for allegedly spying on behalf of Iran.
If political and diplomatic relations between the two Middle Eastern powers deteriorate even further on the back of this incident, it is likely that they will intensify their economic cooperation, and perhaps also their proxy wars in Yemen and Syria, and their mutual efforts to discredit each other’s actions in those areas.