INTERVIEW: Raisi adviser sees quick Iranian oil revival, with warning to western IOCs

Iran's June 18 presidential election will shape the country's critical oil and gas industry over the next four years.

Conservative judiciary chief Ebrahim Raisi is the front-runner in the race, and those close to him say his focus, once elected, may be on Iran's downstream and petrochemical sectors, rather than the upstream ambitions of outgoing President Hassan Rouhani, which were largely stymied by the US' reimposition of sanctions.

S&P Global Platts spoke to Alireza Zeyghami, a former deputy oil minister for refining and distribution, who is a top adviser to the candidate, on what energy policies can be expected from a Raisi administration.

This transcript has been lightly edited for clarity and length.

PLATTS: Under Mr. Raisi's government, what course will Iran's oil production and exports would take? Will we see a rise in production and exports?

ZEYGHAMI: If, God willing, he gains a majority of people's votes, we should stop selling crude oil by refining more. Of course, we can't do it at once. It will be a gradual move. Our parliament has approved some plans to construct refineries. Whatever our oil production capacity is, let's say if we produce up to 4 million b/d, our domestic refining consumption is 1.7 million-1.8 million b/d, plus the Persian Gulf Star refinery which takes around 400,000 b/d of condensates. These [planned] refineries will close the gap between domestic consumption and the total production of 4 million b/d.

PLATTS: Why is a downstream focus preferable to expanding upstream production?

ZEYGHAMI: Downstream products will bring multipliers of added value. For example, we will cover the domestic consumption of petrochemical products, and the surplus will be exported. The value chain of petrochemicals, the value chain of gas plants and the value chain of oil refineries are very high.

PLATTS: You mentioned the 4 million b/d oil production capacity. Do you mean the future government will increase oil production to 4 million b/d regardless of sanctions, and with less exports?

ZAYGHAMI: Yes. The sanctions are a separate issue. Here, it is about production capacity. Our production capacity should be 4 million b/d. And we have it. Because of the sanctions and reduced oil sales, we have shut down some wells. They should go under basic overhaul so that when it's needed to open the taps, we reach 4 million b/d. Some wells that are not in service could go back in service easily with a little repair and cost.

Aging infrastructure

PLATTS: [Outgoing oil minister Bijan Zanganeh] has said the new government should raise crude production capacity to 6.5 million b/d. Is that something Mr. Raisi would consider as president?

ZAYGHAMI: This is something to be discussed by the new administration. But I, as an expert citizen, not an official, I think we don't need to raise our production capacity to 6.5 million b/d. It is not that simple. We need new wells and exploitation units to replace old ones. We have a big number of old drilling rigs over 50 years of age. There are more than 100 rigs, both on- and offshore, which need renovation. I don't think right now it's a priority to go for 6.5 million b/d given the high cost.

PLATTS: Between the sanctions, shortage of finance and lack of advanced technology, equipment and parts, is Iran capable of a quick revival of production?

ZAYGHAMI: Yes. We had the capability and we still have it. Look at the eight years of [Iran-Iraq] war. Our exports at the time were 1.5 million to 1.7 million b/d, despite the bombings. I, myself, was in charge of Kharg [oil terminal]. Bombed refineries were put back in service quickly. Bombed oil terminal or rigs were easily renovated. This was all done independently without foreign support. We don't have any problem in terms of gas injection, procurement, consultants, contractors, and we don't have any need [for foreign companies]. Of course, when we say we don't have any need, we don't rule out that all the world needs each other. Therefore, if there are no sanctions, in a friendly, win-win climate, we are willing to work with foreign countries like China, those countries that deal with us fairly. But we are not dependent, we don't need to ask them or give concessions to foreigners to come and work for us. Right now, around 70%-80% of oil, gas, petrochemical and refining equipment is produced domestically without any problem.

Trusting IOCs

PLATTS: What about financing projects?

ZAYGHAMI: Well that is an issue. Any oil or gas project repays its finance in the first 3-4 years. Many foreign countries are interested in investment in our projects. We have a bilateral agreement with China for a $250 billion investment in our country, part of which is for the energy industry. As a citizen, I advise the European countries that follow the US after every trivial incident, pursue sanctions, pull out [of energy projects], and then they want to come back, like Total -- it was awarded a project, it put things on hold for 2-3 years, and then left. This is really not acceptable for us. If the European countries want to have interaction with us in the future, they should not follow the US. Companies like Total and other big international companies should know that we have adequate experts and specialists who are committed and devoted to the country. There are other countries for us, some European, China, Russia and others. They are willing to come and cooperate and invest in our projects.

PLATTS: If the sanctions are lifted and European companies like Total show interest in cooperation, is the door open for them?

ZAYGHAMI: It all depends on Mr. Raisi's opinion. I am not in a capacity to comment on this. But as a citizen, if you want to know my opinion, I am not OK with them coming again. They are not trustworthy. With any blow of the wind, they come and go.