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Iran's oil output goals likely unrealistic because of risk, report says

Washington — Iran's ambitions to produce 4 million barrels a day of oil and 1 million b/d of condensate by 2018 are likely unrealistic because US and European banks and companies are reluctant to take on high-risk investments, according to a report a Washington-based think tank will release Tuesday.

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"A more realistic assessment would be an expansion of up to 800,000 b/d within six months and a major oil output rebound only after 2016, though even this pace would put Iran on course for a structural shift and acceleration from the current modest pace of economic growth," the Center for a New American Security report states.

Bijan Namdar Zanganeh, Iran's oil minister, has said once sanctions are lifted, production would climb by 1 million b/d, to 3.8 million b/d within six months, and to 4 million b/d by 2018.

The report claims it is unlikely that Iran's crude oil capacity -- currently at an estimated 3.8 million b/d -- would exceed 4.5 million to 5 million b/d by the early 2020s, or 5.5 million b/d by 2030.

Global leaders face a June 30 deadline to reach a nuclear agreement, under which the EU and US are expected to lift the majority of sanctions on Iran, including an oil import ban and sanctions on Iran's oil sector.

The removal of sanctions would depend on how quickly Iran meets nuclear-related benchmarks.

The immediate deals following the potential removal of economic sanctions would involve new trade or short-term deals, such as sales of Iranian oil from storage, with Asian or Middle Eastern banks and companies "less deterred by the prospect of violating sanctions or taking on high-risk investments," the report states.

But these companies will not be able to provide the technical expertise and large amounts of capital that Western firms could offer, the report says.

"Therefore, investing millions or billions in Iran's most attractive energy and infrastructure projects will proceed more slowly, due to the more cautious entrance of better-capitalized and more technically sophisticated Western companies," the report states.

Iran, with production costs among the lowest in the world at an estimated $5/b-$10/b and a location between major demand centers, has been seen as an attractive opportunity for foreign investment. The National Oil Company of Iran plans to unveil 40 projects for competitive bidding once the sanctions are removed.

But, the report notes, the state oil company has not indicated if it plans to loosen its resource-ownership rules or alter its production-sharing agreements.

"If Iran does not offer sufficiently attractive investment terms on reserves and production, it will not induce major international energy companies to assume a significant degree of risk and enter a high-stakes, high-reward Iranian market," the report states.

If Iran does offer "attractive" terms to investors, Asian and European oil majors, such as Total and Eni, will likely have an advantage over US firms, such as ExxonMobil and Chevron, which would still be subject to US restrictions, according to the report.

Elizabeth Rosenberg, a senior fellow and director of the center's energy, economics and security program, and Sara Vakhshouri, president of SVB Energy International, an energy consultancy, wrote the report, which details how removal of sanctions on Iran would likely proceed.

--Brian Scheid,
--Edited by Valarie Jackson,