Dubai — The re-election of Iranian President Hassan Rouhani for a second four-year term is expected to ensure continuing development of the country's petroleum sector and eliminates the risk of a reversal of the January 2016 nuclear deal which saw Iran return to the global oil markets.
Saturday saw the confirmation of Rouhani's reinstatement as president for a second four-year term, after Iranian state television announced he had won 58.6% of the vote.
Coming second with 39.8% of the vote was hard-line cleric Ebrahim Raisi, a former state prosecutor close to Iranian Supreme Leader Ali Khamenei, who received much logistical support for his campaign from the powerful Iranian Revolutionary Guard Corp.
Related cross-commodity factbox: Iran elections to shape energy and steel markets
For oil markets, a Raisi win would have posed high risk to the Iran nuclear deal that lifted sanctions and added about 1 million b/d of Iranian crude exports to global markets, Hedgeye Potomac Research had said in a note last week.
"Hard-liners in Iran were opposed to the deal and have continued to challenge it as well as the new Iran Petroleum Contract designed to attract foreign energy companies and investments in the sector," the note added.
In municipal elections held alongside the presidential ballot, reformists have swept to power in Iran's capital, winning all 21 of Tehran's city council seats and knocking the conservatives from power, local media reported Sunday.
The development confirms a groundswell of support for reformist and outward-looking policies from Tehran which, with a population of some 16 million people in its metropolitan area, serves as the economic and industrial hub for the big Persian Gulf oil exporter.
NEW PETROLEUM CONTRACT
Rouhani is credited with negotiating Iran's July 2015 nuclear agreement -- the Joint Comprehensive Plan of Action -- with the P5+1 group of international powers and the January 2016 lifting of international nuclear sanctions against the country.
Rouhani led the negotiations that secured the deal for Iran, and then oversaw the subsequent recovery of Iranian oil production and exports to nearly their pre-sanction rates after harsh sanctions targeting the country's petroleum sector were lifted.
He has promised further outreach to the world if re-elected and to have other non-nuclear sanctions against Iran lifted within the next four years. During the run-up to the election, Iranian oil minister Bijan Zanganeh inaugurated a slew of new oil and gas projects including a new development phase at Iran's flagship South Pars gas and condensate field; the start of production from the South Pars oil layer overlying the vast offshore gas field; the long-awaited start-up of the 120,000 b/d first phase of the Persian Gulf Star condensate refinery.
But significant expansions in production capacity need international investment, and Iran has yet to unveil its new contract model for upstream development deals: the much ballyhooed Iran Petroleum Contract.
During his second presidential term, Rouhani hopes to see Iran's new contract model for upstream oil and gas developments produce tangible results by luring Western oil majors back to the country.
Although the first such deals have yet to be signed, a number of large oil companies that left Iran over sanctions -- including Total, Shell, Repsol, Maersk and Statoil from Europe and Inpex from Japan -- have all expressed high levels of interest in participating in deals to develop large Iranian oil and gas fields.
NO EASY RIDE
Last Friday's presidential election was Iran's first major vote since the nuclear deal was signed, so its result is being viewed as an endorsement of Rouhani's strongly held view that adhering to its terms is crucial for the country's economic recovery.
From the outside world, European Union High Representative for Foreign Affairs and Security Policy Federica Mogherini personally congratulated Rouhani and tweeted that the EU was "ready to continue work for full JCPOA implementation, bilateral engagement, regional peace, and meet expectations of all people in Iran."
Nonetheless, the surge of popular support the president is now riding does not ensure him an easy ride over the coming four years.
With hard-liners led by Iranian Supreme Leader Ali Khamenei firmly in control of the country's judiciary, armed forces and major industrial and agricultural conglomerates structured as state-sponsored Islamic charities, Rouhani's outward-looking policies are bound to meet with well-coordinated resistance from the very top of Iran's power structure. The supreme leader also holds a veto over laws passed by Iran's parliament.
Khamenei pointedly did not congratulate Rouhani on his win.
"The winner of the elections is you, the Iranian people, and the Islamic establishment, which has managed to win the increasing trust of this big nation despite the enemies' plot and effort," he said in an official statement.
CLASHES WITH US
Further hurdles are likely to be thrown up by US President Donald Trump, who is no fan of the nuclear pact and has just signed $380 million of deals, including major arms supply contracts, with Iran's regional arch-enemy Saudi Arabia while on his first official overseas visit as president to Riyadh.
On Wednesday, just two days before Iran's presidential election, Trump announced new sanctions on Iran's ballistic missile program and released the State Department's semiannual report on sanctions related to human rights abuses in Iran.
The administration did extend the waiver of sanctions on Iranian crude sales for another 120 days in line with US commitments under the JCPOA, but waivers of other sanctions are not due to expire until July and are still to be reviewed
"The new sanctions and partial waiver extensions allow the administration to perpetuate uncertainty about the outcome of its ongoing policy review and the president's approach to the nuclear deal," the Washington Institute's Katherine Bauer wrote in a recent research note.
Effectively, most US companies will continue to be barred by non-nuclear sanctions from doing business with Iran, while the ongoing uncertainty could persuade even some European-based multinationals -- BP is a case in point -- to steer clear of the country.
In Riyadh Sunday, US Secretary of State Rex Tillerson said he hoped Rouhani would put an end to the ballistic missile program, as well as beginning "a process of dismantling Iran's network of terrorism."
"That's what we hope this election will bring. ... We hope that if Rouhani wanted to change Iran's relationship with the rest of the world, those are the things he could do," he said.
Analysts familiar with Iran's political system quickly responded that those are not things Rouhani could do, as Iranian military operations are not within his sphere of control.
Whether that will cut ice with the Trump administration is doubtful, which means Tehran's reform-minded business community may not be cutting deals with US suppliers anytime soon.
--Tamsin Carlisle, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com, and Mriganka Jaipuriyar, firstname.lastname@example.org