Iran Scrambles to Develop Border Oil Fields Amidst Reports of a Substantial Decline In Exports

Bijan Namdar Zanganeh, oil minister for Iran, says his country needs to increase the amount of oil it can produce

A slip of crude exports by almost 20 percent in the first three weeks of June combined with other factors is kindling speculation that Iran's oil boom has passed its apex and that the Islamic republic will fall short of restoring its pre-sanctions market status.

The June decline comes just as Iran is planning to issue tenders to develop oil fields along its border, including the South Azadegan deposit near Iraq.

In noting that the near-20 percent slip follows crude exports exceeding 2 million barrels per day (bpd) for April and May, Julian Lee, writing for BloombergGadfly, attributes the decline to a strike that shut most French refineries.

But he notes that a deeper problem is "the difficulty that [Iran] seems to have had in persuading its biggest pre-sanctions buyers to resume purchases.

"Italy, previously Iran's best customer in Europe, loaded its first cargo in mid-June, five months after the restrictions were lifted; purchases by Spain and Greece are also well below pre-sanctions levels."

Lee goes on to state that a delivery to Tanzania in March remains its only post-sanctions sale to Africa, while purchases by U.S. companies are still banned.

Lee doubts that the holy month of Ramadan has impacted Iran's exports, since the event hasn't affected neighbouring Iraq, and he points out that time is rapidly running out for a late surge in loadings to improve June export figures.

Should no surge occur, Lee writes that "a slump in output after a short-lived surge will leave Iran producing less oil than analysts had expected in the second half; and that will only help hasten the supply-demand balance so eagerly sought by oil producers."

How this might affect Iran's bid to develop its border oil fields is unclear, but there is a sense of urgency governing the process of issuing tenders: Bijan Namdar Zanganeh, oil minister for Iran, said in an interview that  "One of the most important challenges is to benefit from several joint fields," and that his country needs to increase the amount of oil it can produce, and "for this we need technology and management more than finances, and this is why we have drafted new contracts."

Zanganeh reiterated his belief that Iran will produce 4.8 million bpd of crude oil and 1 million bpd of condensate over the next five years, and said he expects approval of the new model oil contract designed to attract investors "in a short amount of time."

Earlier this month, Mike Wittner, head of oil-market research at Societe Generale SA, predicted that despite its impressive initial return to the international market, "By the end of this year, Iran will be maxed out."