OREANDA-NEWS. Western sanctions on Iran's oil, gas, petrochemicals and shipping sectors will be lifted on 15 December, under the terms of a deal reached today between Iran and six global powers over Tehran's nuclear programme.

The agreement between Iran and the P5+1 — China, Russia, the US, the UK, France plus Germany — will see US and EU sanctions targeting Iran's oil and gas sector rolled back when the International Atomic Energy Agency (IAEA) confirms that it and Tehran have resolved all past and present outstanding issues regarding Iran's nuclear programme.

Sanctions include restrictions on the sale and purchase of Iran's crude; on investment in the Iranian oil, gas, petrochemicals and shipping sectors; on the export or sale of refined products to Iran; and on people, entities and bodies relating to these sectors.

Iranian crude exports have been limited to 1mn-1.1mn b/d, reduced by more than half the level sent to markets before US and EU sanctions took effect in 2012. But oil minister Bijan Namdar Zanganeh insists Tehran will be able to quickly return to its pre-sanctions position. Zanganeh says that within one month of sanctions relief, Iran will be able to add 500,000 b/d to its output — which currently stands at 2.85mn b/d. An additional 500,000 b/d will be brought online within six to seven months, he says.

While Iran may use the 20mn-40mn bl of crude and condensate it keeps in floating storage to vie for market share after sanctions are rolled back, it will struggle to boost output at idle fields. Realistically, only a fraction of the promised 1mn b/d increment will be achievable until foreign firms inject their sorely-needed capital and technological prowess into the oil and gas sector.

Expectations will be running high across Iran for immediate relief to years of crippling oil sanctions, but it will take time for the effects to be felt and for the Iranian oil and gas industry to benefit from the deal. Iran intended to unveil its revamped upstream contract, dubbed the Iran Petroleum Contract (IPC), at a roadshow in London this September. This event will likely be pushed back to the last quarter of 2015, as the model contract has several political hurdles to clear. Already, the new IPC has been delayed several times since 2014.

The new contract, which replaces the unpopular buy-back model, will offer much longer operating periods for foreign oil companies, which will receive a share of output as joint-venture partners with state-owned NIOC.

Tehran hopes the IPC is strong enough to attract firms with leading enhanced oil recovery (EOR) technologies. Most of the developments on offer will be upstream, brownfield projects — Iran wants to extend the life of its oldest and largest producers in its southwest. Iran's proven crude, condensate and NGLs reserves total 157.8bn bl as at the end of 2014, according to the BP Statistical Review, the fourth largest in the world.

A number of European and Asian firms have held talks with Iranian officials this year and have been involved in the formulation of the IPC. Shell, Total, Italy's Eni, Russian firm Lukoil and China's state-owned CNPC have been among Iran's early suitors.

But US firms hoping to participate in Tehran's post-sanctions oil sector will likely have to sit out the upcoming round of foreign investment. The 14 July deal between Iran and the P5+1 only addresses nuclear-related sanctions, while a panoply of other US sanctions — targeting Iran as a so-called state sponsor of terrorism — will remain in place. A number of US senators are considering a ten-year extension of the Iran Sanctions Act set to expire next year, which may continue to impose sanctions on firms investing more than $20mn/yr in Iran's energy sector. These measures, coupled with the threat of "snap back" sanctions if Iran violates the terms of its agreement with the P5+1, may mean that foreign firms approach investment in Iran's oil sector with caution.

Shell said today that it was engaging with relevant governments to evaluate the impact of today's agreement, while acknowledging that "further steps are required before any sanctions are lifted or suspended."

"We are interested in exploring the role Shell can play in developing Iran's energy potential," it added.