It is worth remembering that Iran was actually the first nation in the Middle East to tap into its oil reserves, back in the early 20th century. Ever since then, the oil sector has been a key component of Iran’s economy and a major player in world energy markets.
I want to really delve into the investment opportunities and potential that Iran’s energy sector holds.

Energy Crossroads

Iran’s oil and gas sector has massive potential. To give you some numbers, it holds the fourth-largest proven crude oil reserves, around 155 to 160 million barrels, and over 33 tcm of natural gas. Despite sanctions and economic challenges, there is a renewed global interest in investing in and developing Iran’s energy resources. In this article, I will discuss the investment opportunities across the different parts of the country’s energy sector: upstream, midstream, and downstream.

The upstream sector, which is all about exploration and production, is the foundation of Iran’s oil and gas industry. Modernization here is a real priority. Iran could significantly increase its production capacity, well above 5 mb/d. But to make that happen, it needs a huge amount of investment and technology, both from within Iran and from international partners and investors.

Enhanced Oil Recovery (EOR) is another area where Iran’s oil industry needs improvement. It is the oldest in the Middle East, you know. Some wells have been producing for over half a century! They are aged, and they need a lot of investment, gas injection, thermal recovery, and technological help to boost production and slow down the aging process. The National Iranian Oil Company is also rightly prioritizing the exploration of new and untapped reserves. There are many areas within Iran’s borders that we have not even explored yet. Investing in advanced seismic surveying and drilling techniques could uncover some major new reserves.

It is tricky to publicize an exact figure on the investment needed in the upstream sector. But, a 2022 estimate by a private consulting group in Tehran suggested that Iran’s upstream sector needs something like $160-170 billion over the next decade. That would cover the losses from those aging fields and add new capacity.

Potential for Massive Investment

The midstream sector – that is, transportation and storage of crude oil, refined products, and natural gas – is also crucial. Iran’s extensive pipeline networks and its strategic location bordering fifteen countries by land and sea make it a great potential energy hub between Eurasia and the Middle East. Iran’s pipeline infrastructure could easily be expanded to neighboring countries for oil, gas, and refined products. Iran is a particularly important link for gas exports, both to Europe and to its eastern neighbors.

Upgrading existing storage facilities and building new ones, especially for LNG, would enhance the country’s market readiness and logistical capabilities. Iran started its first LNG plant in 1990. It then started four more, which initially put Iran’s potential LNG capacity at the top in the entire region. However, none of them were ever completed. LNG plants need sophisticated infrastructure and equipment, which only a few countries possess, and Iran could not access because of the sanctions on its energy sector.

And it is not just plant construction. Transport and re-gasification also require a lot of infrastructure and investment, which is mostly available only in a few countries. Russia and Qatar pioneered LNG projects, thanks to partnerships and joint ventures with companies like Total Energy and Chevron. Back then, Iran was ahead of Qatar and Russia in LNG projects.

When it comes to gas export strategies, any country that wants to be a major player in the gas markets needs to take serious action on LNG projects. The two main LNG projects in Iran that have made relatively dynamic progress are Iran LNG, with a planned capacity of 10 million tons per year, and Persian LNG, which is also close to completion but lacks sufficient funding and technology.

Some of Iran’s infrastructure is pretty old and aging, even though it is vast and expansive. It needs modernization and a major overhaul. This aging infrastructure is closely tied to environmental issues, and there is an ongoing debate in Iran about the environmental problems linked to poor governance in the oil sector and the country’s aging oil industry infrastructure.

The costs associated with oil in Iran include a wide range of economic, social, and environmental factors. While oil has historically been fundamental to the Iranian economy, the environmental damage it causes highlights the urgent need for comprehensive policies. These policies should promote sustainable energy practices and diversify the economy, so Iran can get the most out of its oil while protecting the environment and increasing export margins.

Beyond the Barrels

Developing renewable energy infrastructure requires significant investment, which can be difficult under the current sanctions. Iran has been a pioneer in renewable energy production in the Middle East. It inaugurated its first wind and solar energy production facilities back in the 1970s. However, when it comes to investment needs, Iran doesn’t require a huge amount of foreign exchange. Once it gains access to some key renewable energy technologies, Iranian startup companies could step in and rapidly expand the renewable infrastructure.

Iran is blessed with a wide range of climates and landscapes. It has three hundred sunny days a year, and two hundred windy days, making it extremely well-suited for renewables. The potential for investment in renewable energy sources in Iran is virtually limitless. Iran tried to combine conventional and renewable energy sources in Manjil city about three decades ago. Unfortunately, that coincided with the US sanctions on Iran’s energy sector.

It's important to remember that investment in renewable energy is, in principle, a regional undertaking. Countries tend to perform better and more efficiently when they are linked across borders. Renewables produce electricity, which is different from hydrocarbons, which have many diverse uses.

A regional approach is also crucial when it comes to environmental issues. Many environmental hazards are common to the Middle East and the Central Asian republics. Cooperation among these countries is therefore vital. They could develop common environmental policy standards that serve the interests of the whole region. This, of course, requires a shared fund and investment strategy to tackle the environmental risks faced by the population.

Environmental Protection

As discussed earlier, environmental protection in Iran is complicated and multifaceted. According to a senior research fellow at the Atlantic Council, Iran needs to invest approximately 9 percent of its GDP in environmental protection over an extended period. This is a demanding task that requires cooperation between Iran’s neighbors.

Iran and its neighbors have a lot to gain from cooperation. While most of Iran’s neighbors are also oil producers, their economies are not all the same. Iran has a diverse and extensive economy, with some 25,000 medium and large-scale factories and production facilities. This is quite unique in the region. Because of this, the Iranian economy complements those of its neighbors; they support each other, rather than competing with each other.

All oil-producing countries are under huge pressure from environmentalists. As mentioned earlier, Iran and the countries of the Middle East and Central Asia are fully aware of the risks of environmental degradation and the complications of climate disruption. The Paris Climate Change Accord included discussions on imposing a carbon tax on oil producers. As we know, every barrel of oil produced has a carbon footprint, and the volume of emissions varies from field to field. Environmental organizations are pushing for an overall carbon emissions tax on oil producers.

Downstream Sector

Iran boasts the second-largest downstream sector in OPEC, with a registered refining capacity of over 2.00 mb/d, second only to Saudi Arabia. Before the Islamic Revolution, Iran had eight refineries. In the years that followed, twelve new refineries were built. Several refineries were damaged during the war but were later redesigned and modernized. Iran has advanced technologies for building refineries, and Iranian consulting companies are active in various countries around the world, building refineries and oil refining and distribution networks.

Iran’s oil refining sector is a vital part of its energy industry. It plays a crucial role in meeting domestic demand for oil products, and Iran also exports various refined products to other countries. It also provides feedstocks for refineries and export. Major refineries in Iran include Abadan, the oldest refinery in the Middle East, with a capacity of 0.5 mb/d and planned to expand further; Bandar Abbas refinery, with a capacity of 320,000 barrels per day; and Isfahan refinery, with a capacity of 375,000 barrels per day, which is the most diverse in terms of refined oil products.

In recent years, Iran’s refineries have been undergoing modernization and upgrades to meet the growing demand for petroleum products and to comply with international standards and environmental regulations. Iran’s refining sector and refining capacity expansion are extremely attractive to international investors, as Iran has the potential to become a key refined oil product hub for the entire region and beyond.

Iran offers numerous opportunities for growth and development in the following areas of downstream activities: investing in new refining capacity to meet the growing demand for petroleum products in a country with over 80 million people, a highly urbanized population, and a dynamic economy; upgrading and modernizing existing refineries, enhancing the quantity and quality of refined petroleum products; and improving and strengthening distribution networks across the vast and diverse regions of the country, including building AI-supported networks for stockpiling and transporting different products. By investing in Iran’s refining sector, international and domestic companies can benefit from the country’s strategic location, skilled workforce, and growing demand for petroleum products. With the right investment and partnerships, Iran’s refining sector can continue to grow and expand, contributing to the country’s economic growth and energy security.

Regional Cooperation

Regional cooperation in the energy sector is essential for ensuring energy security, promoting sustainable development, and driving economic growth. By working together, countries in the region can share resources, expertise, and knowledge to address common energy challenges and capitalize on opportunities.

By diversifying energy sources and routes, countries can reduce their dependence on a single supplier or route, enhance energy security, and lessen the risk of disruptions.

Regional cooperation can also facilitate the sharing of best practices and pave the way for the creation of a common energy market in the region.

This type of regional energy cooperation can drive economic growth by creating new opportunities for trade, investment, and job creation.

And of course, regional cooperation and collaboration will help promote environmental protection and reduce pollution. The opportunities for regional cooperation and common policies are immense. For Iran’s economic and energy cooperation with its neighbors, the sky is the limit.

As Iran’s economy and energy sector continue to evolve and grow, the country is positioned to play an increasingly important role in the global energy landscape. With its vast oil and gas reserves, strategic location, and growing capacity across the upstream, midstream, and downstream sectors, Iran has the potential to become a major energy hub in the region. By investing in the upstream sector, developing LNG projects, promoting renewable energies, and upgrading refineries and product distribution networks, Iran can unlock its full potential and accelerate economic growth, while contributing to a more sustainable and secure energy future for both present and future generations.

At the same time, the global energy landscape has changed dramatically since the pre-pandemic and pre-Ukraine war era. This new situation has led to a new Middle East, where key decisions are focused on unity, investment, and de-weaponizing oil. This sends a universal message to the world: “We need a more sustainable, secure, and inclusive energy future”.

Fereydoun Barkeshli

Senior Energy Expert

Iran Petroleum