About a year ago, the Iran nuclear deal — officially known as the Joint Comprehensive Plan of Action (JCPOA) — was formally implemented. JCPOA was received by Iranians with hope of rebuilding the country's energy industry, as well as providing an opportunity to regain the country's share in world oil markets and access again to capital and technology.
The withdrawal of most international oil companies (IOCs) due to the sanctions created a large gap in Iran's energy industry. The JCPOA allows for the lifting of some sanctions against Iran in exchange for modification on the country's nuclear program.
Since those sanctions ended, the Iranian government has tried to increase production rapidly to reclaim Iran's market share, especially in Asian markets.
In the upstream and downstream sectors, the government also tried to strike a balance between competing domestic power groups, while working to strike a balance between the qualification of Western and Asian oil companies in future bidding processes.
Much has been accomplished. What remains unclear is the stance of US President Donald Trump on JCPOA, considering his strong criticism of it during the presidential campaign.
Iran succeeded — rather fast — in increasing oil production to nearly pre-sanction levels.
Production registered 3.7 million barrels per day (bpd) in October, compared to the pre-sanction levels of approximately four million bpd.
Crude oil exports increased to more than 1.7 million bpd with the bulk of exports — about one million bpd heading to Asia, enabling Iran to regain market share.
Much of the early crude oil exports were stored in Iran's very large crude carriers (VLCCs), which acted as floating offshore storage during the sanctions.
The National Iranian Tanker Company (NITC) owns 42 VLCCs, of which seven resumed shipment of crude oil as early as last December. All of the vessels, flying the Panamanian flag, discharged their cargoes at Asia-Pacific destinations.
The National Iranian Oil Company (NIOC) has qualified for work in the upstream sector 29 IOCs from more than a dozen countries, mostly Asian, including Japan, China, South Korea, Indonesia, Malaysia, Thailand and India.
European IOCs include France's Total, Italy's Eni and Anglo-Dutch Shell. Britain's BP did not express interest. US firms were prevented from participation because of remaining sanctions.
It makes sense for the Japanese IOCs to participate heavily in Iran's upstream, as they are traditionally large buyers of Iranian crude oil. China, for example, is the largest importer of Iranian crude oil, with about 600,000 bpd. Japan is the second largest importer.
Asian oil companies were paying Iran in their local currency while sanctions were in place, avoiding using US dollars and the sanctions. Iran used the Asian currencies to purchase capital and consumer goods from these countries.
The predominance of Asian firms provides a new landscape for Iran's energy industry, which was previously dominated by Western firms. This phenomenon will change Iran's energy geopolitics.
Asian oil firms are expected to provide the technology and the capital necessary for a take-off of the Iranian oil industry.
Iranian officials have estimated that $100 billion is required for the development of the oil and gas sector.
The first two fields to be developed straddle the borders with Iraq: North Azadegan and Yadavaran. Negotiations for the development of phase 2 of these fields are being held with China's China National Petroleum Corporation (CNPC) and Sinopec. Output level of the two fields is estimated at 165,000 bpd.
In addition to these two fields, talks are also being conducted with Total (in partnership with CNPC) for the development of South Pars Gas Field and Shell.
Upstream work for the development of new fields is to be undertaken under new Iran Petroleum Contracts (IPC). Among the IPC terms, an IOC must work with an Iranian company. This ensures that Iranian businesses and their shareholders are directly involved in Iranian oil and gas.
Accordingly, the IOCs must reconcile conflicting Iranian vested interests: The reformists advocating 'international cooperation' and the conservatives with the 'resistance economy' agendas. This is not an envious task for the IOCs.
Asian firms, mainly South Koreans, have dominated the downstream sector.
National Iranian Oil Refining and Distribution Company (NIORDC) has awarded a $1.91 billion contract to Daelim to upgrade Iran's second largest refinery, Isfahan. The contract was awarded under a $15 billion funding deal for 'oil, gas and infrastructure'.
The upgrading of Isfahan refinery will increase 20 percent the capacity of gasoline and double liquefied petroleum gas (LPG) production at the plant.
With the Daelim contract, South Korean firms have three of the five refinery agreements signed by NIORDC since international sanctions were lifted. It is estimated that South Korean firms will undertake $12 billion worth of downstream projects.
Other contracts won by South Korean firms include one by Daewoo for $10 billion for heavy work construction at the Hormuz refinery and a contract was awarded to South Korea for $20 million to study increasing gasoline and diesel output at Tabriz refinery.
*Walid Khadduri is an Iraqi writer on energy affairs.