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Nuclear Deal Could Boost Iran’s Chemical Sector

Middle East: Lifting sanctions will eliminate restraints on the local industry

by Alexander H. Tullo
April 16, 2015 | APPEARED IN VOLUME 93, ISSUE 16

GAS CEILING
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Iran’s petrochemical industry has grown, but production has plateaued. SOURCE: National Petrochemical Co. of Iran
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Iran’s petrochemical industry has grown, but production has plateaued. SOURCE: National Petrochemical Co. of Iran

An agreement between Iran and six world powers might mean an end to Iran’s nuclear weapons program. It could also lift the fetters off the country’s chemical industry by allowing it to more freely import production equipment and export chemicals.

The agreement, the contours of which were outlined earlier this month, would gradually lift sanctions on Iran as it limits uranium enrichment and allows inspectors to tour its nuclear facilities. The parties still have to shake hands on a permanent agreement by June 30. And the deal could yet be scuttled over the meaning of some of its terms or the U.S. Senate’s desire to review it.

Iran has the world’s second-largest reserves of natural gas after Russia and the fourth-largest crude oil reserves, according to the Energy Information Administration. It produces about 3.2 million barrels of oil per day and has expanded its petrochemical capacity by an order of magnitude over the past two decades.

But sanctions over its nuclear program, sponsorship of terrorism, and other issues have prevented Iran from reaching its full potential in chemicals as have hydrocarbon-rich neighbors such as Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates.

Ahmad Mahdavi with Iran’s Petrochemical Employers Association, predicts that lifting the sanctions would mean $5 billion per year in new chemical exports to Europe, according to Iran’s Fars News Agency.

Matthew Thoelke, senior director of olefins and derivatives in Europe, the Middle East, and Africa for the consulting firm IHS Chemical, says the sanctions’ biggest impact for Iran’s chemical industry has been on its ability to import needed hardware.

The problem intensified over the past decade as the European Union joined the U.S. in imposing sanctions, Thoelke explains. Iran could no longer import equipment—such as feedstock extraction units—needed for chemical plants that were near completion. “Assets are underutilized because of feedstock constraints,” he says.

Should the sanctions be lifted, Thoelke says, Iran may achieve meaningful chemical production increases by the end of next year. Additionally, he says, the country might be able to boost oil exports by 1 million bbl per day or more, prolonging the current period of relatively low oil prices.

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