Image source:
What's going on?
French energy giant Total announced on Monday that it will invest $1 billion to help develop a huge gas field in Iran, making it the first investment in the country by a western energy company since sanctions were eased last year.
What does this mean?
The deal is to help develop the South Pars gas field, which is the worlds largest gas field. Totals CEO called Mondays investment the first of many projects for Total in Iran. But Total was only prepared to invest $1 billion immediately, citing continued risks (e.g. possible new sanctions, particularly possible under President Trump, who has criticized the easing of sanctions against Iran).
Why should I care?
The bigger picture: This is a much bigger deal for Iran than the rest of the world.
Many in Iran are hoping that fewer sanctions will lead to more international companies doing business in the country and helping it to build out its infrastructure (e.g. its oil and gas production). But big western firms have been hesitant to commit investment to the country, partly because some sanctions still exist (making it difficult to conduct business in US dollars) and due to future risks. Totals move is a vote of confidence in the country and could be the harbinger of other economically important investments in Iran (but its not really big news for the global economy).
For markets: Irans increasing output of oil and gas will add to the global supply.
The oil price has been under pressure in recent years largely due to fears that the world is oversupplied with oil and similar concerns exist for gas. Iran has one of the worlds largest reserves of natural gas and has a sizeable amount of oil. Bringing more production on line will add to the global supply over the medium term, which would put downward pressure on oil and gas prices.
Originally posted as part of the Finimize daily email.
The top 2 financial news stories in 3 minutes. Join over one million Finimizers
