Energy & Mining

Mutual Benefit

Iran-Oman Pipeline

A significant step was taken in July 2015 regarding Iran's nuclear program. A major pipeline deal with Oman will come to fruition as a result, a massive boon to the sector.

In 2015, Iran and P5+1 negotiators came to an agreement on its nuclear program that everyone could get behind. Investors, multinationals, and SMEs had been waiting for this moment for several years. The advantages of having Iran out of the box from a business perspective are wide ranging and the excitement, excluding the further drop in oil prices at the news, has been palpable.

One of the major beneficiaries of this deal is Oman, whose main stock exchange climbed by 0.9% as an immediate result of the deal. More important, however, is the gas deal. The lifting of sanctions will allow for the start of a major deal in which Iran will export 10 billion cubic meters of gas per year to Oman for 25 years, with the cost at $60 billion. The MoU between Iran and Oman was signed in 2013, and talks have been going on for as long as 10 years according to Reuters’ sources, although both sides were eagerly waiting for the lifting of sanctions to implement the deal.

Gas will be transported to Oman via a 260-kilometer pipeline from Iran’s Hormuzgan province to Sohar Port in northern Oman. The Sultanate’s gas demand has risen exponentially over the past few years. Despite importing gas from Qatar since 2007, increasing industrialization has forced the Sultanate to look elsewhere for gas reserves.

Plans are to execute the project within three years and neither side is likely to delay the process. Oman will be eager to continue its economic diversification program while also seeking to bring in new investors. With the dip and subsequent plateau of the oil price, many projects are likely to feel the squeeze of budget cuts and this gas deal could allay concerns in this area. For Iran, Oman is a powerful ally, not least because of its popularity on the international stage. While Qatar faces challenges related to its successful World Cup bid, and Saudi Arabia continues to cause disagreement in topics such as the civil war in Yemen, production of oil, and women’s rights, Oman is the friendly oasis amid political and social turbulence. The Sultanate is also a key connector to markets all over the world, ranging from Africa all the way to South-East Asia. With Oman as a strong economic and political ally, Iran will have ample opportunities to open up new markets and strengthen its trade base.

Additionally, Oman LNG has struggled in recent years, with output falling considerably to 7.95 million tons per annum (mtpa), a drop from 8.9 mtpa in 2013. Although this was mostly due to a maintenance shutdown of one of its biggest plants, Oman’s capacity to produce LNG is 10.4 mtpa, which is still considerably higher than the output achieved in recent years. This capacity will quickly be filled, and Oman could become an important global player in the LNG market.

From an industrial standpoint, the gas deal will bring further incentives for international industrial enterprises. The Sultanate is putting a great emphasis on the development of industry, with several special economic zones (SEZs) throughout the country providing lucrative opportunities. Added to that, the project will also provide a number of jobs for both sides. Companies in Sohar, including the port itself, have adamantly focused on creating jobs for those local to the region and the new pipeline should add significant value to the area through new opportunities for employment.

The Sultanate has played an important role in facilitating the agreement and is set to reap the rewards handsomely in the energy sector as a result. However, this success will not be short lived or short ranging. With an already strong connection with both Iran and India, Oman will play a pivotal role in the project of South Asia Gas Enterprises (SAGE), which promises to bring natural gas from Iran and Oman to India. The pipeline, also known as the Middle East to India Deepwater Pipeline (MEIDP) could bring up to 31 million cubic meters of gas per day to India. With other pipelines such as the Iran-Pakistan-India (IPI) and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) having been delayed, the MEIDP could be the most viable option for India in the long term.

There are undoubtedly still some concerns regarding the deal. As Israel, Saudi Arabia, and a number of US high profile individuals raise their concerns, the Omanis will be aware that relying too heavily on it could be to their detriment. However, it opens up a plethora of possibilities not only between Oman and Iran, but also for a great increase in the development of global trade and cooperation. The world will be watching this space.

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