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Goldman touts Iran investment opportunity

By ValueWalk
Asset Management

On the day last week when Israeli Prime Minister Benjamin Netanyahu was delivering a speech at the United Nations bemoaning the Iranian nuclear arms deal and those around the world “rushing to embrace and do business with a regime openly committed to our destruction,” a report from Goldman Sachs Group Inc (NYSE:GS) points to “The Awakening of Another Oil Giant” in Iran.

Iran has "huge potential" but it is an investment wrapped in "significant uncertainty"
The October 1 report asked the question, “Why focus on Iran,” then proceeded to answer: “Huge potential” that can be tapped but one that requires investors to do so in an environment of “significant uncertainty.”

Iran possesses the 4th largest oil reserves in the world and largest gas reserves which has potential to be a key driver of global supply growth. Significant uncertainty remains, however, around the lifting of sanctions, the investment required in fields and infrastructure, and the framework to be put in place by the Iranian regime for international investment, the report noted.
If sanctions are lifted, Iran could grow to fulfill nearly 25 percent of the expected global demand growth in 2016. Currently Iran accounts for 4.1 percent of global oil production and 5 percent of global natural case production.

Unlocking Iran and its investment potential may take time and money
However, don’t expect an investment in Iran to be an overnight success. “Growth may take time,” the report said, echoing a common investment pitch phrase that is most often followed by a call for cash. Such an investments is “requiring attractive contract terms and significant investment,” which Goldman estimates at $30 billion over 5 years. “There is potential for production growth far in excess of our base case, with the limiting factors ultimately being above ground issues, primarily around the level of investment that is incentivized. This potential growth could maintain pressure on oil prices, and delay the re-balancing of oil markets,” they wrote.

The dropping price of oil is a concern for U.S.-based production, but those laws of gravity don’t necessarily apply to Iran, which has a much lower price of production. The report estimated that the average break even could be near $20 to $35 per barrel. With the price of oil hovering near $45, that appears as an attractive return on investment.

This article was originally published by ValueWalk.
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