Iran Oil Sector
Iran's Oil Minister Bijan Zanganeh talks to journalists at the beginning of an OPEC meeting in Vienna (Photo: Reuters / Leonhard Foeger)

In a huge blow to Iran's oil sector, new reports have revealed that state-owned oil company China National Petroleum (CNPC) has backed out of a $5 billion with the Islamic Republic to develop its massive offshore natural gas fields.

Iran's oil ministry announced on Sunday that CNPC had backed out of the deal, likely as a direct result of the United States' continued pressure against it.

The deal to develop part of Iran's gas fields was originally struck in 2015, during the country's signing of its nuclear deal with the permanent members of the United Nations Security Council. Apart from CNPC,

France's Total SA also signed the deal to develop Iran's fields, but the French company eventually withdrew from the contract after the US had started to impose sanctions.

Iran's massive South Pars field, which is also partly owned by neighboring Qatar, contains one of the largest known reserves of natural gas in the world. Iran initially had plans to develop the fields with the establishment of at least two wellhead platforms and 20 oil wells. The project, which was supposed to be done with major oil firms such as Total and CNPC, would have produced as much as 2 billion cubic feet of natural gas per day.

In its initial contract, Total would have had a 50.1 percent stake in the project. China's CNPC would get a 30 percent stake, while Iran's Petropars would get the remaining 19.9 percent. When Total withdrew from the deal, CNPC took over the French company's stake and its responsibility for developing the fields.

Iran's Oil Minister Bijan Zangeneh broke the news over the weekend, stating that China's CNPC was no longer part of the $5 billion projects. The minister did not elaborate on the reason for the withdrawal and only stated that CNPC had pulled out of the contract.

Zangeneh stated that Petropars will be developing the fields alone given the recent turn of events. CNPC has not yet issued a statement to deny or confirm its withdrawal from the deal.

CNPC's withdrawal from the deal is a big setback to Iran, which is already dealing with major sanctions that are part of the US' pressure campaign against it. Iranian Foreign Minister Mohammad Javad Zarif complained in a separate interview on Sunday that the US' "maximum pressure policy" against it is greatly affecting foreign investments. Zarif stated that they are doing everything they can to mitigate the problem.

Despite the withdrawal and the continued sanctions against it by the US, Iran still remains to be a major trading partner with China. Iran still produces and exports massive amounts of oil to China and in return, Iran gets to import all of the products it needs. Because the exchange mainly does not involve the transfer of money, both countries are essentially circumventing the US' sanctions on Iran's banking system.