Lifting of the sanctions released about $100 billion of frozen assets, a powerful injection to kick start Irans moribund economy, said Golnaz Aboutorabian, managing director at Maharashtra, India-based distributor Petrochem Pvt. In a presentation at the Global Business Clubs CIS Base Oils and Lubricants conference in Moscow in May, she related, This could lead to renovation and modernization of Irans industrial sectors, including base oil and lubricant production.

Another contributor to an economic revival in Iran includes the countrys crude oil reserves, which are the second largest in the Middle East and North Africa and fourth in the world after Venezuela, Saudi Arabia and Canada. In addition, Iran is the second most populous nation in the region, with 82 million people, 60 percent of them under the age of 30. While youth unemployment is very high, removal of the sanctions is expected to add 8.5 million jobs in the years to come, Aboutorabian said.

Market Analysis

Iran is the largest base oil and lubricant market in the Middle East, followed by Saudi Arabia and Turkey. In 2015, the country consumed 700,000 tons of lubricants. In the same year, Saudi Arabia consumed 490,000 tons, while Turkey and Egypts lube demand reached about 400,000 tons each.

These countries drive the regions lubricants industry. Other major lube markets in the region are Syria (210,000 tons), Iraq (200,000 tons) and the United Arab Emirates (100,000 tons).

Irans lubricant market is dominated by API Group I base oils, which account for 91 percent of consumption. Group II holds a 6 percent market share and Group III 3 percent, according to Aboutorabian. Group IV base oils hold a minuscule 0.1 percent market share.

Teheran-based Sepahan Oil Co., a lubricants and base oil producer, is one of the largest suppliers of Group I in the Middle East, Aboutorabian said. It is the leading base oil marketer in Iran, holding 41 percent share of the countrys total base oil production in 2015. It was followed by Iranol Oil Co., which held a 26 percent share in the same year. Two other major base oil marketers in Iran are Behran Oil Co., with 19 percent of the countrys base oil production, and Pars Oil Co., a subsidiary of the National Iranian Oil Co., with 14 percent. Both companies are based in Tehran.

In the finished lubricants market, Behran topped the chart as Irans largest manufacturer in 2015, with a 32 market share. It is followed by Iranol (16 percent), Sepahan (15 percent) and Pars (14 percent). The remaining 23 percent is held by other lubricant blenders.

In 2015, Irans lubricants market amounted to 1.8 billion liters, according to Petrochem. Of these, the automotive industry consumed 1.3 billion liters: 820 million liters of heavy-duty diesel engine oil and 430 million liters of passenger car engine oil. The country used 446 million liters of industrial oils, while its grease demand amounted to 35 million liters.

In 2015, automotive lubricants held a 73 percent market share while industrial lubes held 25 percent share. Grease accounted for just 2 percent of the market.

Taking on Russia

Irans and Russias base oil export trade in the region comprises Solvent Neutral 150, 500 and 650 products, according to Denis Varaksin, base oils and slack wax project manager at Berlin-based DYM Resources. Russia exports from the Black Sea, and a key buyer is Turkey. It also supplies markets in Southeast Europe, the United Arab Emirates and further East. Iran primarily ships base oils to India, UAE and Africa, and less regularly to Turkey, Varaksin told the GBC event.

He added that SN 500 products from both Russia and Iran have a viscosity index below 95. They are low cost base oils, shipped in bulk to large customers and often in flexitanks to developing countries.

In the last few years, Russia has lost market share in India to both Iran and Group III base oil suppliers. Russian exports to India became irregular, while Iran has dramatically increased shipments there, Varaksin said, adding that Irans key advantages are cheaper freight and base oil costs, shorter delivery times and regular supplies.

Varaksin, added, In the last few years, Russia has attempted to offset the aggressive base oil market in the region by trying to increase its finished lubricant sales there. Gazprom Neft and Lukoil, for example, have gained a foothold in the finished lube markets of such countries as Iraq, Egypt and Afghanistan.

In 2014, Russia exported 96,440 tons of base oils to India while Iran exported 88,900 tons. In 2015, Russias base oil shipments to India dropped to just 14,800 tons while Irans spiked to 297,000 tons, Varaksin said.

Turkmenistans Turkmenbashi refinery also entered the base oil market in the region after a railroad link to Iran was opened recently. The Bereket-to-Gorgan railway line is fully operational, and Turkmenistans base oil exports via Iran have become more attractive in recent months, Varaksin said.

It helps that the Turkmen government subsidizes rail tariffs from Turkmenbashi to the Gorgan border crossing on the Turkmenistan-Iran border. The companys base oils have gained access to markets in the UAE and India from the Iranian port city of Bandar Abbas.

Turkmenbashi also uses an alternative route via the Serakhs border crossing. However, the main routes for Turkmenistans exports run north, through Russias Black Sea ports.

Aboutorabian said that Iran and India have a historical relationship, going back millennia, and that Tehrans interest in supplying Indian markets with petrochemical products is reasonable. I believe the relationship between both countries will grow stronger, and we expect increased base oil exports to India, she added. Finally, Petrochem expects more international base oil and additives manufacturers to gain a foothold in Iran for the simple reason that the country has shown an openness to foreign companies in a variety of industries.