Nikhil Jain's Blog


With Iran Sanctions Lifted What is the Outlook for the NDT Industry?

22 Jan 2016

In a collective decision, on 19th January 2016, United States, the European Union and the United Nations lifted the economic sanctions they had placed Iran under. With over $100 billion in assets frozen out, the sanctions had played havoc with Iran’s economy. Now that the sanctions have been removed, it is important to assess the impact on global economy and impact on the local economy.

Globally, the oil and gas industry is already reeling with the oil price breaching the $30 per barrel mark this week. With Iran now allowed to supply oil to the global market, the country is looking to win back its lost market share and has announced an increase of oil production by 500,000 barrels a day. This is expected to further deepen the oil prices depression, and with leaders of OPEC showing no signs of reducing production, there is speculation that the oil prices may slip below $20 per barrel in the coming months. What does this mean for the NDT industry? Not good news! With the maintenance contracts globally contracting by an average of 20%-25% over the past year, a further reduction in oil prices will create an extremely challenging environment.

In Iran, however, there are bright spots for the NDT industry participants to take advantage of. There is tremendous opportunity in the transportation industry namely aerospace, automotive and railway. Frost & Sullivan research finds that lifting of sanctions could propel the total vehicle sales to 2.3 million units by 2022 in Iran; more than 800,000 units more than what was expected with the sanctions still in place. Peugot pulled out of Iran in 2012 when it was its second largest market and is currently in negotiations to reopen operations in Iran. Iran’s transportation minister has articulated that the country will need to replace at least 400 commercial airplanes within the next decade and with historically frosty relations between Iran and the global economic powerhouses, the window of opportunity to set the ball rolling may be small. All these hint to the potential for growth for NDT equipment manufacturers in the Iranian market and the need for an Iran specific growth strategy.  

Lifting of the sanctions also opens up the energy industry to potential investment from global giants too. However, it is expected that the US oil majors will still remain cautious of investing in Iran but companies like Royal Dutch Shell and Total SA could make their move sooner rather than later. If these players do enter the market, it could well signal an interest in mergers and acquisitions in the local NDT inspection services market from global players. While SGS has a presence in Iran, investment from global oil companies in the country might persuade other players such as Intertek, SGS, Applus RTD, Bureau Veritas and Dekra to invest in Iran as they would be preferred choice of vendor.

While the lifting of sanctions has opened tremendous set of potential opportunities that the NDT industry should seriously consider, there is an air of cautiousness. Iran shares a love hate relationship with US and EU due to its nuclear programme and there is no guarantee that the sanctions may not be imposed again on the economy. It also important to note that the US general elections are approaching fast and if the Republicans are elected, there may be a review of the Iran foreign policy.

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