Safdari, a sales engineer in Behran Oil’s International Sales Department, said total lube demand in the Middle East was approximately 1.8 million metric tons in 2005. That is the most recent year for which regional data are available. Iran accounted for approximately 39 percent of the 2005 total, followed by Saudi Arabia (20 percent) and Iraq (13 percent). The remaining 28 percent was divided between nine other countries in the region. Safdaris data did not include Israel.

Behran Oil, which is based in Tehran, now estimates that Iran consumes 790,000 tons of lubricants per year. Engine oils account for 76 percent of that total, about 600,000 tons a year, with heavy-duty diesel oils amounting to 379,000 tons and passenger car motor oil demand being 221,000 tons.

Yet, Iran lags significantly in terms of technical innovation, with 92 percent of the diesel market at quality levels no better than API CG-4. A mere 8 percent of the market is API CH-4 and better. CH-4 first came to use in North America for heavy-duty trucks of model year 1998. Similarly, in the gasoline segment 88 percent is API SC, SE, SF or SG, while SJ, SL and SM account for just 12 percent. API adopted SJ in 2001.

With a gradual move towards higher emission standards and better fuel conservation, the market looks set for change, Safdari said. However, fuel subsidies have historically acted as a drag on the market, slowing innovation and resulting in a slow pace of modification in consumer behavior. Some call for removing subsidies to increase pressure on original equipment manufacturers to develop more fuel efficient solutions.

In the next few months, the government is expected to begin reducing subsidies on fuels, Safdari said. This will save the government money, allowing it to speed up investments in refining technology and enabling imports of high quality diesel fuel.

Safdari said consumers are accustomed to a short drain interval and generally are not convinced by arguments relating to quality. In 2009 drain intervals are on average 5,000 kilometers for passenger cars and around 3,500 kilometers for heavy-duty trucks.

According to Safdari, legislation is likely to lead to rapid vehicle modernization as aged vehicles consume up to 3 times more fuel. Behran Oil estimates that 50 per cent of all passenger cars are up to 5 years old and 22 per cent above 20 years. The commercial sector is more startling with 50 per cent of all vehicles more than 20 years old.

An increase in drain intervals would tend to reduce engine oil demand, countering the effects of a growing vehicle population.

In the diesel sector, longer drain intervals will cause engine oil demand to fall in spite of a growing number of vehicles, Safdari said. In the gasoline sector oil demand should rise, though not as much as if intervals remained unchanged.

Access to base oil is the key to raising the quality of the engine oil market but Iran is likely to remain dependent on regional supply for some time to come. Behran and a joint venture between Sepahan Oil and Fouman Chimie are working on projects calling for construction of plants with combined capacity to produce 250,000 tons per year of API Group II and Group III base oil.

Two OEMs dominate the Iranian auto market. State controlled IKCO supplies 47.1 percent of vehicles that run on gasoline and 47 percent of those that run on diesel. Its joint ventures include Peugeot, Renault, Suzuki, Mercedes Benz and Sinotruk. The other major competitor is Saipa, which controls 48.5 percent of the gasoline market and 27 percent of the diesel. It has joint ventures with Citroen, Renault, Nissan, Volvo, KIA and Iveco.

With the significant projected growth in GDP, Safdari said, there is no doubt that Iran will continue to represent a compelling market opportunity. His presentation noted that major developments are expected in the diesel segment and broad engine oil consumption is expected to increase until 2015. Despite this fact many barriers beyond trade sanctions mean it will remain a challenging environment.