From a base oil perspective, this part of the world has changed enormously over the past 20 to 30 years. It has progressed from an almost third-world marketplace, importing the vast majority of requirements from external sources, to a sophisticated producer of modern day base oils. At the same time, it has maintained a heavy dependence on API Group I grades.

Locations within this geographical region represent vastly different political and economic scenarios, with the conflict areas of the Eastern Mediterranean and Eastern Maghreb, alongside the relatively stable Arabian Peninsula and Gulf states, where the development of new generation base oils has been prolific in countries such as Saudi Arabia, United Arab Emirates, Qatar and Bahrain.

Political and security fears have constrained some production through the application of Western sanctions on countries such as Iran. Here, companies like Sepahan Oil Co. maintain a prolific local presence and retain a desire to return to the export markets where their core customers and receivers for Group l base oils are located.

Production from Isfahan refinery was stymied when nuclear sanctions were implemented against Iran some years ago, accompanied by a ban on exports and international shipping taking cargoes of petroleum products out of the country. This situation is changing, and with greater leeway being accorded to Iranian exports, base oils are once again starting to move directly out of the southern ports of Bander Bushire, Bander Imam Khomeini and Bander Abbas.

While it was common knowledge that smaller parcels bought in local currency and often on open credit were always being shipped to traders and blenders in U.A.E. for internal consumption and sometimes onward export, Iranian sellers such as Sepahan can now report selling on a direct basis to receivers outside the immediate region.

Irans base oil industry appears to have been resurrected against all odds, although some potential competitors have recently downplayed the efforts of Iranian producers to regain market share in areas such as India and the Far East. They contend that receivers are now looking for higher quality material. The response to this attitude appears to be that everything has a price, and on that note Iranian sellers have been pitching numbers at extremely attractive levels with a hint of perhaps buying market share.

Sepahan is one of the leading suppliers and, perhaps, one of the most dynamic and well-known base oil producers in the Middle East. It boasts a long history and extended pedigree in the lubricants business. The company started initial operations in 1992 as part of the National Iranian Oil Companys Isfahan refinery with a dedicated feedstock capacity of some 10,000 tons per day. This part of NIOC was eventually established as a private company through the prudent auspices of employee pension funds, but of late has taken the initiative in becoming a public joint stock company.

The company was set up to service local demand for base oils, finished lubricants and other derivatives, while also expanding into export markets. This plan was initially considered under one roof, but subsequent activity demanded that finished lubricants manufacturing be separated from base oil trading, which was developed as a separate entity after 2014.

Whether the company actually forecast that sanctions would be short term or not, and that business would return sooner after 2104 rather than later, is not clear from spokespersons statements. Suffice it to say that they appear to have gotten it right.

Today, Sepahan is the largest supplier of premium Group l base oils in the Middle East, with an annual production capacity of up to 700,000 metric tons. Even during 2014, reported turnover for the company was in the region of U.S. $1 billion, at the same time accounting for more than one-half of Irans national production capacity. Sepahan, named for the original ancient name for Isfahan, maintains production at the refinery in that city, with corporate headquarters in Tehran.

The future looks brighter for companies such as Sepahan, and with the relaxation of sanctions expected to become fully ratified within the next three months, business is rapidly returning to some form of normal. However, as mentioned previously, this region has moved forward in terms of becoming a net exporter of base oils. New-generation Group II and III production has increased, gas-to-liquid associated material is being shipped from Qatar, and Bahrain and Abu Dhabi are showing the way in Group III and some Group II production.

The question remains whether Iran will convert existing facilities to extended Group II and III production or invest in new units with new feedstock streams. Or will be there be a cooling off period where Group I availability perhaps dips from traditional sources, and where companies like Sepahan can continue supplying Group I base oils to regional marine lubricant, gear oil and process oil markets.