International oil companies (IOCs) have been keeping a close eye on Iran’s nuclear negotiations, with the possibility of a sanctions-free Iran providing a significant opportunity for investment.

However, there is unlikely to be a rapid surge in outside investment in Iran’s oil and gas sector while risks remain in navigating the complex array of sanctions enforced by various bodies on the Islamic Republic.

Law firm Pinsent Masons says IOCs preparing to re-enter Iran are likely to face significant delays, as the restrictions are unwound by international regulators, and caution is needed to avoid prosecution for breaches.

“With the March deadline fast approaching, we are seeing more oil and gas operators getting their ducks in a row,” says George Booth, partner at Pinsent Masons.

“Irrespective of price volatility, we’re seeing many organise finance, approach shareholders and engage with third-party suppliers in the expectation that the sanctions will be lifted,” he adds. “They want to put themselves in the best possible position to secure access to Iranian resources.”

Iran has the fourth-largest proven reserves of oil in the world and is second only to Russia in gas reserves, according to a 2014 study by oil major BP.

Although Iran remains one of the largest producers of oil and gas, its industry has been crippled by underinvestment, leaving much of it outdated and lacking important technology such as the means to process and export liquefied natural gas (LNG).

IOCs will be eyeing a range of investment opportunities from upstream oil and gas field developments and pipelines to gas processing and petrochemicals plants.

“However, it is critical to remember that sanctions will not simply vanish, even if an agreement to lift them is reached. This is just the start of the process and it will take time to unravel the complex web of restrictions on trade that have been in place for several years,” says Booth. “Breaches can still be penalised in the transition phase and people need to be alive to that.

“Detailed due diligence will play a major role in safeguarding against any breaches. Businesses should avoid signing on the dotted line and firming up any arrangements until it is clear that it is safe to do so.”

Sanctions have reduced Iranian crude exports to about 1 million barrels a day (b/d) from 2.5 million b/d in 2012, with the EU having banned the import, purchase and transport of Iranian crude oil, as well the construction of oil tankers for the country.

Iranian officials have said the country can quickly ramp up its exports in the event sanctions are lifted. But the long-term recovery and development of Iran’s oil industry will be a longer process and could see Iran becoming the biggest recipient of oil and gas investment in the region in the coming years.