……… Now that
the nuclear agreement (JCPOA) has effectively ended the sanctions, Iran faces a significant challenge
of reconstructing its oil industry, from exploration and production to
transportation infrastructure to refining capacity. All of this takes cash, of
which Iran has little. The bottom line is Iran needs foreign investment, which
is in direct conflict with Iran’s Islamic revolutionary ideology.
The
battle over foreign investment in Iranian oil is now playing out and a power struggle between Iran’s two
competing government apparatuses: The democratically elected President, Hassan Rouhani, who wants to
attract foreign investment, and the autocratic Supreme Jurisprudent, Ayatollah
Ali Khamenei, whose revolutionary ideology diametrically opposes all foreign
investment.
Iran’s
oil ministry, under the direction of Rouhani, prepared a new type of foreign
oil contract designed to entice foreign investment. Previously Iran had
only offered “buy back” style contracts to foreign companies and
investors. In the “buy back” system, foreigners could invest in oil
exploration and production in Iran, but once production began, the NIOC would
take over and buy back the rights for a predetermined price. The new contracts,
called Integrated Petroleum Contracts (IPCs) resemble joint ventures or
production sharing agreements with 20- to 25-year durations (double that of
traditional “buy back” contracts). These IPCs would allow for foreign
companies and investors to realize more revenue from their investments over a
longer period of time before returning control to Iran.
News
of these potentially lucrative deals drew the interest Rouhani was hoping for.
Iran planned to unveil these contracts at a November 2015 conference in Tehran,
but instead of the information investors needed, attendees were presented with
old data about Iran’s oil fields and only brief overviews of the contracts. The
key issues investors wanted to discuss, like arbitration, crude lifting, and
accountancy rules had not even been worked out by the Iranian government.
Iran
rescheduled the contract unveiling for late January 2016 in London, but
canceled. Although the government blamed it on visa trouble, the real problem
was revealed in Iran’s parliamentary election in February as the conservative
clerical establishment made a public stand against Rouhani’s plans. These
clerics openly took issue with the planned foreign oil contacts preferred by
Rouhani and his allies, claiming they were too generous towards the foreigners.
Meanwhile, officials in the oil ministry, representing Rouhani’s position,
insisted that the only way to rehabilitate the economy is through the oil
industry, and the only way to rehabilitate the oil industry is through foreign
investment, and the only way to entice foreign investment is with significant
financial incentives.
When we in the West consider Iran, we
think about nuclear weapons, women’s rights, and terrorism, but this issue of
foreign oil investment is central to the political future of the Islamic
Republic of Iran. If Iran’s economy fails to recover, the clerics will blame
Rouhani. Iran’s constitution severely limits the powers granted to the
democratically elected president, but the economy happens to be one area where
the president, rather than the autocratic Supreme Jurisprudent, can exercise
control. Except Rouhani’s economic control is limited, when his plans
contravene the revolution. If Rouhani
succeeds, it could be a harbinger of liberalized economic policy. If Khamenei
succeeds, it could mean the continued economic isolation of Iran despite the
intentions of the world.
About the Author
Ellen
R. Wald, Ph.D. is an energy historian. She is currently working on a book
about Western involvement in the post-war Mid-East energy industry. She
teaches Middle East history at Jacksonville University. She
can be reached at ellenrwald@gmail.com.
Her website is www.ellenrwald.com
Full text at: The real
problem with Iranian oil | Futures Magazine
