Dec 10, 2009
By Sayeh Sabz
LONDON - A recent study in Iran has shown that the country is in dire need of investment in its energy industry, without which it may suffer grave consequences. A leading official think-tank affiliated to Iran's parliament, the Majlis Research Center, says that Iran needs at least US$4.5 billion of investment in its energy industry.
Otherwise, it added in the October report, Iran in the worst-case scenario would have to stop oil exports in eight years. Whether realistic or not, the report gives a stern warning to Iranian officials that their nightmare of diminishing oil income may be about to
come true in a country where 85% of the annual budget is funded by such revenues.
Although President Mahmud Ahmadinejad uses every opportunity to defend and praise his economic policies, Iran's ailing economy has even led the president's allies, including conservative members of parliament, to harshly criticize the government and even suggest the possibility of impeaching the president, according to Aftab-e Yazd daily on December 7. But how did Iran end up here?
A combination of bureaucracy, wrong foreign policies, sanctions and corruption have brought Iran's energy industry to its knees, making it hard for foreign investors. The roller-coaster of bureaucracy in Iran, with bottlenecks that a contract has to go through before being signed, inconsistency and officials' indecisiveness, is just part of the diseased contract system in Iran. Politics plays its own key role in what contract should be awarded to which favored company.
When Ahmadinejad took power four years ago, foreign investment, particularly by European-based international oil companies, was on the rise. Under the previous reformist administration of Mohammad Khatami, the French oil giant Total, then TotalFinaElf, defied United States sanctions and became the first of many European and foreign companies to come to rescue Iran's war-hit oilfields.
Although not a big investment boom, the positive trend promised to maintain a flourishing energy industry and allow Iran to retain its position as the second-largest producer among members of the Organization of the Petroleum Exporting Countries (OPEC). But with the major shift of policy in Iran's foreign relations and economy under Ahmadinejad's hardline administration, Iran may find it hard to keep on the same track.
Ahmadinejad's "look to the east" policy brought about rather sudden changes and, in less than four years, the country's energy sector has become a playground for Russian and Chinese oil companies while their Western counterparts are growing cautious over investment.
However, it would be untrue to say that Iran suddenly turned to Chinese companies with the arrival of Ahmadinejad. Indeed, less than a year before he came to power, the country signed a memorandum of understanding with Beijing that promised investments of up to $100 billion by Chinese firms in Iran.
In line with the memorandum, China's Sinopec was awarded a multi-billion-dollar deal in November 2009 to develop Iran's Yadavaran oil field.
The presence of Chinese firms in Iran's oil and gas industry has, however, significantly increased in recent years. Russian, Turkish, Indian and Belarus companies have also joined the European firms that were in Iran prior to Ahmadinejad's arrival.
In 2005, after a long chase for a major oil contract, British Petroleum ended its Iran program, citing the high risks attached to investment there, such as US sanctions. The company was followed by British Gas and, most recently, by Brazilian Petrobras and Norwegian StatoilHydro.
Alongside the policy shift by the Iranian government, its bureaucracy and oil apparatus have caused the country to suffer considerably. Whether Western or Eastern, oil companies have to go back and forth in a maze of Iranian departments, ministries and the parliament in order to kick-start a project. Even then, they are not safe from contractual hiccups, as could be the case with any other country.
Sometimes the stalling does not come from the Iranian government; indecision by European firms in the face of increasing global pressure and sanctions can cost them lucrative contracts. The most recent example was the elimination this month of France's Total from the South Pars gas field's Phase 11 development, which Tehran said was being delayed "excessively". Total and Iranian officials had been discussing the corporate development of Phase 11 and production of liquefied natural gas from produced gas since 2004. After almost five years, the contract was eventually awarded to China National Petroleum Corporation, and Total has been told that it would be "welcome" to cooperate with the Chinese side if interested.
It is too early to decide whether the Iranian romance with the East has been affected by both China's and Russia's vote against Iran at the United Nations nuclear agency in late November and Russia's failure to deliver on time the Bushehr nuclear power plants and S300 missiles to Iran. So far, Tehran has not taken a strong position against the two countries. Ahmadinejad described Russia's vote against his country as a "mistake".
What is clear is that the Iranian government is in dire need of investment, whether foreign or domestic, in its oil and gas industry.
Under current pressures and sanctions and with Ahmadinejad facing a legitimacy crisis after the June presidential elections, the prospect of further Western investment in Iran becomes less and less likely.
Sayeh Sabz is the pseudonym or an Iranian journalist in Britain.
Source: http://www.atimes.com/atimes/Middle_East/KL10Ak01.html
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