Iran: ‘Black cloud’ of Trump hangs over new contracts
London - As Iran works to take advantage of the easing of sanctions a year after the landmark nuclear agreement with world powers, the prospect of Donald Trump winning the US presidential election in November looms like a black cloud.
“The public isn’t talking about it; they’re more concerned with the heat wave, prices and problems with water,” an Iranian journalist told The Arab Weekly, “but behind closed doors the defence, oil and economy officials certainly are discussing Mr Trump.”
Plans to open an Iranian bank branch in Greece to facilitate payments are on hold until the US election result is known. The branch is intended to ease problems with payments as Greece’s Hellenic Petroleum increases its purchases of Iranian crude.
Its recent payment of $400 million of $600 million in debts were made in cash because of European banks’ reluctance to facilitate trade with Iran given their wariness over Washington’s possible reaction.
Another sign of nerves has come in comments from Amir Hossein Zamaninia, a deputy Iranian Petroleum minister, over the new terms Iran has been devising for making contracts for developing oil and gas fields more attractive to international oil companies.
Zamaninia envisaged that 15 projects would be offered to the majors by the end of August with the first contract signed within “three to four months”, a timeframe fitting neatly with the US election.
The importance of a new kind of contract — the integrated petroleum contract (IPC) — is reflected in the four years the Petroleum Ministry has spent discussing terms, work that began under previous president Mahmoud Ahmadinejad but whose pace increased when Hassan Rohani was elected in 2013.
The oil majors disliked the old system of “buy back” because projects were short and gave them no incentive to boost profits. Now an IPC would be up to 20 years and, instead of receiving an agreed level of output before handing the field back to Iran, the major would get up to 49% of output.
The scheme has cleared the Resistance Economy Headquarters, a body established in 2015 by Ayatollah Ali Khamenei, the supreme leader, to build unity on economic policy among competing factions.
The decision reflects Khamenei’s backing for Rohani’s strategy of wooing overseas investment, despite criticism from many principlists that the IPCs would water down Iran’s constitutional commitment to public ownership of energy reserves.
Various statistics have been given for Iran’s need for investment in energy. Zamaninia spoke in October of seeking $185 billion by 2020.
Only a small percentage could be raised domestically given the sluggish performance of Iran’s economy and the unquantified but heavy burden of non-performing loans left in the banking sector by the populist lending and fiscal laxity of the Ahmadinejad administration.
Just as important to Iran as investment is access to the advanced technology held by the majors, vital to extending the lifespan of ageing oil fields and to converting reserves in the vast South Pars gas field into liquid natural gas (LNG) for export.
Iranian gas production in 2014 was 5% of the world total, even though the country holds 18.2% of global reserves.
But ending “buy-back” is only part of the solution. The oil majors pulled out of Iran around 2009-11 more in fear of tightening US sanctions than anything else.
France’s Total seems the most enthusiastic of the Western companies to return. Its earlier involvement in Iran petered out around 2010 but in March the company signed a Memorandum of Understanding for a development plan for the South Azadegan field.
Total resumed purchasing Iranian crude almost immediately after US and EU energy sanctions were lifted in February with the implementation of the July 2015 nuclear agreement.
Total and other majors, however, will be wary that potential Iranian partners and subcontractors are linked to companies owned by the Islamic Revolutionary Guards Corps (IRGC), which remains under US sanctions.
Iran has a vast array of state and privately owned companies active in energy, and among those named by the Petroleum Ministry as suitable for foreign partners is Khatam ol-Anbia, the IRGC’s engineering arm.
At the start of the year, Iranian Foreign Minister Mohammad Javad Zarif said in London that the next US president would “not be able to tear up the [nuclear] agreement” as its benefits would be clear to all and it is true that its reversal would require consent from other parties, including Russia and China.
But Trump has not lessened criticisms of what in his acceptance speech at the Republican Party convention he called “one of the worst deals ever negotiated”.
The way Washington applies its remaining sanctions — directly, in restricting dollar access for any business with Iran or in punishing anyone dealing with sanctioned entities like the IRGC, or indirectly, in scaring off international banks and energy companies — will remain important.
This unsettling fact accounts for the nerves over a Trump presidency.