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Political Turmoil Slows Big Oil Moves in Iran | ASHARQ AL-AWSAT English Archive 2005 -2017
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DUBAI (Reuters) – Political upheaval in the aftermath of Iran’s disputed presidential election has slowed international oil firms’ efforts to find a way through sanctions to invest in the world’s second-largest oil and gas reserves.

Just a few months ago, overtures to Tehran from the United States under President Barack Obama had the world’s most powerful energy companies reassessing the risks of working in Iran and optimistic the shadow of sanctions might start to lift.

But outcry following the June election stirred the biggest internal crisis since the 1979 Islamic revolution, slowing Iranian bureaucracy and spooking dealmakers in big oil firms.

“It’s hard to slow down a turtle, but this has,” said an executive at an international oil company (IOC) on condition of anonymity as he was not authorized to speak publicly. “This has put everything into freefall, no decisions are being made.”

In the first months of Obama’s presidency, energy firms stepped up contacts with Iranian oil officials hoping that with or without President Mahmoud Ahmadinejad, U.S.-Iran relations would improve. But tentative rapprochement has ended, and executives are back to playing a tricky holding game.

“I think there is no way forward in Iran,” said an executive at another big oil firm with experience working in the Islamic Republic. “There is nothing happening, nothing at all, and I think there is no risk that anything will happen any time soon after this election.”

Sanctions have long stopped U.S. firms investing in Iran’s energy sector. European firms were less constrained, but have delayed new deals due to political pressure from Western governments aiming to isolate Iran over its nuclear program. The West says Tehran is working to develop nuclear bombs, while Iran says that it needs atomic electricity.

The politics left Europe’s energy giants trying to convince Iran they wanted contracts while playing down their interest back home.

“IOCs are keeping a watching brief so that if things change they would be in a position to start doing business,” said Ross Cassidy, analyst at consultancy Wood Mackenzie. “The turmoil will make things a bit more difficult and a bit slower.”

Most of Europe’s largest energy companies have Iran plans they would like to advance. Anglo-Dutch Royal Dutch Shell, Spanish Repsol, Total of France and Austria’s OMV all have gas export projects on hold.

Norway’s StatoilHydro wants a service contract for a gas field project, while Eni of Italy is eyeing more work at the Darkhovin oilfield.


The prospect of changes at the oil ministry has exacerbated the impact of political turmoil on the public energy sector.

President Ahmadinejad is forming his new cabinet, and new faces at the ministry and in other senior energy positions could further delay energy sector development.

“Changes in the oil sector are expected, likely creating more gridlock both for ongoing negotiations and for getting approvals in the state company, NIOC, for daily activities,” said Julia Nanay, analyst at consultancy PFC Energy.

Tehran has not signed a big oil deal with a western oil firm for years, and has turned to energy-hungry Asian oil and gas companies to help develop the sector. State-run Asian oil firms are less susceptible to Western pressure and are looking to secure energy supplies for future growth, but even their progress has been slow, analysts said.

“Asian firms are balancing their relations with the international community against their oil and gas requirements for energy security,” Nanay said.


The oil market, weighed down by high inventories and slowing demand, has barely reacted to turmoil in OPEC’s second-largest producer. The impact may have been bigger just over a year ago when commodities raced to record highs and oil prices regularly spiked on Middle East political tension.

Iran’s oil exports have not been affected, but internal strife could contribute to slowing domestic demand growth, PFC Energy said in a report last month. It forecast Iran’s oil product demand growth would slow to around 30,000 bpd this year, down from 126,000 bpd growth in 2008.