The timid oil market response to the deal with Iran signals the uphill battle awaiting the Iranian oil industry in returning as a key market player if and when sanctions are lifted.

The limited and narrow movement of the barrel price shows clearly that the market fundamentals have a long way to go before remarkable change takes place.

Iran is a founding member of OPEC with the fourth largest proven reserve of crude oil worldwide and second in gas, but more than three decades of ideologically driven politics that led to sanctions, and absence of foreign investments and technology have crippled the country’s oil industry.

However, it is not strange that the new reformist regime led by Hassan Rouhani, picked for his oil portfolio, is an experienced minister who served under another reformist regime of Mohammad Khatami.

Bijan Namdar Zanganeh served as Iran oil minister during 1997-2005, where he tried to make a difference.

In testifying to the Majlis, the Iranian parliament, before being endorsed for the job, Zanganeh told the MPs that they are not going to vote him to go to a five-star hotel, “but to frontlines of fighting with sanctions” as has been reported.

Though sanctions remain the main worry for potential foreign companies as well as to Tehran, the Iranian oil industry has its own indigenous problems that ought to be tackled.

On top of these is that the Iranian constitution prohibits foreigners from owning any hydrocarbon resources or even contractual rights to own any oil or gas.

It was during the previous tenure of Zanganeh that he introduced the “buyback” concept, which allows foreign companies to bear all the risk, invest in developing oil or gas fields and in return they have a fixed price with a guaranteed profit margin.

The buyback deal looks like the BOT (build-operate and-transfer) method that allows private companies to build some infrastructure projects, operate them for some time to collect back their investment, then transfer the ownership of the project to the government.

And in this case it is the National Iranian Oil Company.

That approach proved to be successful given Iran’s conditions at the time. A growing list of world companies such as Total, Shell, ENI, Statoil and Gazprom showed interest and got into serious negotiations.

The US-based Conoco company was about to secure a $1 billion deal, when the then US President Bill Clinton signed a law barring American companies from doing business with Iran within his famous dual containment policy against both Iran and Iraq.

Foreign companies, however, found out that experience was not really encouraging given the lengthy time of negotiations that amounts to years in some cases.

Besides, there is the tough political anti atmosphere, where an influential segment of the society stands against such deals, including the Revolutionary Guard as well as conservative members within the parliament and the government.

That is why the two terms of former President Mahmoud Ahmedinejad. spanning eight years. saw a systematic effort to undo what has been achieved during the tenure of Zanganeh at the oil portfolio.

Moreover, there are two more related problems: the high politicization in the country that affected every institution, including the oil sector where thousands were employed, not to meet actual needs or because they are professionals, but as part of the drive to provide jobs to the growing numbers of unemployed young graduates.

Besides, there is the growing issue of subsidies applied to products that is estimated to cost the government coffer close to $80 billion and result in repeated shortages and black market practices.

Yet the main challenge, in fact, is whether Iran can provide enough incentive for foreign companies and be able to attract their investments and technology.

Aside from sanctions, there are policy fluctuations; nobody is sure that policies preached and applied by Zanganeh will be sustained on the long run and that they will not face the fate of his previous experience.

In addition, with the opening of more secure and lucrative opportunities in the US and other places like Kurdistan on more exciting terms, Iran may not stand a very good competitive chance.

The case of Iraq next door is very telling.

Despite the talk that the prime reason for the 2003 US invasion of Iraq is to secure its oil reserves for the American companies, it turned out that it was European and Asian companies who are now dominating the Iraqi oil scene.

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