Ineffective, self-defeating, useless. These are some of the adjectives that Iranian spokesmen are using to describe the five-year long sanctions imposed on Iran by the United States. The US Senate with an almost unanimous vote has just extended the sanctions, which also affect Libya, for a further five years. President George W. Bush had tried to cut the period to two years, but failed. He will now have to sign the new extension sometime next week.
One may wonder why Tehran isso angry about sanctions that it regards as ineffective.
The answer is that the sanctions, imposed under President Bill Clinton in 1996, mark out Iran as a “rogue state” that must somehow be excluded from mainstream international activity. Some analysts, however, believe that the practical impact of the sanctions, that ban investment in the Iranian and Libyan energy industries for anything more than $20 million a year, are at best irrelevant and at worst counterproductive.
One defect of this law is that it groups together Iran and Libya. The law was written at a time that an anti-Iran lobby needed the votes of an anti-Libyan lobby in the Senate. Things have changed since then. Libya has complied with its obligations about the Lockerbie air tragedy and is keen to do business with the US.
The sanctions also ignore key differences in decision-making processes in Libya and Iran. In Libya Muammar Qaddafi can decide whether or not to seek close ties with Washington. In Iran, however, no single political figure is in a position to impose such a decision.
The impact of the sanctions on Iran and Libya are not the same. Oil experts believe that Libya will have little difficulty securing European investment to develop new oilfields and upgrade its oil industry. The flow of investment to Libya is, in fact, already under way with over 80 contracts of various sizes either signed or in the process of being negotiated.
Iran will not get such an easy ride. In the 1990s, Iran’s neighbor Turkey, which has no oil resources, attracted over $90 billion in direct foreign investment. Iran, however, has failed to secure a single dollar of direct foreign investment. A number of contracts have been signed with European, Japanese and even South American companies. But these are almost exclusively based on the “buy-back” model that few experts regard as real investment.
“Iran should open up its oil and gas industry to genuine foreign investment,” says Mehdi Varzi, a senior oil analyst in the City of London. Varzi says that more than two-thirds of Iran’s current oil production comes from fields that were already in operation in the 1960s. For comparison that figure is less than 15 percent for Saudi Arabia.
Thus what Iran’s oil industry needs is both investment and new technology. Gary Sick, a former White House official who now campaigns for the lifting of sanctions against Iran, says that the Bush administration needs to vilify Iran in order to “justify the anti-missile program.” Other Washington analysts say that the advent of Ariel Sharon as Israel’s prime minister has made it harder for the US to lift sanctions against Iran. Former Israeli Prime Minister Ehud Barak is understood to have supported a lifting of sanctions against Iran as part of a strategy to reduce tension in the region. Sharon, however, has been adamant that Iran should remain “ fully contained”.
Despite their dismissive remarks, Iran’s leaders are angry and concerned about the extension of the sanctions. Iran’s domestic oil and gas consumption is increasing by 16 percent a year. This means that, unless it doubles production within a decade, Iran might cease to be a major oil exporter. Iran needs a minimum of $30 billion in direct investment over the next decade to modernize its energy industry, bring new fields on stream, restore some of the dying fields and, more importantly, tap its immense gas resources in the Gulf.
Some analysts say Iran may be losing out to Qatar that is exploiting the southern half of a giant offshore gas field shared with Iran. “The South Pars field which the Qataris call the North Field may be the most valuable piece of gas property in the world,” says Rahim Akhtari, an energy analyst. “Iran, however, is doing nothing but watch as Qatar builds its position as a global player on the basis of that field.”
During the past five years, Iran has organized investment “road shows” in London, Paris, Berlin, Tokyo and other major capitals. So far, however, it has failed to pin down concrete commitments. “A lot of memoranda are initialed by Iran with foreign companies,” says Akhtari. “But the actual money that flows in is close to zero. In most cases Iran itself provides the initial funds needed for feasibility studies.”
The main reason for this lack of foreign investment, however, may be the chaotic system of policy-making in Tehran. “We really don’t know who is in charge,” says a senior French oil executive on condition of anonymity. “The oil minister is little more than a façade. Decisions must be taken by a series of organs, some of them occult.”
Various aspects of the Iranian energy industry are handled by one or more of the 32 semi-independent companies that have sprang out of the National Iranian Oil Company (NIOC). The NIOC itself has become an empty shell, with its budget and investment programs controlled by a dozen outside committees.
The French oil executive also cites “brazen demands for bribes” by semi-official figures in Tehran as a problem “We are told that we must make a contribution to this or that fund for martyrs or the dispossessed,” he claims. “Every time you pay one, another knocks on your door.”The kickback issue has been at the center of a public controversy between President Khatami’s faction and its opponents. More hard-line Khomeinists have accused the pro-Khatami groups of creating secret funds to divert part of the oil income for partisan political purposes.
Oil Minister Bizhan Namdar Zangeneh is expected to lose his present seat in the Cabinet reshuffle that Khatami is expected to announce soon. The hard-liners want Zangeneh to be replaced by Kazempour Ardebili, a former security official who last year tried to win the post of OPEC’s secretary-general.
Whoever gets the oil portfolio in Tehran would quickly realize that the extension of the American sanctions is just one of the problems that Iran’s energy industry faces.
