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Iran: Conservatives Attack Reformists Over Foreign Investment

  • Azam Gorgin
  • Charles Recknagel

Foreign involvement in Iran's energy sector is a sensitive political topic in Tehran. Economic reformists seek greater outside investment to develop the country's oil and gas fields but conservatives worry it will lead to foreigners gaining control over natural resources. Now, the dispute has heated up again as an influential hard-line cleric last month charged the Oil Ministry with diverting Iranian oil revenues to foreign bank accounts. RFE/RL correspondents Charles Recknagel and Azam Gorgin report:

Prague, 9 August 2001 (RFE/RL) -- Iran's reformists might have expected to have earned some respite from conservative attacks thanks to the landslide re-election of President Mohammad Khatami, who was sworn into office yesterday.

Instead, there are signs that the conservative offensive -- which in the past two years closed down most reformist papers and saw many outspoken liberals jailed -- is not only continuing, but widening.

Yesterday, just hours after Khatami took office pledging to reinforce Iran's civil institutions, the hard-line Judiciary closed down one of the largest of Iran's remaining reformist papers.

And last month, top conservatives gave signs they intend to broaden their attacks on reformists -- so far mostly confined to the political domain -- into the economic arena as well.

A highly influential conservative cleric, Ayatollah Ahmad Jannati, created a furor by accusing the reformist-led Oil Ministry in a speech on 1 July of diverting Iranian oil revenues to foreign bank accounts. He also said that he knew the names of "those inside the oil empire who plunder millions and millions" and threatened to hand over those names to the Judiciary.

Jannati's speech attracted enormous attention because he heads the powerful Guardians Council, which oversees legislation to assure it conforms to the values of Iran's Islamic Revolution. He is also a key figure among conservatives who oppose Khatami's policy of cautious liberalization, which includes opening Iran's energy sector to greater foreign investment.

Iran's Oil Minister Bijan Zanganeh immediately branded the speech as defamatory and politically motivated. The minister also challenged the powerful ayatollah to reveal the names or be brought to justice himself for "disrupting public opinion."

Many observers say the allegation of fraud was a direct attack on Behzad Nabavi, a leading reformist and a close Khatami ally who also heads the para-statal oil company Petropars. Khatami sent a letter to Nabavi calling the allegations "baseless" but called for a thorough investigation into the charges of corruption in the Oil Ministry.

As reformists counterattacked, Jannati himself later backed off his charges. On 19 July, Iranian papers reported that Jannati had sent a letter to Khatami saying he had made the statements about the Oil Ministry after receiving "incomplete information." But Jannati's reported statement left it unclear whether he or other conservatives might renew the charges later.

Analysts say that the conservatives carried their attacks on reformists to the economic field to strike at two of the Khatami's government's most vulnerable points.

The first is widespread public unhappiness with Iran's economy and Khatami's management of it. The economy has been in recession for nearly eight years, with unemployment officially at 15 percent but independently estimated as much higher. Khatami's mostly conservative rivals in the 8 June election made the economy their campaign issue, with one of the strongest challengers promising to boost the economy by rooting out corruption.

At the same time, Jannati's charges played to widespread criticisms that Khatami's government is moving too fast with the opening of the oil and gas sectors to foreign investment.

Simon Williams, a regional expert with the Economist Intelligence Unit in London, told RFE/RL recently that such protectionist sentiment goes to the heart of the values of Iran's 1979 Islamic Revolution, which outlawed granting mineral concessions to foreigners:

"There are some particular sensitivities about the oil sector. Certainly, this idea of foreign exploitation of Iran's oil wealth is something which dates back right to the (Islamic) Revolution and it's a very strong political tool in that sense. It's part of the post-revolution discourse and it's also part of that discourse to point to corrupt officials who have either profited directly through kickbacks or other kinds of illicit payments or who [are believed to] have sold Iran out too cheaply."

Williams says protectionist fears have risen in recent months as Iran has concluded a new string of large-scale investment deals with foreign firms. Jannati made his charges the day after the Italian oil company ENI signed a $920 million deal to develop the Darkhovin oil field. Eight days later, the oil minister signed a preliminary agreement with a Japanese consortium to explore the much larger Azadegan field. Williams says:

"In part, it's that run of large oil deals, which really have been on a tremendous scale, that has brought [the charges against the Oil Ministry] to the fore. Whatever is happening inside of Iran that is of economic or political import will become part of the ongoing factional struggle, so it has begun to draw in the whole foreign direct investment issue."

"The Economist" reported this month that the value of deals with foreign oil companies signed since Khatami first took office in 1997 now approaches $15 billion.

Because Iran's Constitution forbids foreign oil companies from having a stake in energy production, the deals are so-called "buy-back" arrangements whereby foreign companies help explore and develop fields in exchange for a share of the profits once oil or gas begins to flow. The production itself is under Iranian control.

Such buy-back schemes are considered a very conservative form of investment by oil companies, which prefer to take a direct part in production to maximize their profits. But the arrangements, Williams says, are considered radical in Iran:

"[Buy-back] is cautious, but in the context of Iran in some ways it is quite radical. It's returning to a reliance on foreign oil companies to develop Iran's natural wealth, and given that is something that did not happen for 15 to 20 years post-revolution, to start drawing foreign companies into Iran in a large way is quite a radical step."

He continues:

"The buy-back contracts have a number of problems associated with them, partly because they certainly lack transparency. Many of the commercial details of the buy-back contracts aren't released. They are also on a substantial scale, we are talking about billions of dollars of foreign funds flowing into Iran, [and the fact] so many deals are being agreed so quickly arouses suspicion."

Many Iranian opponents of buy-back schemes fear they will evolve toward conventional production-sharing agreements. The recent ENI contract allows Italian engineers a "monitoring" role once the oil begins to flow. The precise nature of the role is not clear but appears intended to partially answer foreign companies' concerns over leaving the pace of output -- and of their own remuneration -- entirely in another's hands.

As Iran's oil sector has become the latest battleground in the ongoing struggle between conservatives and reformists, analysts say the furor is not likely to scare off foreign investors or threaten future oil deals. Williams says the reason is that investment is considered too important to the Iranian government's economic development plans for Tehran to forego.

But in one sign that reformists may now seek to ease public concerns over the deals, Oil Minister Zanganeh said late last month he would begin publishing the contents of some contracts. He had previously refused to reveal details on grounds of commercial confidentiality.