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Iran: Government Seeks Foreign Oil Investments

Iran's government seems to be making a new push for foreign oil investment by confronting conservatives that see outside interests as a threat. Reformers may see their recent victory in parliamentary elections as a sign that it is time to act in Iran's economic interest. RFE/RL's Michael Lelyveld reports.

Boston, 5 June 2000 (RFE/RL) -- Iran may be showing new determination to open its oil market to foreign investment since the convening of a more liberal parliamentary Majlis last month.

In an unsigned editorial last week, the Iranian official news agency IRNA said the country must encourage foreign investment to bring needed technology to the oil industry.

IRNA cited the eight-year war with Iraq, the imposition of trade sanctions and what it called "various obstacles in international relations" since the 1979 Islamic Revolution as factors limiting Iran's access to technology for oil development.

By its own assessment, Iran needs at least $3 billion in investment to increase production capacity and another $2.5 billion to make up for the depletion of old oil wells. Some foreign analysts saw Iran's production problems as a major reason for its resistance to OPEC output hikes earlier this year.

The IRNA editorial frankly addresses concerns that Iran may not be able to maintain its position as OPEC's second biggest producer unless it attracts more investment.

On one level, there is little new in this self-appraisal. Officials of Iran's Oil Ministry have periodically issued similar statements. Government experts have been even more outspoken about Iran's needs in interviews. Last November, the former Majlis passed a measure to open oil investment as part of the current five-year plan, but many obstacles remain.

The timing and carefully worded terms of the IRNA analysis suggest that a serious initiative is now taking place since the recent electoral victory for Majlis reformers. The attempt is to use the mandate of the recent poll to overcome hardline suspicions of foreign involvement in the strategic oil sector.

In making its case, IRNA has been careful not to mention any foreign nations by name, apparently to avoid a domestic backlash against countries such as the United States. The implication is that no country should be excluded if it can contribute to Iran's economic growth.

In this regard, the editorial said, "An end should be put to the wrong concept that inviting foreign investors or concluding agreements with foreign firms for the development of oil fields implies to losing sovereignty and national ownership over such resources."

Foreign Minister Kamal Kharrazi has voiced similar views in recent months. In January, Kharrazi said, "We consider the U.S. role in the region from various angles. One of these angles can be economic. If this role is based on non-interference in the affairs of the regional countries, we will welcome the presence of U.S. companies in order to contribute to economic development of the region."

Last month, Kharrazi added, "Even if we had ties with the United States, it would (be) not only to serve the national interests but the consequence of a multidirectional policy."

The anonymous authorship of the IRNA editorial suggests that it comes from a higher level than the Oil Ministry. In fact, it urges the ministry to study foreign agreements in other OPEC countries and "make use of their experience."

The implication is that the authorities seem ready to tackle one of the toughest problems for investment, the interpretation of Iran's constitution that bars direct foreign equity ownership of oil projects and allows only "buy-backs" that repay investors with oil.

The editorial concluded that the "Buy-back scheme is neither the last nor the least means to absorb foreign investment in the Iranian oil industry."

But the hurdles remain high. The U.S. government has banned oil investment in Iran since 1995, and a change in policy awaits improvement on a range of security issues. Political pressures within Iran also remain strong, but it is these which the authorities may now be working to control.

Last December, the government came under heavy criticism for considering deals with foreign companies including the British-Dutch firm Royal Dutch/Shell, which hardline newspapers said were linked to "Zionists." Officials argued that such charges only served to help Iran's enemies by preventing investment. In this instance, Iran's isolation has been self-imposed.

But if Iran's reformers now feel strong enough to promote the country's economy over the forces of distrust, it may be able to convince the Iranian public that they can defend both its interests and its values at the same time.