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Total Deals Fresh Blow To Iranian Economy

Flying the national flag at South Pars
With Total's decision to pull out of Iran, the country has lost the last major Western energy company willing to make a significant investment to develop the country’s vast gas reserves.

In an interview with the "Financial Times," Total Chief Executive Christophe de Margerie said the company would quit the deal because "it was too politically risky" to invest in Iran.

His comments come after weeks of rising tension between Iran and the United States over Tehran's nuclear program. On July 9, Iran test-fired nine long-range missiles, warning at the same time that it would respond with massive retaliation to any possible military attack.

Total's pullout is seen by many as a victory for Washington's policy of seeking to persuade allies and the global financial community not to do business with Iran. In recent months, scores of major banks in Europe and elsewhere have agreed not to work with Iran, and Total's decision was seen as partly due to the difficulty in working in Iran without the support of major banks.

It is also seen as a significant blow to Iran's energy industry and economy.

"As a result, other energy companies would also hesitate in [investing in Iran], and therefore Iran's energy industry would be deprived of new technology and other opportunities to develop its oil fields," Shahin Fatemi, a Paris-based expert on the Iranian economy, told RFE/RL's Radio Farda. "And Iran eventually would lose its position as one of the world’s major oil exporters.”

Without Total's investment, Iran is seen as not being able to develop its gas industry and significantly increase its gas export in the next several years.

Total is the latest Western energy giant, after BP and Italy's ENI, to abandon investment projects in Iran due to political tensions between Tehran and Washington.

Iranian economists say President Mahmud Ahmadinejad's nuclear ambitions have been pushing the country into further isolation and damaging its economy.

Iran owns vast energy resources and the world's second-biggest gas reserves. While energy prices have skyrocketed in the past years, Iranians are left to cope with economic hardship, unemployment, and rising inflation.

Mohammad Reza Behzadiyan, the former head of Tehran’s Trade and Industry Chamber, told RFE/RL’s Radio Farda that Ahmadinejad’s policies are to blame.

"Today, the worst economic conditions since the Islamic Revolution are being imposed upon our people," Behzadiyan said. "The situation is even worse than it was during the eight-year war with [Iraq under] Saddam Hussein."

According to Iranian official figures, unemployment is between 8 and 10 percent. The Inflation rate recently surpassed 25 percent.

However, economists estimate the real unemployment rate in Iran exceeds 20 percent and the inflation level is at least 40 percent.

Experts say economic sanctions on Iran have harmed the country's economy in more than one way.

Iran has said it needs as much as $100 billion to develop its energy sector in order to significantly increase gas and oil export. Without investments from major Western energy companies, it is unlikely that Iran can raise the money to develop its oil and gas fields anytime soon.

Because of the sanctions, Iran or its agents cannot purchase advanced Western technology both to develop its energy industry and other sectors. For instance, Iran cannot obtain Boeing or Airbus aircraft, and relies on outdated Russian aircraft.

Prior to Total's decision to pull out, Tehran had hoped that the French group's investment would provide many benefits for the country, including jobs, an increase in foreign exchange revenue, and development for the southern areas.

Iranian Oil Minister Gholamhossein Nozari vowed after Total's announcement that his country would go ahead with its development of the Pars field. "This is our message: We will proceed with development with or without them," Nozari said.
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    Farangis Najibullah

    Farangis Najibullah is a senior correspondent for RFE/RL who has reported on a wide range of topics from Central Asia, including the impact of Russia’s invasion of Ukraine on the region. She has extensively covered efforts by Central Asian states to repatriate and reintegrate their citizens who joined Islamic State in Syria and Iraq.