Iran: ‘Black cloud’ of Trump hangs over new contracts

Prospect of Donald Trump win­ning US presidential election in November looms like black cloud.

An Iranian demonstrator holds up a portrait of US Republican presidential candidate Donald Trump adorned with a beard and a slogan reading “is Daeishian” (Daesh is Arabic acronym for ISIS), during a parade marking al-Quds (Jerusalem) Day in Tehran, on July 1st.


2016/07/31 Issue: 66 Page: 15


The Arab Weekly
Gareth Smyth



London - As Iran works to take ad­vantage of the easing of sanctions a year after the landmark nuclear agree­ment with world powers, the prospect of Donald Trump win­ning the US presidential election in November looms like a black cloud.

“The public isn’t talking about it; they’re more concerned with the heat wave, prices and problems with water,” an Iranian journalist told The Arab Weekly, “but behind closed doors the defence, oil and economy officials certainly are dis­cussing Mr Trump.”

Plans to open an Iranian bank branch in Greece to facilitate pay­ments are on hold until the US elec­tion result is known. The branch is intended to ease problems with payments as Greece’s Hellenic Pe­troleum increases its purchases of Iranian crude.

Its recent payment of $400 mil­lion of $600 million in debts were made in cash because of European banks’ reluctance to facilitate trade with Iran given their wariness over Washington’s possible reaction.

Another sign of nerves has come in comments from Amir Hossein Zamaninia, a deputy Iranian Petro­leum minister, over the new terms Iran has been devising for making contracts for developing oil and gas fields more attractive to interna­tional oil companies.

Zamaninia envisaged that 15 pro­jects would be offered to the majors by the end of August with the first contract signed within “three to four months”, a timeframe fitting neatly with the US election.

The importance of a new kind of contract — the integrated petroleum contract (IPC) — is reflected in the four years the Petroleum Ministry has spent discussing terms, work that began under previous presi­dent Mahmoud Ahmadinejad but whose pace increased when Hassan Rohani was elected in 2013.

The oil majors disliked the old system of “buy back” because pro­jects were short and gave them no incentive to boost profits. Now an IPC would be up to 20 years and, instead of receiving an agreed level of output before handing the field back to Iran, the major would get up to 49% of output.

The scheme has cleared the Re­sistance Economy Headquarters, a body established in 2015 by Aya­tollah Ali Khamenei, the supreme leader, to build unity on economic policy among competing factions.

The decision reflects Khame­nei’s backing for Rohani’s strategy of wooing overseas investment, despite criticism from many prin­ciplists that the IPCs would water down Iran’s constitutional commit­ment to public ownership of energy reserves.

Various statistics have been given for Iran’s need for investment in en­ergy. Zamaninia spoke in October of seeking $185 billion by 2020.

Only a small percentage could be raised domestically given the slug­gish performance of Iran’s economy and the unquantified but heavy burden of non-performing loans left in the banking sector by the popu­list lending and fiscal laxity of the Ahmadinejad administration.

Just as important to Iran as in­vestment is access to the advanced technology held by the majors, vital to extending the lifespan of ageing oil fields and to converting reserves in the vast South Pars gas field into liquid natural gas (LNG) for export.

Iranian gas production in 2014 was 5% of the world total, even though the country holds 18.2% of global reserves.

But ending “buy-back” is only part of the solution. The oil majors pulled out of Iran around 2009-11 more in fear of tightening US sanc­tions than anything else.

France’s Total seems the most en­thusiastic of the Western companies to return. Its earlier involvement in Iran petered out around 2010 but in March the company signed a Memorandum of Understanding for a development plan for the South Azadegan field.

Total resumed purchasing Iranian crude almost immediately after US and EU energy sanctions were lifted in February with the implementa­tion of the July 2015 nuclear agree­ment.

Total and other majors, however, will be wary that potential Iranian partners and subcontractors are linked to companies owned by the Islamic Revolutionary Guards Corps (IRGC), which remains under US sanctions.

Iran has a vast array of state and privately owned companies active in energy, and among those named by the Petroleum Ministry as suit­able for foreign partners is Khatam ol-Anbia, the IRGC’s engineering arm.

At the start of the year, Iranian Foreign Minister Mohammad Javad Zarif said in London that the next US president would “not be able to tear up the [nuclear] agreement” as its benefits would be clear to all and it is true that its reversal would require consent from other parties, including Russia and China.

But Trump has not lessened criti­cisms of what in his acceptance speech at the Republican Party con­vention he called “one of the worst deals ever negotiated”.

The way Washington applies its remaining sanctions — directly, in restricting dollar access for any business with Iran or in punishing anyone dealing with sanctioned en­tities like the IRGC, or indirectly, in scaring off international banks and energy companies — will remain im­portant.

This unsettling fact accounts for the nerves over a Trump presiden­cy.


Gareth Smyth has covered Middle Eastern affairs for 20 years and was chief correspondent for The Financial Times in Iran.


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