Oil and Iran

With the Bush Oilygarchy now moving the US towards its third major oil war in two years (not counting the lesser ongoing battles for oil in Colombia, Philippines, Venezuela, etc.), recycling the phrases and speeches about weapons of mass destruction, al Qaeda connections, and the need to restore democracy they used in the buildup to the Iraq invasion, here are some facts about Iran to keep in mind, courtesy of the DOE's Energy Information Administration……

As of late 2002, Iran held 90 billion barrels of proven oil reserves, or roughly 9% of the world's total. (In contrast, Iraq holds more than 112 billion barrels of oil, the world's second largest proven reserves, representing about 11% of the world total.) The vast majority of Iran's crude oil reserves are located in giant onshore fields in the southwestern Khuzestan region near the Iraqi border and the Persian Gulf. During 2002, Iran produced about 3.5 million bbl/d of oil. Iran's current sustainable crude oil production capacity is estimated at around 3.75 million bbl/d. However, it is possible that with sufficient investment, Iran could increase its oil production capacity significantly. Iran produced 6 million bbl/d in 1974, but has not surpassed 3.8 million bbl/d on an annual basis since the 1978/79 Iranian revolution. Also, Iran's oilfields are - according to Oil Minister Zanganeh - experiencing a depletion rate of 250,000-300,000 bbl/d per year, and are in need of upgrading and modernization.

In 2002, around 28% of Iran's oil exports went to Europe, 20% to Japan, and under 10% to South Korea, with other large customers including China and India.

In October 1999, Iran announced that it had made its biggest oil discovery in 30 years, a giant onshore field called Azadegan located in Khuzestan province, a few miles east of the border with Iraq. Reportedly, the Azadegan field could contain oil reserves of up to 45 billion barrels, with potential production of 300,000-400,000 bbl/d. On November 1, 2000, agreement was reached between Japan and Iran for Japanese firms (Japex and Indonesia Petroleum, both majority-owned by the Japan National Oil Company - JNOC) to receive priority negotiating rights in developing Azadegan. In exchange, Japan is to loan Iran $3 billion; in April 2002, the second $1 billion installment on a $3 billion credit line was disbursed. In January 2001, the Majlis approved development of Azadegan by foreign investors using the so-called "buyback" model (see below). In early March 2003, however, the Iranian official in charge of developing Azadegan said that Iran and Japan had not yet reached a final agreement on the project.

While the Iranian constitution prohibits the granting of petroleum rights on a concessionary basis or direct equity stake, the 1987 Petroleum Law permits the establishment of contracts between the Ministry of Petroleum, state companies and "local and foreign national persons and legal entities." "Buyback" contracts, for instance, are arrangements in which the contractor funds all investments, receives remuneration from the National Iranian Oil Company (NIOC) in the form of an allocated production share, then transfers operation of the field to NIOC after the contract is completed. The following oil companies are currently involved in "buyback" contracts with the Iranian government: Italy's ENI-Agip, France's TotalFinaElf Aquitaine, Canada's Sheer Energy and Bow Valley Energy, Norway's Statoil, and Spain's Cepsa.

In March 2003, President Bush extended sanctions originally imposed in 1995 by President Clinton for another year, citing Iran's "support for international terrorism, efforts to undermine the Middle East peace process, and acquisition of weapons of mass destruction." The 1995 executive orders prohibit U.S. companies and their foreign subsidiaries from conducting business with Iran, while banning any "contract for the financing of the development of petroleum resources located in Iran."

Aside from acting as a transit center for other countries' oil and natural gas exports from the Caspian Sea, Iran has potentially significant Caspian reserves of its own, including up to 15 billion barrels of oil and 11 trillion cubic feet of natural gas. (Remember that the vast Caspian reserves were behind the Bush Oilygarchy's first major oil war in Afghanistan.) Currently, Iran has no oil or natural gas production in the Caspian region, although in March 2001 NIOC signed a $226 million deal with Sweden's GVA Consultants and Iran's Sadra to build an oil rig in the Caspian Sea off Mazandaran province. This marks Iran's first exploration attempt in the Caspian Sea, whose legal status among regional states remains in dispute.

At the present time, Iran maintains the most isolated position among the Caspian Sea's littoral states on the division of the Sea. Iran insists that regional treaties signed in 1921 and 1940 between Iran and the former Soviet Union, which call for joint sharing of the Caspian's resources between the two countries, remain valid. Iran has rejected as invalid all unilateral and bilateral agreements on the utilization of the Sea. As such, Iran is insisting that either the Sea should be used in common, or its floor and water basin should be divided into equal (20%) shares. Under this plan, the so-called "condominium" approach, the development of the Caspian Sea would be undertaken jointly by all of the littoral states.

On July 23, 2001, tensions flared in the Caspian Sea region when an Iranian gunboat intercepted two BP oil exploration vessels off Azerbaijan's coast. Following the incident, BP suspended exploration in the disputed block (which Iran calls Alborz). In March 2002, Iran's Oil Minister Zanganeh asserted that Iran would begin exploiting its fifth of the Sea within a short time, and would not permit "any other party to engage in oil exploration" in this area. In January 2003, Iranian Foreign Minister Kamal Kharrazi reiterated the country's claim to a 20% share of the Caspian, and in early April 2003, Oil Minister Zanganeh said that Iran would start Caspian drilling within a year or two.

31 May 2003