Dar Al-Hayat, Lebanon
June 3 2007
The Impact of Political Pressures on Iran’s Production Capacity
Walid Khadduri Al-Hayat – 03/06/07//
Beirut – On May 24, US President George Bush unveiled new economic
sanctions on Iran, following a report by the International Atomic
Energy Agency (IAEA), issued one day earlier, on uranium enrichment
in Iran and its cooperation with the international organization.
Bush’s announcement has coincided with a statement by his UN
Ambassador that there were disagreements in the Security Council to
prevent the implementation of previous resolutions on boycotting
Iran.
In fact, the US sanctions against Iran date back to the early 1980s,
when it banned US oil companies from operating there. In 1996, the
Congress approved a legislation of the economic sanctions against
Iran and Libya, which imposed sanctions on foreign companies
(non-US), which invest more than $20 million per year in the oil
industry in Iran. The sanctions on Libya were lifted after the
dispute over the bombing of a US passenger plan over Lockerbie,
Scotland, was resolved.
It is clear that the US has not succeeded so far in undermining the
Iranian oil industry, as happened with Iraq in the 1990s. But the US
has used constant pressure to limit the natural growth of this
industry and prevent its return to previous levels before the 1979
Revolution. As is known, Iran’s oil production capacity at the end of
the Shah reign had reached about 6 million barrels per day (bpd), but
it went down during the Iran-Iraq war to about 2.6 million bpd, then
it increased to its current level of 4 million bpd. Meanwhile, the
Islamic republic’s export capacity, estimated at nearly 2.5 million
bpd, remained unchanged for several years. In the last Iranian fiscal
year, the total revenue from oil reached about $54 billion.
There are several factors that combined to cause the delayed
development of Iran’s oil industry compared with the development
achieved in some neighboring countries, including the reluctance of
foreign companies to invest in the Islamic republic because of the US
pressure, internal political conflicts, and the recent big increase
in the cost of investment in oil projects. The oil sector alone needs
up to $15 billion to increase capacity as planned until the end of
this decade.
However, the US pressures led to the obstruction and delay of
investment in land oil fields. The European companies have signed
only two agreements since the beginning of this decade. The first
with the Norwegian company Statoil in 2002, at a cost of $2.65
billion, and the second with Norsk Hydro, also Norwegian, in the
autumn of 2005.
As a result of the US pressure, the Japanese consortium led by the
company Inpex was forced, at the end of three years of negotiations,
to reduce its 75% stake in a project to develop the giant Azadegan
Field to only 10%. Negotiations have been under way for years with
Shell and Total and the Indian Oil Corporation on other oil projects,
but the final signing is always postponed due to the continuing
pressures and cautions about political complications. The caution
practiced by international companies has encouraged Chinese oil firms
to access the Iranian industry.
Despite the availability of vast oil reserves in Iran (about 10% of
the world reserve), Tehran did not build enough refineries to meet
the growing domestic demand for oil derivatives. It also continues to
sell petrol locally at low prices. The price was recently increased
by 25% to 11 cents per liter. Yet it remains one of the cheapest
prices worldwide, in the light of the huge internal demand and the
big increase in annual consumption, in addition to large quantities
being smuggled abroad.
Given the shortage of building new refineries over the years, Iran is
forced to import petroleum products from abroad. It imports 30
million liters of petroleum products daily, while the total
consumption is 75 million liters per day. The cost of these petroleum
imports reaches up to about $4 billion annually.
Iran also failed to implement projects necessary for the export of
natural gas, although it has the second gas reserve in the world (940
trillion cubic feet) after Russia. The main reason behind this is
that international companies fear the US sanctions, in addition to
the difficulty of negotiating with Tehran on the contracts’
commercial terms. Iran keeps changing its position during the
negotiations. It even changes the texts after signing contracts with
other governments.
Today, Iran actually has only two projects to export gas via
pipelines, one to Turkey and the other to Armenia. While projects to
export natural gas or liquefied natural gas have been under study for
years, but without implementation, specifically the extension of a
gas pipeline to Pakistan and India, negotiations on which have
started more than 10 years ago. There are also efforts to develop the
South Pars (which is an extension of a gas field in the north of the
country, but in Iranian waters), where the quantity of production is
still very limited due to delays in the implementation of projects
there.
Iran managed to build two key oil sectors, namely a wide and huge
local gas distribution network to re-inject it in the old oil fields
to increase the pressure and for domestic consumption as in the
factories and power stations.
This nationwide network was build by local companies with Iranian
funding. This sector was not affected by foreign sanctions, and it
would not be affected by them in the future. The second successful
sector is the petrochemical industry, which was built in technical
and financial cooperation with European and Asian companies. But the
operations of this sector could be obstructed if the US stepped up
pressure on Iran in the future.
*Dr Walid Khadduri is an energy expert.
From: Emil Lazarian | Ararat NewsPress
