Hassan Dai, March 2014

Rouhani government hopes that offering juicy deals to Western oil firms will make them lobby their home governments to ease sanctions and to be more flexible in nuclear talks

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Rohani’s Oil Minister, Bijan Namdar Zanganeh, who also held the same position under former President Mohammad Khatemi, has a positive record in attracting major international companies to the Iranian oil industry. In August 2013, in a meeting[1] with a private sector representative he said “In the present situation, after the foreign minister, the oil minister with a very active energy policy will play the role of the second foreign minister.” The Economist[2] of London echoed Zangeneh’s declaration and wrote: “Mr Zanganeh hopes that offering juicy deals to Western oil firms will make them lobby their home governments to ease sanctions.” A report[3] on the BBC website highlights the regime’s objectives in using oil to influence the West’s policy.

“Iran probably will try to use oil contracts as an incentive to resolve the nuclear dispute. Offering large projects with contracts that are more attractive to Western companies may persuade these countries to show more flexibility in nuclear talks. Certain media outlets even talk about offering certain projects to U.S. oil companies, a move that Tehran hopes will lead to improved relations with Washington. This whole scenario is only possible if at the least some of sanctions are lifted.”

Bijan  Khajehpour, an Iranian oil broker and the founder of Atieh Bahaar, a Tehran based oil consulting company, explains Zanganeh’s strategy in an article written for Al Monitor[4]:

“Dealing with the negative impacts of sanctions will evidently need to be his main priority. To address the lack of foreign investment and technology, Zanganeh will adopt two approaches: On the one hand, he will return to his “energy diplomacy,” whereby his ministry will utilize oil and gas opportunities to help the government achieve its foreign policy goals. For example, in 2000, when Iran discovered the largest onshore oil reservoir (Azadegan), Zanganeh’s ministry presented that project to Japanese investors as a way of encouraging Japanese companies to lobby their government for better relations with Iran. It is expected that Zanganeh will try to use oil and gas opportunities as a means to compel international companies to work against the existing sanctions regime as well as to once again lobby for better relations with Tehran. On the other hand, Zanganeh will address the shortcomings in the legal aspects of operating in Iran and improve the contractual and operational structures so that companies that are not affected by Western sanctions, such as Asian companies, will engage the Iranian market more aggressively.”

Mehdi Hosseini Chairman of “Oil Contracts Restructuring Committee” in the Oil Ministry has explained how Iran attempts to use these companies in its overall strategy to loosen economic sanctions. In an interview with Asre-Iran on December 11, 2013 Hosseini declared:

“I believe that the Western oil companies which are interested in working in Iran, are good lobbies for us in our negotiations with the West. In addition to oil companies, the banks, service sector and legal businesses will also profit from energy deals with Iran. All these companies are negatively affected by sanctions against Iran and they are upset about it and urge the lifting of sanctions. We (Iran) can use their anti-sanction efforts to our advantage.

Question: Do you mean these companies will pressure their own government on our behalf?

Hosseini: Yes. They have done this in the past. I believe that the pressure by these companies on their own governments can help us in our (nuclear) negotiation. Whatever pressure is exerted on Western governments by these companies will help us and we should exploit these opportunities.”

Iran’s intention to use Western businesses to lobby on its behalf has been also highlighted by the President’s office. In October 2013, after Rouhani’s return from New York, the Center for Strategic Studies, affiliated with the office of the President, convened a consulting session with a group of prominent foreign policy analysts who presented an advisory report in which they evaluated his trip and detailed their recommendations. The group led by Rouhani’s Chief of Staff, Nahavandian recommended that the Iranian lobby should be strengthened in Washington and emphasized the importance of Western oil companies in this lobby campaign: “Iran should strengthen the hand of American groups that accept a nuclear Iran and believe that the US policy of pressure against Iran has failed and urge a new attitude toward Iran. An essential pillar of the Iran lobby in the US are the oil companies and we should push them to be more active,”

In advancing its “energy diplomacy”, Iran tries to prevent the imposition of additional sanctions and also hopes that Western companies should circumvent existing sanctions and hoping that eventually the entire sanction structure will crack under pressure. In an interview with the Financial Times, Mehdi Hosseini at the oil ministry explained the Iranian strategy and declared:

“I agree that sanctions may not be lifted formally, quickly, simultaneously and immediately,” Mr. Hosseini said. But he said there were ways that companies and governments could circumvent them, such as being granted waivers. In 1997, Total defied US sanctions when it signed a contract worth $2bn to develop part of South Pars – the world’s biggest gas field. Other international companies, such as Shell, Italy’s Eni and Norway’s Statoil, followed suit.”

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Stimulating and Incentivizing Western Oil Companies

The regime’s effort in using oil leverage to influence Western policy is by no means new. Traditionally, major oil companies have been Iran’s main ally in the West and especially within the U.S. This has played a significant role in shaping the US policy towards Iran. (See the report “The trade lobby and US policy with Iran“[6]. Iran has the fourth largest oil reserve and the first natural gas reserve in the world. According to the oil lobby, a friendship with Iran will open up Iranian oil as well as the gas sector to US corporations. It will also bring stability to the region as well as the oil supply industry from the Middle East while allowing access to much cheaper oil and gas from Central Asia.

In the early 1990s the Hashemi Rafsanjani’s government signed a pre-agreement[7] with the US oil company Conoco for a project within Iran. The US oil giants considered it as a positive signal and started a campaign to soften public opinion about Iran and ask the US administration to green light business with Iran. Then In 1997, the so-called reformists Mohammad Khatami became president and launched a charm offensive in the hope of softening western attitude towards Iran. American business interests grasped the opportunity and launched a lobbying campaign to change the US policy towards Iran while attempting to remove the economic sanctions. The National Foreign Trade Council (NFTC), representing large US corporations, joined forces with the oil giants to launch its own lobby arm called USA*ENGAGE.  Khatami’s presidency launched the start of a pro-engagement lobby within Washington and it has continued to grow in power and influence since 1997.

Following the failure of negotiations between Iran and the international community in 2010, crippling sanctions including the energy sector were imposed on Iran. As a result, the oil companies’ lobby in the U.S. has declined sharply. Currently, the Rohani government and Zanganeh have launched a new campaign hoping to rekindle the attraction of Iranian oil and gas. They are attempting to do this through the promise of sweet deals with the anticipation of provoking their main allies which are big oil companies to intensify their lobby in Washington D.C.

[1] “Oil minister is Iran’s second foreign minister”, Ebtekar Daily, 14 August 2013. http://www.ebtekarnews.com/Ebtekar/News.aspx?NID=119293

[2] “Dreaming of a new golden age”, Economist, 31 August 2013

[3] “Iran will welcome international oil companies including Americans” Farsi report, 6 October 2013 http://www.bbc.co.uk/persian/business/2013/10/131006_l20_moazami_oil.shtml

[4] Bijan Khajehpour, Al Monitor, 19 August 2013. http://www.al-monitor.com/pulse/originals/2013/08/iran-petroleum-sector-veterans-zanganeh.html

[5] Hadi Nejad Hosseinian, former deputy oil minister, Aftab Daily, 26 June 2008

[6] See “”American Trade Lobby and US policy with Iran”, Iranian American Forum. August 2013 http://iraniansforum.com/lobby/index.php/highlightes/95-the-trade-lobby-and-us-policy-with-iran

[7] “US knew for four years about Conoco-Iran talks”, SF Gate, March 17, 2005 http://www.sfgate.com/news/article/U-S-Knew-for-4-Years-About-Conoco-Iran-Talks-3040682.php