US, China, Russia and Politics of Energy in Tehran
By Alex Vatanka, Senior Expert at Caspian Policy Center (CPC)
In December, big Russian energy firms – such as Gazprom, Lukoil and Zarubezhneft – signed more agreements in Tehran while attending a large Iranian-Russian economic summit.
Elsewhere, the Chinese are under pressure by Tehran to honor their contractual commitments signed with the National Iranian Oil Company (NIOC) or step out of projects and let others move in. Nonetheless, Iranian-Chinese energy ties continue to be strong with Beijing second only to India as an export market for Iranian crude.
In fact, there is a faction inside the Iranian political system that wants to make Russia and China the dominant foreign players in Iran’s energy industry. And what drives this faction has less to do with commercial logic than it is a product of domestic political interests and rivalries.
Tone from the top
It was Iran’s Supreme Leader, Ayatollah Ali Khamenei, who put all pro-Western voices in Tehran on notice in a speech he gave on 7 October 2015. Speaking only three months after Tehran had signed the historic nuclear deal with world powers, Khamenei was blunt. He forbid any direct negotiations with the United States and thereby put immense pressure on pro-Western voices in the government of President Hassan Rouhani. Those in Tehran fearing the return of large-scale Western commercial presence in Iran were delighted by the speech.
Khamenei’s speech was undoubtedly targeted at Rouhani and his foreign minister Javad Zarif, who he accused to be naïve in relations to Western policies, but other officials in the Rouhani inner circle were also put on notice. This includes top officials from the Iranian energy sector, including Oil Minister Bijan Zangeneh and his close lieutenants.
Within Zangeneh’s close team, the most “pro-American” is arguably Mehdi Hosseini who is in charge of drafting and launching the Iran Petroleum Contract (IPC), an ongoing initiative aimed to incentivize foreign interest in Iran’s oil and gas sectors. Khamenei’s warning come at a time when Hosseini had come under increasing pressure to make less public efforts to attract foreign investors.
Most of the condemnation of Zangeneh, Hosseini and the IPC has come from circles close to either the Islamic Revolution Guards Corps (IRGC) or figures close to former President Mahmoud Ahmadinejad. The noisiest opposition in the parliament has come from parliamentarians who have led the way in calling the IPC “unconstitutional.” In various print and broadcast interviews, they have been alleging that the Oil Ministry has engaged in secret negotiations with foreign energy firms.
But Zangeneh and his team, clearly anticipating such backlash, have continued to push back. In a bold but telling step, Zangeneh has let it be known that the IPC does not need the approval of the parliament to be implemented. He has been even more stirring when he has spoken in favor of American energy firms entering the Iranian oil and gas sector.
Gentle push back
But as we have seen since he came back to the Oil Ministry in August 2013, Zangeneh wraps his arguments in nationalistic terms. As he puts it, the participation by American energy firms will help Iran secure better deals in a more diverse pool of investors.
At the same time, Zangeneh’s team is focused on two key talking points. First, that the new IPC will make it harder for foreign energy firms to abandon Iran in the event of future political tensions between Tehran and the international community. Second, that the IPC will under most circumstances force foreign energy firms to find local Iranian firms as joint project partners. In other words, that Iranian know-how will increase due to such ventures with outside players.
Both points directly relate to Supreme Leader Ayatollah Khamenei’s expressed wish to see Iran become more economically independent and diplomatically less isolated as the country moves forward following the July 2015 nuclear agreement.
Another overarching message from the Oil Ministry is that time is not on Iran’s side and that foreign investment needs to be attracted in an environment of tough global and regional competition. This argument has been most relentlessly made by Mansour Moazzemi, the deputy oil minister for planning of the hydrocarbons sector and arguably the top macro-strategist at the oil ministry.
The backlash against the IPC will continue to come in as the Oil Ministry looks to continue its efforts to attract foreign investment. Critics will continue to be loud. Some of the pushback, particularly from figures close to Supreme Leader Ayatollah Ali Khamenei, is effectively nothing more than face-saving by elements in the system that have long rejected the logic of closer economic ties with the West.
They will paint Rouhani’s plans to attract foreign investment and to borrow heavily from Western financial institutions as a recipe for exacerbating the existing problem with nepotism and corruption in the system. And yet, they agree that foreign investment in one form or another is a must for Iran and is certain fields such as the energy sector.
Given this reality, the real political fight to come in Tehran is about the sources of foreign investment. Rouhani and his team will want a broad approach to investment and include Western partners. The anti-Western hardliners, particularly those found in the ranks of the IRGC that has massive vested financial interests in Iran’s energy sector, will much rather deal with the Russians and the Chinese.
They see investment from those countries to be free of political strings attached. For this interest group in Tehran, a greater Western commercial footprint in Iran is tantamount to a win for domestic Iranian moderate forces. This is something Iranian hardliners are adamant to prevent from happening.
Alex Vatanka is a Senior Expert at Caspian Policy Center (CPC). He is also Senior Fellow at the Middle East Institute and the Jamestown Foundation in Washington D.C. Follow him @AlexVatanka
The views expressed in this article are those of the author alone and not Caspian Policy Center.