Despite having a more diversified economy than its Gulf neighbours, oil and gas revenues only account for 11 percent of Iran’s GDP. Its oil & gas sectors are strategic not only due to their size (the world’s fourth largest oil reserves and first gas reserves), but also because 40 percent of Iran’s foreign currency reserves come from oil & gas revenues.
Although Iran’s multi-level, multi-polar political system allows indirect recourse to the popular will, it maintains decision making power in a fairly small circle dominated by clerical authorities. At the centre is the Supreme Leader, who has the ultimate authority to rule on all state matters. Underneath him are a sprawling number of overlapping and redundant institutions and committees ensuring that the most important decisions are taken by consensus - finding the smallest common denominator acceptable to all of Iran’s many political factions and stakeholders.
Given how intertwined politics and economics are in the country, this structure of power is reflected to an even a higher degree in such a strategic business sector as energy. Despite acknowledgment by the government that foreign investment and technology are needed to fully develop the potential of Iran’s vast hydrocarbon reserves, the energy sector – like the broader Iranian economy – continues to be dominated by state and parastatal organisations that leave little room for the private sector.
In early October 2016, Oil Minister Bijan Zanganeh said that to increase production and revive aging oil wells and infrastructure, Iran’s upstream sector needed US $100 billion. In mid-January 2017, Deputy Oil Minister and Head of the National Petrochemical Company (NPC) Marzieh Shahdaei stated that Iran’s petrochemical industry required US $35 billion of foreign investment to reach its target output of 150 million tons in the next ten years. In the short-term, she said that the country needs to attract US $20 billion of investment in the next five years to complete current on-going projects, emphasising that to this end, credit attraction and international cooperation are major priorities. Related: Kurdish Oil: The Two Biggest Threats
Squaring the circle for the Rouhani administration means treading a fine line between the economic and legal reforms necessary to attract foreign investment, while accommodating the demands of powerful domestic stakeholders.
With this in mind, who are the main political players in Iran’s energy sector?
Oil & Gas Hierarchy
At the top of the institutional structure is the Oil Ministry that oversees the three main national companies in the oil (National Iranian Oil Company NIOC), gas (National Iranian Gas Company) and oil derivatives (National Petrochemical Company NPC).
Although NIOC is a state-owned company, the oil & gas sector is controlled not just by the state, but by the key power players within the state. The most influential player is the Supreme Leader, whose control particularly focuses on oil trading and oil sales. One of his closest loyalists – with years of controversial experience in oil trading – has recently been appointed at the helm of the NIOC trading department, and is the new CEO of NaftIran Intertrade, the NIOC’s Swiss-based oil trading subsidiary.
Next in line of influence comes Iran’s second economic power, namely the Revolutionary Guards (IRGC). Since the Presidency of Mahmoud Ahmadinejad (2005-2013), they have built a heavy presence in the oil & gas sector – not only through their business conglomerate Khatam al-Anbia, but also through minority ownership in a myriad of reportedly private companies acting as EPCs or as sub-contractors in oil & gas field projects. In these cases, they often share the ownership structure with a series of other parastatal companies, such as pension funds or foundations.
This makes the sector extremely politically exposed, yet because it is the country’s most lucrative sector its domestic stakeholders may be more inclined to compromise with foreign actors, whose technology and financial investment they need to fully reach the potential of Iran’s oil & gas sector – thus also increasing their benefits.
The NIOC-NIGC Power Play
The National Iranian Oil Company (NIOC) is one of the largest national oil companies in the world by size and it is responsible for the entire development, production, processing, transport and sale of crude oil.
In institutional terms, the National Iranian Gas Company (NIGC) currently takes the backseat to NIOC. However, since the future of the energy sector is reportedly more promising for gas than oil, it is likely that the power balance between NIOC and NIGC will significantly change.
Prior to 2012, the President held greater institutional influence over NIOC, but the “Powers and Responsibilities of the Oil Ministry Bill” presented to Parliament in March 2012, and approved on 8 May 2012, curtailed the influence of the President in the oil sector in favour of the Oil Minister. The bill also meant to separate the responsibilities of ownership and management, previously combined within NIOC operations. This distinction would be embodied in a newly empowered Oil Ministry determining the future of a subservient NIOC.
Instead of the President, the Oil Minister now chairs the NIOC General Assembly and the influential committee of members of parliament from oil-producing regions. The NIOC Managing Director is no longer appointed by the President, but by the Oil Minister. The Oil Minister also sits on the Supreme Economic Council (SEC), whose agreement is essential for large-scale state investment projects and for foreign involvement in the Iranian economy.
The law significantly increased the power of the Oil Ministry to issue contracts and access funds for the benefit of domestic companies, as well as to grant no-bid contracts in upstream developments.
Oil Minister – a Post that Defies Politics
The rent generated by Iran’s hydrocarbon sector means that the position of Oil Minister is a highly strategic one, and quite often a bone of contention amongst the political elite. The fact that controversial President Ahmadinejad appointed four different Oil Ministers during his time in office is testament to this.
Ahmedinejad’s first two Oil Ministers – Kazem Vaziri Hamaneh (2005-2007) and Gholam Hossein Nozari (2007-2009) - were not part of his inner circle but oil industry insiders, with institutional affiliation to NIOC subsidiary NISOC. In this respect, bureaucratic coalitions extend beyond the executive branch to the legislative branch, and the Iranian parliament has the power not only to reject proposed Ministers it deems to be unfit, but also to launch investigations into any suspicious dealings by the Oil Ministry, NIOC, NIGC or the NIPC.
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The Parliamentary Economics and Energy Committees are particularly influential in this regard. In 2005, President Ahmadinejad’s first three proposed Oil Ministers were disavowed by Parliament. As can be expected, the Parliamentary Energy Committee is also best placed to influence draft legislation before its submission to the Chamber. As such, the post of Oil Minister has been a real source of political and legal manipulation, or power plays, between the institutions of government.
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However, it is publicly known that, since the end of the Iran-Iraq war in 1988, the network of former President Hashemi Rafsanjani (1989-1997) has been actively involved in the oil sector. Political coalitions between Rafsanjani and Reformist President Khatami (1997-2005) - as well as the close cooperation between current President Rouhani, for whom Rafsanjani was a political mentor and strong ally - means that there has been some continuity between the three governments. For instance, current Oil Minister Bijan Zanganeh held the same position during the Khatami administration (1997-2005), and was Energy Minister in Rafsanjani’s government (1989-1997).
Sanctions have had a serious impact, discouraging foreign companies from maintaining their partnerships with Iranian companies; which has consequently contributed to the demise of the internationally-oriented business projects of Rafsanjani and Khatami, ultimately leaving power players such as the Islamic Revolutionary Guard Corps (IRGC) to fill the gap.
Rouhani’s 2013 Election: A Partial Reshuffle of the Oil Sector
Although most of Ahmadinejad’s allies have been side-lined – either dismissed or sued for corruption – following the election of President Hassan Rouhani in June 2013, the IRGC has used its influence to maintain its grip on the lucrative hydrocarbon sector. Its grip was facilitated by former President Ahmadinejad but solidified by the void left by international companies that pulled out of Iran in 2010-2012 following the tightening of international sanctions.
Willing to attract foreign investment and technology, the Rouhani government took to reforming the old buy-backs contracts that were rather unattractive for foreign companies. The buy-backs are to be replaced by the Iran Petroleum Contracts (IPC). However, reluctance from domestic forces meant that implementation of the IPC was delayed for several months. While French oil giant Total had shown an early interest in signing an IPC with Iran, domestic opponents slowed down the process to safeguard their interests, urging that the first IPC be signed with an Iranian company.
As of this month, however, it looks as though Rouhani may be showing an upper hand with news that Total will sign a long-delayed contract for the development of phase 11 of South Pars.
By Shadow Governance Intel
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