‘Moderate Iran’ Still Only After One Thing

Iranian Oil, Gas and International Sanctions

The Iranian petroleum industry was a very effective organization before the Islamic revolution in Iran in 1979. The National Iranian Oil Company (NIOC) operated efficiently in all sectors of the industry, from upstream exploration to production, petrochemicals, and natural gas to downstream refining and domestic marketing.

Further, before 1979, the NIOC was a very highly respected oil company with a well-functioning management in international sectors. In the early 1970s, the NIOC expanded impressively, investing heavily in refinery constructions in India, South Korea, South Africa, and Senegal under agreements to provide crude oil to these refineries. The NIOC was jointly active with the PB in the North Sea. A tentative agreement was also signed that the NIOC enter US markets to refine crude and distribute products.

The Islamic Republic (IR) and the Sanctions

The United Nations' and the western powers' sanctions on the IR have ravaged the Iranian oil industry, the production of which once exceeded six million barrels per day (bpd), much more than twice the current level. As long as the Islamic regime insists that its nuclear activities are peaceful but doesn't allow official international verification, western powers will continue to keep the core of sanctions intact, mainly against the oil industry and banking system of the IR.

Under pressure from the U.S. Congress, President Barack Obama finally appended to the previous sanctions new sanctions curtailing the international trading activities of certain companies and individuals in the IR. The U.S. Treasury Department, on Aug. 29, 2014, announced the addition of these new sanctions against the IR, affecting 25 Iranian companies and individuals -- including shipping, airline companies and the banking industry. The reason for the addition, according to the department's undersecretary for terrorism and financial crime was attributed to the involvement of these companies and individuals in circumventing sanctions, their roles in nuclear and missile activities, and their support for international terrorism.

Related: 3 Things A Deal With Iran Would Likely Include

The president of the IR, Hassan Rohani, immediately responded and described the White House's decision as "ugly and against the spirit of the Geneva Agreement." The IR Ministry of Foreign Affairs also declared its firm belief that "the new sanctions imposed are against America's commitments under the Geneva agreement."

According to the Obama administration, expansion of economic sanctions against companies and individuals that are assisting the IR with its nuclear program is relevant to the existing sanctions, since both intend to prevent the IR from making nuclear weapons.

Earlier, the U.S. Senate introduced three bills. The first demanded the administration to certify every month that the IR was honoring the Geneva agreement. If not, a firm international ban on the purchase of Iranian oil and gas would be in place. Finally, foreign firms and banks that violate the boycott, and companies that are helping the IR to circumvent crude oil sanctions, would be prevented from doing business in America. Furthermore, the last legislation provided no more than six months for the administration to conclude the interim agreement. If a final deal were not signed, then all relaxed sanctions would be re-imposed. The relief of sanctions would hinge on verification that the IR is fulfilling the preliminary accord.

Despite the interim agreement that was signed in Geneva, the imposition of this round of sanctions by the U.S. administration appeared to have been influenced by Congress' desire to keep pressure on the IR.

However, a few people in the Obama administration believe the new round of sanctions at this time, in the midst of negotiations between P5+1 and the Islamic regime, would send the wrong message to a "non-hostile and moderate president" in Iran. This view is undoubtedly a misconception resulting from ignorance regarding the motivations and inside structure of the Islamic Republic. The fact is that in the establishment of the IR, only the supreme leader (Mola Ali Khamanei) controls and governs the country; neither the so-called hard liners, nor the moderates, reformists, administrators or presidents have ever played a role in the nuclear program or in negotiations about it.

The new IR president is no exception. Similar to his predecessors, he has been trained within a totalitarian governing system for the purpose of protecting that system. He has been secretary of the Supreme National Security Council since 1989, a member of the Expediency Council since 1991, head of the Center for Strategic Research since 1992, and member of the Assembly of Experts since 1999. Clearly, one would have to be quite unaware of the duplicitous style of those who govern the country to trust the facades put forth by them. Therefore, the new round of sanctions that was put in place by the U.S. this past August was an appropriate and correctly timed message to the Islamic dictatorial regime.

International leaders and peace loving people of the world have heard about the battle between fundamentalists/hardliners and moderates/reformists in Iran one too many times. There was also an atmosphere of reconciliation and optimism during the 16-year presidencies of Mola Mohammad Khatami and Mola Hashemi Rafsanjani, who had the support of the IR's supreme leader, but nothing was accomplished. However, this time around, the country's economy has been seriously crippled by effective sanctions, by an all-time low level of employment, and by peak inflation levels in the past 35 years. The Islamic regime has therefore been forced to sit behind the negotiating table.

Nonetheless, the diplomatic overtures from the new president are definitely not sincere and not a change of strategy, but rather a tactical "flexibility" merely to mitigate international sanctions and the economic squeeze, to buy time to process the weaponization stage of uranium, and to reach the IR's most urgent goal of making atomic weapons, a goal in which it has so heavily invested. The real message this time around is that without across-the-board lifting of international sanctions, there would not be a chance for any major oil company to enter the Iranian oil industry.

Nov. 24: End of the "Joint Action Plan Agreement"

For years, the IR's tactic was to claim that sanctions are not hurting the country, and that the economy - even under so much international pressure - was rather stable and functioning well. And since about 80 percent of the regime's income has arisen from the selling of crude oil, the oil ministry and its officials have always been creating empty rhetoric regarding the supposedly rosy performance of the Iranian oil industry. The reality is that the lack of investment and application of modern and up to date technologies has brought the Iranian oil industry into ruin and bankruptcy.

Over the past 35 years, due to unqualified management, lack of investment, corruption within the oil industry, and deprivation of cutting-edge oil technology, the Iranian oil industry has reached the brink of bankruptcy. Oil revenue under the international sanctions, after the EU joined the sanctions, dropped to $69 billion in 2012, whereas it was over $150 billion in 2010.

U.S. Secretary of State John Kerry, in November of last year, said, "The Joint Action Plan agreement in Geneva does not offer relief from sanctions with respect to any increase in Iranian crude oil purchases by existing customers or any purchases by new customers." Furthermore, he said, "We will pause for six months our efforts to further Iran's crude oil sales."

The six-month negotiation period agreed upon in Geneva last year between the IR and six world powers ended last July and was followed by a four-month extension, which will last till Nov. 24, 2014. Therefore, the IR has a short time to decide whether to have atomic missiles with a miserable life for its citizen, similar to her ally North Korea, or to have an economy without sanctions.

Last December, Iranian Oil Minister Bijin Namdar Zanganeh, speaking at OPEC's ministerial conference in Vienna, stated that IR oil production will reach beyond 4 million bpd and crude exports will exceed the pre-sanctions level of over 2 million bpd by the end of the year. He said under no circumstances will Iran give up its rights to reach these goals.

And yet, as the fourth quarter of 2014 nears, those goals aren't even is in sight. Zanganeh, like other IR officials, is in the habit of delivering sweet and rosy hollow promises that never come to fruition. He held ministerial responsibility once before, from 1999 to 2005, with another so-called moderate clergy president and accomplished nothing.

Now, assuming that all UN, U.S. and EU sanctions are lifted by Nov. 24, 2014, that Iranian oil production rises to 4 million bpd as the oil minister has predicted, that oil production by non-OPEC countries including Russia noticeably increases, and that production of shale oil in the US, Canada and elsewhere increases, then the balance between production and consumption of oil in international markets could tip. Furthermore, where are the old Iranian oil customers, considering that Iraq in the last few years has had an opportunity to fill in the Iranian vacuum in Asian markets?

A new energy horizon is emerging. U.S. crude production of 7.5 million bpd in 2013, which was one million bpd higher than in 2012, is estimated to reach nearly 10 million bpd by 2016, an all-time high. This new horizon could extend to other Western-hemisphere producers, such as Canada, Mexico, and Brazil and might challenge the market's fundamental balance between supply and demand. In addition, considering that the impact of producing crude from tight shale in the international energy market would lead to Western hemisphere energy independence, the importance of the eastern hemisphere energy producers, including heavy weight oil rich Saudi Arabia would diminish.

It is absolutely naive to expect that Iranian oil supplies would reach pre-sanction levels in a short time. Likewise, it is unwise to believe that gas delivery to any of Iran's neighbors can occur before so many fundamental changes take place in Iran. It should be mentioned that the NIOC uses a huge amount of natural gas -- about 20 percent of its annual gas production -- for oil recovery in the southern oil fields of the country.

Corruption in the IR System

There is a substantial managerial vacuum in Iran due to a bureaucratic and hierarchical decision-making structure, and many decision makers are not necessarily appointed for their managerial competence. Only a few leaders in the Islamic regime control the wealth of the country; the real power lies in a handful of clerics and their revolutionary guard commanders who call the shots behind the curtain and have accumulated much affluence in the process. Therefore, the system is incompetent and open to abuse.

In 2003, a scandal dubbed "Irangate" by the Norwegian press about Statoil, which is an 82 percent state-owned company. Under the conditions of a secret contract with an NIOC cover-up consultancy firm based in London, Statoil paid $15.2 million in bribes in 2002 to win a contract to operate phases 6, 7, and 8 of the largest gas field, South Pars. Zanganeh was in charge of the project.

Another "Irangate" case involved Total, the largest French oil company and third largest oil company in Europe. Total, from 1995 to 1999, paid $60 million in bribes to IR's oil ministry officials to develop offshore Sirri A and E oil and gas fields and to retain 40 percent interest in two phases of the South Pars gas field. Again, Zanganeh was in charge.

The third well-publicized corrupt deal is known as the "Crescent Case" and is still under litigation in the International Hague Arbitration Tribunal Court. A selling agreement of Iranian crude to the United Arab Emirates was signed between the IR (NIOC) and the UAE (Crescent Oil and Gas Company) in 2001. The agreement was to last for 25 years, and according to the contract, the two parties agreed the price of Iranian crude for the first seven years would be $18 per barrel, and for the remaining years of the agreement to be $40 per barrel.

Signing this juicy contract evidently cost the Crescent Oil and Gas Company many millions of U.S. dollars in the form of bribes to officials in the NIOC in 2001. The contract was abruptly cancelled after disclosure of bribery involved in the deal. All the aforementioned corruptions in the Iranian oil industry occurred during the first tenure of the current oil minister, Namdar Zanganeh, while Mola Mohammad Khatami, another so-called moderate president, was in office in the Islamic regime.

Related: The Coming Storm In The Middle East

OPEC and the IR

A new round of sanctions on the Iranian oil industry and banking system in July 2012 reduced the exportation of Iranian crude oil to less than a million bpd, thus rendering the position of IR in OPEC more or less irrelevant. However, after the signing of the interim agreement in Geneva between the IR and six world powers in 2013, the IR very clearly became aggressive in the international arena, including the oil industry and its presence in OPEC.

Oil Minister Zanganeh threatened to trigger a price war in the international oil markets, telling reporters at the end of the OPEC ministerial meeting in Vienna, "We will produce so much that the international crude price will fall below $20. Certainly we will not let those countries that are oppressive toward the IR take the role of the secretary general of OPEC."  

Undoubtedly, the oil minister's comments were referring to Saudi Arabia, OPEC's largest exporter which, since the summer of 2013, in order to compensate for Iran's shortcoming, has pumped oil at its fastest rate in the past 33 years and has raised its crude output to record levels, over 10.2 million bpd.

Further, Gholam Hossein Nozari, former IR oil minister, is a candidate for the secretary general of OPEC. Of course, he has to compete both with the current Saudi OPEC governor, Majid Al-Moneef, and with Thamir Ghadhban, energy advisor to Nouri Al-Maliki, the former Iraqi prime minister. However, if the IR succeeds with its choice in that position, it will undoubtedly do its utmost to manipulate OPEC as a political tool and to blackmail the world oil market.

The Islamic regime's propaganda, no matter how persistent, cannot conceal its illicit nuclear activities, its state sponsorship of terrorism, and its brutal repression of the freedom-loving Iranian people.           

By Mansour Kashfi, Ph.D.

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