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Iran's oil bonanza and its
problems
By Hooman Peimani
Iran's July 14 announcement of the world's
second biggest oil field after Saudi Arabia's Ghawar
development appears certain to change the global
equation on oil production, to fatten Iran's strained
foreign reserves, to involve it ever more deeply in the
sticky problems of petroleum contact negotiations, and
to present the country with problems as well as promise.
Abolhasan Khamoushi, general director of Iran's
Oil Development and Engineering Company (ODEC),
confirmed on Monday the discovery of the field, in the
vicinity of the Iranian Persian Gulf port of Bushehr.
Apart from its importance as the world's second largest
crude reserve, at an estimated 38 billion barrels, its
discovery provides proof that Iran possesses far larger
oil reserves than previously thought, a development with
a predictable impact on the interest of the major oil
companies and their respective governments in that
country's political and economic direction.
Even
without any major future oil discovery, the Monday
confirmation increases Iran's international importance
as a heavyweight oil supplier with an expected increase
in its international status the extent of which is yet
to be seen. Iran's strategic importance to the West, and
a major reason for decades-old American attempts to
meddle in its politics, revolves around its vast oil
reserves, estimated at 90 billion barrels even before
the new discovery. Discovery of major new fields helps
Iran prolong its oil exports and, increasingly so, its
petrochemical exports as the country pours development
money into upstream production facilities.
The
Iranians hope that the discovery will sustain the
country as a major producer and continue as a major
export item, in which they have already invested
billions of dollars since the late 1980s. Petrochemical
exports generate about US$1 billion dollars a year.
However, Iran must develop its new oilfields and keep
investing in the operating ones to meet growing domestic
needs as its soaring population increasingly demands
development, while at the same time increasing its crude
and petrochemical exports.
This requires
enormous annual investment. Given Iran's growing need to
invest in a wide range of sectors, developing such
investment is becoming more difficult. For example, the
Iranian Oil Ministry annually invests about $3 billion
in its operating oilfields to keep their production at a
high level to satisfy the domestic market and to export
daily about 3 million barrels. Given these realities,
depending on the size of projects, partial or total
foreign investment has become a necessity for developing
new major oilfields. To maintain control over the
strategically important oil industry and to prevent
foreign political and economic influence, the Iranian
government has favored buy-back contracts in place of
direct foreign investment in oil development projects.
Through this measure, Tehran has only addressed
some of its foreign investment requirements. It
demonstrates the reluctance of multinational oil
companies to get involved in buy-backs and reflects the
political pressure exercised mainly by the American
government on potential investors to deny Iran the
development of its oil industry, its main source of
revenue in foreign currency, and to retard its economic
progress.
Consequently, Iran has yet to find an
investor for the development of its Azadegan oilfield,
for example. After its discovery about two years ago,
its phenomenal oil reserves - 26 billion barrels - have
not yet helped Iran find a reliable investor. Under
American pressure, a group of Japanese oil companies
interested in its development delayed signing a $2
billion contract with the Iranian Oil Ministry by the
mutually-set deadline of June 30 despite two years of
negotiations. (See Americans stymie Japan-Iran oil
deal, July 4).
The Americans are bringing
pressure on the Iranians to renounce their attempts to
develop nuclear weapons. Japan appears to have knuckled
under because of the importance of the American export
market for its troubled economy and its reliance on the
US for security. Tokyo appears to remain interested, and
may condition its signing of the contract on Tehran's
satisfying the American demand on its joining the
additional protocol to the Non-proliferation Treaty
(NPT) of 1968 or a similar agreement.
The
Japanese-Iranian negotiations are still officially
underway. Despite the Iranians expressing optimism that
the contract will ultimately be signed, Tokyo's approval
will require its standing in the face of Washington's
pressure, a possibility, but still not a
certainty.
Regardless of the negotiations' outcome, the
case reveals the difficulty of attracting foreign
investment for the Iranians even when they offer a
tempting and promising contract involving a major
oilfield with strategic importance to oil companies and
their respective governments. Against this background,
Iran is now facing a great challenge to find reliable
investors to help it develop its newly-discovered
oilfield. While there should not be any shortage of
investors in principle given its phenomenal oil
reserves, turning those interested investors into
committed ones may likely be a Herculean task for the
Iranian oil industry.
The discovered field
combines three neighboring plots with estimated reserves
of about 38 billion barrels. According to Khamoushi, the
Iranian Oil Ministry's preliminary studies suggested
that the Ferdows field, the Mound field and the Zagheh
field contained 30.6 billion barrels, 6.63 billion
barrels and 1.3 billion barrels, respectively. The
Iranians are now undertaking appraisal work to determine
the dimensions of the fields. The field is equal to
Kazakhstan's Kashagan oilfield, which is the world's
second largest oilfield only after Saudi Arabia's
Ghawar. The latter reportedly still has 70 billion
barrels of extractable crude after more than half a
century of operation.
As is true for any
oilfield, the volume of economically-sensible
extractable crude is likely to be significantly less
than its estimated total reserves. For example, the
amount of recoverable crude in the Kashagan field is
estimated at 7-9 billion barrels, whereas Iran's
Azadegan oilfield, with estimated reserves of 26 billion
barrels, has only about 9 billion recoverable barrels.
Additional geological tests and drilling will be
required to determine the exact recoverable volume of
the new Iranian field.
Nonetheless, the recent
oil find is certainly a positive development for Iran.
Added to its existing proven reserves, the discovery has
pushed up Iran's previous status as the holder of the
world's fifth largest oil reserves. More than that, in
addition to other relatively recent discoveries such as
the Azadegan oilfield, the latter provides ground for
optimism in the existence of much larger oil deposits,
including in its central part, which has long been
suspected of having hydrocarbon reserves.
Dr Hooman Peimani works as an
independent consultant with international organizations
in Geneva and does research in international
relations.
(Copyright 2003 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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