Iran remains defiant over oil industry

Published: December 22 2008 - Financial Times

Gholamhossein Nozari should be in a grim, panicked mood. As the oil minister in Mahmoud Ahmadi-Nejad’s government, he has been battling the mounting pressure of international sanctions, which have deterred investment in Iran’s oil industry.
Now, collapsing oil prices are threatening the government’s ability to shore up the economy and maintain popular support ahead of next June’s presidential election.
Indeed, for many western officials, the only consolation amid the economic gloom is that the downturn spells trouble for Iran’s economy, and therefore undermines the fundamentalist president’s chances of re-election.
But Mr Nozari displays none of the alarm which you might expect of him. Nibbling on pistachios in a London hotel room, where he was last week attending an oil conference, he is calm and self-assured.
Solidarity has grown among Opec members, he says, and so they are likely to stick to the production cuts they committed to at their meeting in Algeria earlier in the week, and this should start to drive oil prices back up.
He refuses to be drawn on the oil price that Iran needs to balance its budget – some analysts estimate it is as high as $90 a barrel – insisting instead that the country’s “needs” were sure to be met.
Although the government is said to have already been regularly raiding the oil stabilisation fund, which saves revenues for tough times, Mr Nozari says there is still “plenty” of money saved. On investment too, he says the fact that western companies have stayed away from Iran, as the nuclear dispute has raised the country’s political risk, has not been crippling.
The Iranian parliament has allocated 3 per cent of oil revenues to local investment, which he says has been enough to meet immediate needs.
What about the necessity of attracting western technology? “We’ve been producing oil and gas for 100 years and we have very good experience in development,” the minister says.
A deal agreed in 2007 with China’s Sinopec to develop the Yadavaran oil field and another gas development agreement with Malaysia’s SKS are on track, he adds.
“I’ve visited the fields and seen the work. There’s engineering and site preparation work under way,” he says.
Unlike some other Iranian officials, who admit that sanctions are having an impact, Mr Nozari insists that sanctions are an “obsolete tool”.
Iranian companies, however, are finding it increasingly difficult to secure lines of credit as banking sanctions imposed by the US bite.
There are also reports that Iran is resorting more and more to barter deals, even for petrol imports. Because of underinvestment in its refineries, Iran is forced to import about a third of its domestic fuel consumption, and the government has started a system of rationing to curb demand.
Mr Nozari claims that barter is only a tiny proportion of total trade and that Iran has found many ways to limit the impact of financial sanctions. “We don’t think we’re being sanctioned,” he says. “We can buy whatever we want.”
He says the petrol rationing system had reduced consumption and the government was planning to cut it further by removing subsidies, possibly even before the June presidential elections.
Mr Nozari’s statements reflect the defiant face which Iran likes to project abroad. But his attitude also suggests Iranian confidence that it can confront the current challenges from a position of strength.
When asked about his hopes for an improvement in Iran-US relations, following the election of Barack Obama, Mr Nozari says: “We are getting stronger in the world day by day and we believe that the US has gotten weaker.” It is therefore for the US to “choose if they want to change their behaviour”, he says.