When the CEO of French oil company Total signed a $4.8 billion contract with Tehran on July 3, 2017, Iran’s conservative hardliners were enraged. President Rouhani’s administration, including oil minister Bijan Zangeneh, praised the deal as a new opportunity for Iran, a chance to build the economy and Iran's oil and gas industry.
Even before the contract was signed, conservative hardliners were critical of the deal. But Rouhani’s government took no notice. This has further angered Rouhani’s opponents, who have now launched an all-out attack against the government from many different angles.
They say past deals with Total have led to some of the country’s most devastating corruption cases — including one involving Mehdi Hashemi, the son of the late president and key political figure Akbar Hashemi Rafsanjani, who was found guilty of accepting bribes from Total. Mehdi Hashemi is currently serving a 10-year prison sentence, along with his oil dealer accomplices. Hardliners also say Zangeneh has ties to the corruption scandals and expressed concerns that further corruption could occur in the future. But, despite conservative opposition, Zangeneh pursued the deal, and promised to bring giant oil companies, including Total, back to Iran.
Hardliner conservatives have other complaints: that Iran will make next to nothing in the deal, but Total and other Western companies will clean up. They say the deal violates Iran’s constitution and goes against the wishes of the Supreme Leader.
In the second of a three-part series, IranWire looks at key issues affecting not only the deal with Total, but Iranian society and politics too: The economy and corruption, and what the threat of new sanctions might mean for the deal.
Hardliners Say: The Deal will Breed Corruption
On July 8, the principlist economist Masoud Darakhshan appeared on TV and labeled Total a “morally corrupt” company. The website Raja News backed up this claim, and published a trove of documents to prove that, in the course of a previous oil deal, Total had bribed Iranian officials to the tune of $60 million.
The fact that the name of Ali Kardor, managing director of the National Iranian Oil Company (NIOC) — the man who signed the contract with Total as Iran’s representative — has come to light in a corruption case involving the United Arab Emirates-based Crescent Petroleum certainly doesn’t help. In fact, hardliner newspaper Kayhan said on July 6 that Kardor is “certain to be convicted.” If there’s any truth in this, it could seriously damage Rouhani’s administration. But could it also threaten the deal, leading Total to question the wisdom of entering into it with Iran?
Rouhani’s Government Says:
“If there is evidence, give it to the judiciary so that it will convict Total and ban it from the contract.” This was what oil minister Bijan Zangeneh told parliament on July 20. “I cannot refuse to sign the contract without a verdict from the judiciary.” Zanganeh took on hardliners’ criticisms directly, showing that the Rouhani administration is ready to do battle when it comes to the Total deal. For them, it’s too important to lose. Zanganeh has also dismissed other hardliner claims as being fuelled by Marxist ideology, demonstrating that he is willing to use accusations as part of his arsenal too.
Hardliners Say: New Sanctions will Threaten the Contract
Critics of the Total deal say that if sanctions are reinstated or the US puts more pressure on Iran, then Total will leave the country, as it once did in 2000. They also claim that Iran has shouldered the risk of sanctions “snap-back.” Plus, unlike in previous deals, when Iran was able to give the project to another company when the initial partner involved in the deal could no longer fulfill its contractual obligations, Iran cannot bring in a new company due to the new model for oil contracts.
The Government Says:
Vice President Eshagh Jahangiri said Total had actually taken a risk when it chose to get involved in Iran’s oil and gas market. And Bijan Zangeneh said that the contract with Total is not contingent upon the approval of US agencies such as the Office of Foreign Assets Control (OFAC). Total, he said, has a long record of working in Iran and has never repudiated its contracts. He conceded that new sanctions might be imposed, but added that the presence of companies such a Total would act as a deterrent.
Zangeneh emphasized that “all necessary guarantees” are in place, and that if Total does not carry out its obligations for whatever reason, its investments will remain in Iran and cannot be taken out of the country. Payments to Total will start only when the project comes online. And Gholam Reza Tajgardoon, Chairman of parliament’s Budget and Planning Committee, echoed Zangeneh’s statements, saying: “such contracts are the most important deterrent action that Iran can take against American [sanctions].”
But for some, these answers do not seem especially persuasive. In 2011, many foreign companies were active in Iran. When sanctions expanded, they left Iran and their governments took no action to counter this.
Sara Vakhshouri, senior fellow at the Atlantic Council’s Global Energy Center, says it’s important to assess the differences between this new deal and Total’s previous relationship with Iran. She says Bill Clinton implemented sanctions during his presidency, so US companies could not work with Iran.
This brought Total to Iran, and other non-American companies. After the Iran Sanctions Act was implemented, "Total signed upstream investment contracts with Iran to develop Siri A and E fields as well as phase 2 and 3 of South Pars."
"In 2012 not only US but also EU and UN increased and implemented many different sanctions on Iran. During that time an international consensus happened against Iran’s nuclear program that even Japan, India, China and Russia complied with Iran sanctions. Now it is different situation. Iran has kind of returned back to Clinton’s era, meaning that American sanctions affect American companies only— but other non-US companies are not forced to abide by these sanctions. If Iran’s nuclear or missile programs and policy do not move in a way that another international consensus takes shape, then non-US investors could legally invest in Iran."
During the international sanctions, Vakhshouri says, Rostam Ghasemi, oil minister under President Mahmoud Ahmadinejad, offered a partnership contract for the development of the Farzad-B Gas Field [in the Persian Gulf] to an Indian company. These production partnership contracts are much more flexible than contracts based on the new Iran Petroleum Contract (IPC) model — the model that has been used in the Total contract. In fact, according to Vakhshouri, these sorts of partnership contracts could even be unconstitutional in an Iranian context. “They grant the management and the ownership of a share of the [oil and gas] reserves to foreign companies. In the difficult era of sanctions, the Iranian oil minister wanted to make it very attractive for a foreign company.” Officials from the Indian company involved in the contract had said they would do business with Iran, Vakhshouri says. “If they didn’t, then the Chinese would.” But she says that, out of national interests, the current oil minister Bijan Zanganeh did not go through with the deal with the Indian company.
Vakhshouri points out that Iran’s conservative principlists know that “in difficult circumstances they can make contracts attractive and flexible to satisfy vast Iranian needs for technology and capital.” Despite the fact that Zanganeh says he prioritized national interests when dealing with the Indian company, hardliners continue to attack his push for a deal under stricter, more controlled rules that seem to protect Iran to an even greater degree.
Critics Say The Deal Goes Against the “Resistance Economy”
Opponents of the Total deal allege that the contract ignores domestic companies and doesn’t take into account their abilities to handle various aspects of the projects. What’s more, they say the contract goes against the “resistance economy” — a plan that prioritizes the importance of native industry — so favored by the Supreme Leader.
“The first part of the contract [involves] 30 wells and two platforms,” General Ebadollah Abdollahi, commander of the Revolutionary Guards’ contractor subsidiary Khatam al-Anbiya Construction Headquarters, told Iranian TV on July 8. His company, he said, “has big 400-feet derricks at its disposal that can drill 11 kilometers. Now these derricks might have to sit idle.”
Fans of the Deal Say Iranian Contractors will Prosper
The Oil Ministry’s Ali Kardor explained that the contract will give more than 50 percent of the implementation work to domestic contractors. And oil minister Zangeneh supported these comments, insisting that Iranian companies would be responsible for building platforms and laying down the pipes. But General Abdollahi was not satisfied. “We must never question our own worth,” he said. “We must not become second-hand contractors.” He also reiterated that the Revolutionary Guards had previously announced that they were well-positioned for and capable of financing such projects — suggesting he is not against the contract per se but that he is unhappy that his “headquarters” has not been granted its share of the work and will not be able to benefit from the deal.
“We suggested 12 qualified companies to Total,” said Ali Kardor. “Total chose PetroPars as its Iranian partner.”
Sources close to the Rouhani administration have denied the claim that domestic companies could have done the work by themselves. “It is a lie that we did all 17 phases by ourselves,” said Ali Shams Ardakani, Deputy Chairman of Tehran’s Chamber of Commerce. “This lie comes from those who want to do the job themselves.”
Bijan Khajehpour, founder and managing partner of Vienna-based Atieh International, a firm specializing in consulting services to international investors in West Asia, says the deal will strengthen Iran’s domestic capabilities to implement oil and gas projects, which he says is limited at the moment. “The best indicator for evaluating capabilities is the recovery rate in our oil fields. Until now, Iran’s highest recovery rate in oil fields has been around 26 percent, while at this moment, advanced western companies achieve an average of 50 percent. A one percent increase in the rate means 5 billion barrels more oil wealth for Iran (at a price of $50 per barrel, it would translate to $250 billion).”
Khalehpour and Vakhshouri both say Iran could learn from the Total deal. “To achieve this goal our companies must reach a technological and management level that enables them to perform better,” says Khalehpour. “This will be done through joint ventures between Iranian and foreign companies. I, too, would like to give the projects to Iranian companies when domestic companies achieve this capability level. Meanwhile, all investment and consortium in these contracts are committed to use Iranian subcontractors in these projects.” Khalehpour says the law, called “Maximization of Local Content,” means the aim must be for at least 51 percent of the value of the project be spent inside Iran. “But there have been even projects where 60 percent of their investments has been spent within Iran,” says Khalehpour. In his view, Iran’s economy and its oil and gas industry will benefit substantially from the deal — but hardliners are unlikely to be convinced.
And the debate goes on. In part three, IranWire looks at hardliners’ focus on Iran maintaining full control of the deal, and ask whether there are any real threats to national security.
In part one of the series, IranWire looks at Iran’s relationships with the West, and conservatives' worry that Iran is set to do badly out of the deal, while Total and other investors are set to make a fortune.