Int'l. Oil Executives See Ahmadinejad's Election as Positive

Carola Hoyos and Gareth Smyth, The Financial Times:

International oil company executives with years of experience negotiating in Iran believe the election of conservative president Mahmoud Ahmadi-Nejad may prove positive for foreign investment, despite his frequent hardline rhetoric. They said that his election might end gridlock in negotiations caused by infighting among liberal and conservative lawmakers. READ MORE

"We have to adjust to the reality, but it may not be too bad," said one oil executive, taken by surprise by Friday's election result. Another executive agreed: "Usually it is easier to negotiate with a conservative in a conservative system."

Iranian officials on Monday vowed deep reforms of the state-controlled oil sector, whose consequences for foreign investors were unclear. In an interview published in Shargh, the reformist newspaper, Kamal Daneshyar, chairman of the parliament's energy commission, said he expected "total change" in the structure of the oil sector and "fundamental" changes in contracts.

Mr Daneshyar criticised the "buy-back" system, under which Iran gives payment in kind to oil companies that develop its oilfields, as "costly and damaging to oil reserves". But he gave no clear idea whether he expected it to be reformed or phased out.

"Mr Ahmadi-Nejad will definitely support foreign investment, after of course the maximum use of domestic capacity," said Mr Daneshyar.

On the surface Mr Daneshyar's comments and Mr Ahmadi-Nejad's position to favour domestic companies make it appear unlikely that Iran will improve the restrictive buy-back terms, which make Iran one of the most difficult petro-states in which to strike an oil deal. Additionally, Mr Ahmadi-Nejad's defence of Iran's nuclear programme will probably make it even more treacherous for companies fearing reciprocal sanctions by Washington to do business in Iran and could prompt a harder stance by Brussels, one executive said.

But Manouchehr Takin, analyst at the Centre for Global Energy Studies, said that Mr Ahmadi-Nejad's promise to shake up Iran's bloated Oil Ministry could also speed up a process that had helped stymie negotiations. He said that Mr Ahmadi-Nejad might be better placed than any liberal president to move things along. "They will go back to having foreign investment in six to 10 months. They will be quicker to make decisions now because they are all part of the same system."

Hossein Afarideh, a member of the energy commission, also said he expected reform rather than abolition of buy-back.

"The contracts already signed cannot be touched," he said. "Of course buy-back could be modified, but it's always been in a process of modification. My feeling is that buy-back and the 'finance system' [under which oil companies receive money rather than oil] will continue for the foreseeable future." The parliament's energy commission has for several months been discussing legal reform of the energy sector.

An Iranian analyst said he thought "buy-back might remain the new government's "general strategy" but with some changes.

"They say the changes will benefit foreign companies, but we must wait and see," he said. "They are talking of making the Oil Ministry more transparent - like more clearly defining the relationship between the NIOC (the state-owned National Iranian Oil Company) and the ministry."

During the poll campaign, Mr Ahmadi-Nejad said buy-back "should be within the framework of legal, thorough and clear regulations".