Iran's Oil Projects at Risk Amid Snags Over Ministry Post

Sally Jones and Hashem Kalantari, Dow Jones Newswires:

The failure of Iran's ultraconservative president to appoint an oil minister acceptable to Parliament has raised concerns about the fate of some major energy projects and created a domestic political crisis, according to Iranian political and industry officials.

Wednesday, Iran's Parliament vetoed President Mahmoud Ahmadinejad's third successive nominee for the country's top oil post on the grounds that he lacked the necessary experience to run the oil ministry, which generates 80% of the Islamic republic's revenue.

"What is happening is totally unprecedented in Iran. It doesn't bode well for the country both internationally and domestically," one Iranian official said. READ MORE

Unless the issue is resolved quickly, people familiar with the country's energy industry warn that its much-needed development could be under threat. "These kinds of developments are a drawback for the president. But it is also pushing development of the oil industry further and further back," said Manoucher Takin of the London-based Centre for Global Energy Studies.

Iran is sitting on 12% of global oil reserves and holds the world's second-largest gas reserves after Russia, but Iranian oil officials estimate the country may need as much as $20 billion in foreign investment if the country is to reach its energy-production targets in coming years.

Iran also is keen to secure its place as the second-largest producer in the Organization of Petroleum Exporting Countries, for which foreign funds are necessary.

Iran hasn't had an oil minister since Mr. Ahmadinejad came to power in August. Acting Oil Minister Kazem Vaziri was appointed then and has represented the country in OPEC. The lack of a permanent minister means the oil ministry is stuck in limbo and has led to open criticism of the president by Iranian politicians.

"The problem is things aren't happening in terms of new negotiations [for the oil and gas projects], and the old negotiations aren't moving ahead," said Ali Ghezelbash, energy analyst at Tehran-based Atieh Bahar Consultants.

Iranian political and industry figures also say international investors will be unlikely to take the Islamic republic seriously in the absence of an oil minister.

Concern is building over the future of Iran's massive Azadegan oil field. Although Tehran has signed a $3 billion deal with Japan to develop the field, Iranian politicians are now less certain about the fate of the project, which is supposed to be pumping 700,000 barrels a day by 2010. The future of a proposed $6 billion gas pipeline to Pakistan and India also hinges on the speedy appointment of an oil minister.

Iran also faces some urgency when it comes to finalizing a long-term agreement valued at $100 billion to supply gas to China. Because Tehran faces possible sanctions by the United Nations Security Council over its nuclear ambitions, Iran wants to conclude the Chinese deal as quickly as possible, people familiar with the situation said.

Write to Sally Jones at Sally.Jones@dowjones.com