Iran hurries to ink oil deals before Trump takes office

TEHRAN, Iran -- President Hassan Rouhani of Iran is racing to sign as many oil deals with Western companies as he can, before hard-liners at home and President-elect Donald Trump have a chance to return the Mideast country to cultural and economic isolation.

At the same time, Iran is in a battle with Saudi Arabia and other OPEC producers to reclaim its position as one of the world's leading oil exporters, a spot it lost during the years of international sanctions over Tehran's nuclear program.

A provisional agreement this week with Royal Dutch Shell to develop the South Azadegan and Yadavaran oil fields, two of the country's largest, along with the Kish natural gas field, is the latest sign of interest in Iran from international energy companies.

A few days ago, Schlumberger, a giant oil services company, signed a memorandum of understanding to study several oil fields around Iran that are in decline to seek ways to lift production. Over the past four weeks, Tehran has negotiated similar agreements with the China National Petroleum Corp.; DNO, a Norwegian oil services company; PTTEP, the Thai state-run oil company; and PGNiG, a Polish oil and gas company.

The deals, if finalized, would attain much-needed expertise and foreign investment for Iran's energy sector.

Just as important, the agreements provide a lifeline to the rest of the world, experts say, critical to keeping dollars flowing and in cementing relations with European and Asian countries. Few Iranian officials like to acknowledge that in public, insisting that the country is immune to outside pressure, but the election of Trump and his selection of a national security team that views Iran as a major threat in the Middle East seems certain to usher in a new period of tensions.

"Our officials are in a rush to sign contracts with big oil companies in order to have leverage when Trump enters the White House," said Saeed Laylaz, an economist with close ties to the government of Rouhani, who has bet his political future on ending Iran's isolation.

Laylaz pointed out that most European energy giants had been present in Iran for decades and had left only after sanctions, now lifted, were imposed during the Obama administration.

"Just as in the past, we need them back here, also to make sure we are not isolated," he said.

Analysts noted that the deals were only memorandums of understanding, not hard contracts. But they stressed that the agreements also indicated a strong desire by Western and Asian energy companies to return to Iran, once the world's second-largest exporter of oil.

"It seems the big oil and gas companies in Europe are determined to show Trump that they are going to make deals with Iran anyway," said Reza Zandi, an Iranian journalist and analyst who specializes in the oil and gas industries. "These are important signals to America," he added.

Zandi said it was not hard to see why the oil companies were so eager to return to Iran.

"We need $40 billion in investment in the oil and gas sector each year," he said, "and we don't have such resources inside the country."

Rouhani and his government of technocrats are fighting their oil battle on two fronts. Domestically, they face pressure from hard-liners who have been closely scrutinizing the oil contracts, seeking anything that could undermine Iran's independence and trying to steer them to companies under their control.

But Iran's oil minister, Bijan Namdar Zangeneh, told the semiofficial news agency Fars in November that only foreign companies had the ability and capital to modernize Iran's crumbling oil and gas sector.

"We need technology, including the management technology that allows a project to come into operation in four years rather than in 12 years," he said. "And above all, we need the money."

Iran also faces a struggle to rebuild its oil exports. Growing production has allowed Iran in recent months to recover many of the Asian and European markets that it lost to Saudi Arabia and other OPEC producers during the years when sanctions were in effect. And as Iran effectively flexes its muscles in OPEC for the first time since the sanctions were lifted in January, its goal is not only to protect its new-found gains but also to expand its markets, pitting it directly against rival Saudi Arabia.

Further production and export expansion, however, will require more foreign investment.

The new wave of agreements with Iran, most of which remain provisional, began on Nov. 8, the day of Trump's victory, when Total, a French company, became the first Western energy company to negotiate a deal to develop and produce natural gas from a section of a giant Persian Gulf gas field. Total leads a consortium that includes the China National Petroleum Corp. and Petropars, a subsidiary of the Iranian state-run oil company, in the $4.8 billion project. The provisional agreement is to be finalized early next year.

"They are signing before Trump does something," said Dragan Vuckovic, president of Mediterranean International, a Texas-based oil services company that works in North Africa and the Middle East. "The Iranians will give the Europeans favorable terms because of Trump. They want to send a message to Trump that if you try to cancel this agreement, we will just go to the Europeans."

Business on 12/09/2016

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