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Iran slips on ways to use its oil

Tehran is determined to retain it's status as the world's second largest crude oil exporter, reports Manoj Joshi.

india Updated: Feb 15, 2007 02:44 IST

To say that oil and gas are strategic assets of  Iran is stating the obvious. But, as Siamak Namazi, managing director of Atieh Bahar Consulting Company, points out, the Iranian policy on the use of these assets is still evolving.

On the one hand, Tehran is determined to retain it's status as the world's second largest (after Saudi Arabia) exporter of crude oil. On the other, it wants to use its natural gas reserves, estimated to be the second largest in the world, to transform the profile of its economy.

The Iranian Majles (Parliament) is in favour of some value addition to its natural gas resources. In that sense liquefying natural gas for export does meet the criterion says Namazi, “but what we are talking about is gas to make electricity, steel, aluminum for domestic consumption and export.” It is in this context, he says, that the world must see Iran's efforts to expand its nuclear power industry and assure its energy security.

An Indian oil company executive points out the priority is oil export and gas is often injected into oil wells to boost production.  

Namazi says that “linear projections show that production will go down, if the government does not do anything about it.” 

There is another problem difficult to get a measure of — smuggling. Because petrol and diesel prices are heavily subsidised — petrol costs Rs 4 a litre — these are  smuggled to neighbouring Afghanistan, Pakistan, Turkey and Iraqi Kurdistan.

According to figures cited in a recent International Crisis Group report, this costs Iran $1.5 billion a year. An added irony is that Iran has to import this gasoline, about half its requirements, since it lacks adequate refining capacity.

Figures released on February 7 by the National Iranian Oil Company chief Gholamhossein Nozari indicate that Iran has some 630 billion barrels of reserves sufficient for 70 years, given current rates of export and consumption. The Central Bank estimated that the country earned some $ 36.5 billion in the March-November period from the export of crude oil.

To keep its oil wells flowing at the expected rate and tapping its vast gas resources, not only does Iran need technology, but it needs investments too. Hadi Haqshenas, a member of the Iranian Majles told the Iran Daily that just 30 per cent of Iran's oil revenues are used for development, the bulk being spent on current expenditures and subsidies.

The problem is compounded by the American Iran-Libya Sanctions Act , that threatens to penalise any company that invests over $20 million in Iran. “Governments can buck the US, but private companies quietly take the easy option and avoid Iran,” says a senior Indian diplomat. 

People like Haqshenas and many Iranian economists suggest a tough regime of privatisation and fiscal discipline. But it is not easy for President Mahmoud Ahmadinejad  to disrupt the vast network of public and semi-public sector companies, many associated to the Islamic Revolutionary Guards Corps and the clerical establishment he is close to.

Nor can he contemplate, after two succesive years of double-digit inflation, the prospect of raising prices of oil and bread. Says Namazi, “Ahmadinejad does not care as much about economic growth as about distribution.” Therein lies a strategic dilemma not easy to resolve.

Email Manoj Joshi: mjoshi@hindustantimes.com