Tehran to decentralise sale of crude

14 September 2008

Petroleum Ministry signs controversial deal with political and economic foundation to sell oil.

Tehran is to decentralise the sale of oil for the first time following a deal with Bonyad Mostazafin, a charitable government organisation, to buy and resell oil on international markets.

Bonyad Mostazafin, known as the Economic Foundation for the Disinherited, signed the deal in Tehran in August, giving it rights to purchase crude oil from the Petroleum Ministry and then market it.

The move has caused controversy among both the political elite and Iran-based oil experts.

Hossein Kazempour Ardebili, former Iranian Opec governor, tells MEED he is opposed to the move, arguing the ministry has no problems finding markets for oil despite international sanctions.

Other analysts see the move as an attempt by President Mahmoud Ahmadinejad’s govern-ment to secure the support of a powerful political and economic foundation.

Given its connections with the government, sceptics say the foundation will purchase oil from the Petroleum Ministry at a discount, reaping strong profits that could have gone to the state and be reinvested in the oil industry.

“Why is it that [this economic foundation] can participate in the sale and profits of oil but plays no part in capital investment and risk,” says Kazempour.

However, Mohsen Rafiqdoost, a former head of Bonyad Mostazafin, who is still a member of its governing board, remains positive the initiative will work for all parties.

“The foundation, as a representative of the ministry, can find more and better markets for Iranian oil and be a reliable part in the sale of Iranian oil,” he says.

Rafiqdoost argues that the real issues facing the industry are the attraction of foreign investment and capital, obtaining new technologies, and fresh oil exploration and production.

Created following the revolution in 1979, Bonyad Mostazafin is one of a host of revolutionary and charitable foundations that enjoy special privileges and remain answerable only to Supreme Leader Ayatollah Khamenei.

The biggest and most influential of these organisations, Bonyad Mostazafin, took over the former royal family’s assets in 1979, and is thought to manage total assets of $4-10bn.

Estimates of the value of the parallel economy in which Bonyad Mostazafin operates vary, with experts putting it at 10-50 per cent of economic activity. Its scale may be exaggerated, but its activities, including at one time, access to subsidised hard currency, have distorted the economy, according to its critics.

The move is the latest in a series of changes made this year to how Iran manages its oil industry. Hojjatollah Ghanimifard, the long-serving former director of international affairs at National Iranian Oil Company (NIOC), was recently replaced by Ali Asghar Arshi, who was previously responsible for the marketing of Iran’s crude oil.

Ahmadinejad also dismissed Kazempour as Opec governor in May 2008 after 25 years, replacing him with Mohammad Ali Khatibi, the deputy for international marketing and sales at NIOC. Khatibi says as part of his new role, the Islamic Republic will continue to expand its oil links with the East.

Japan is now the largest crude importer from Iran, with about 500,000 barrels a day (b/d), while China and the Philippines compete for second place, importing about 400,000-b/d each. South Korea takes up to 150,000-b/d, with the balance divided between India and Taiwan.

Khatibi says rising demand in the Far East, along with the US’ refusal to purchase Iranian oil and recent European attempts to cut its dependence in line with UN sanctions, has led Tehran to seek fresh markets.

“We did not close the door to US companies,” Khatibi tells MEED. “They closed it. The door remains open both for US investment in the oil industry and purchase of oil.”

Despite the effect of sanctions, Khatibi says Iran continues to export 850,000 b/d to Europe while Africa receives about 150,000 b/d.

However, the breakdown of the amount of oil sent to individual European companies reflects the change in attitude towards Tehran from some of the largest oil companies.

French oil major Total, which recently halted plans for exploration in Iran’s oil and gas fields, still purchases 150,000-180,000 b/d, while the UK’s BP and the UK/Dutch Shell Group, which used to buy about 100,000 b/d each, now consume just 20,000 b/d each.

Total suspended its work in Iran in May, while Shell has also cancelled its involvement in Iran because of pressure from the US, which remains concerned about Tehran’s nuclear ambitions (MEED 13:5:08).

Khatibi predicts that by 2011, the Islamic Republic will be able to produce 4.5 million b/d despite the fact NIOC claims total output capacity of only 4 million b/d.

In August, it emerged that Tehran was reviewing proposals to make its investment terms more attractive to oil majors by offering production-sharing contracts for the first time (MEED 22:8:08).

NIOC is considering the move as part of a drive to encourage the costly exploration of the hydrocarbons-rich Caspian Sea region.

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