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Guest Post: Growing Revolutionary Guard Spells Uncertainty For Oil Investors In Iran
Submitted by www.oilprice.com
Growing Revolutionary Guard Spells Uncertainty For Oil Investors In Iran
As the United States edges closer to issuing a fresh round of sanctions against Iran, foreign investors so far unmoved by international pressure will end up doing business with a Revolutionary Guard that makes even local firms nervous, an analyst warns.
The Islamic Revolutionary Guard Corps, known as the IRGC or Revolutionary Guard, is a military branch set up after the 1979 revolution to protect the regime and has become more ingrained in the Iranian economy particularly under President Mahmoud Ahmadinejad’s administration.
In recent weeks, the Revolutionary Guard has declared that it can assume control of the energy industry if Westerners flee under the crush of coming U.S. sanctions. Over the last two-and-a-half decades, the powerful force has gradually moved into sectors like construction, energy and telecommunications, said Alex Vatanka, a scholar at the Washington-based Middle East Institute.
Given Iran’s oil and gas reserves and the country’s reliance on revenues from crude exports, “it’s very logical for the IRGC’s economic arm” to seek an even stronger footing in the energy sector as U.S. and United Nations financial penalties against firms operating in Iran pick up steam, Vatanka told OilPrice.com.
The IRGC has the “political muscle to push political contracts” through, but it is questionable whether the group is best-suited to coordinate these efforts on a domestic level, he said. “We know their intentions in the Iranian oil industry, and [local firms are] very often hesitant when they see IRGC involvement,” he noted.
Foreign companies would be “equally, if not more hesitant, to deal with the IRGC” because the organization is at the forefront of any U.S. government or U.N. attempt to apply new sanctions, he said.
“So it really just raises the stakes for any foreign participant in these projects,” Vatanka said.
The overriding challenge is whether a firm, domestic or otherwise, can ever have a “fair struggle with the IRGC, if I can put it this way,” Vatanka explained. “They are politically so powerful that they can nullify, change terms and take the credit for anything that’s done positively and claim it to be their own. And if you stand up to them, they would basically label you against the Islamic Revolution.”
He said questions also linger about the kind of revenue-sharing the Revolutionary Guard would offer international companies.
And whether the Revolutionary Guard can even fulfill Iran’s “very big intentions” in the gas sector remains to be seen, Vatanka said, noting “there’s no evidence to suggest that they have, in any way or shape, invested technologically in energy. If it was about missiles, it would have been a totally different matter.”
In March, Iranian Oil Minister Masoud Mirkazemi said the Islamic regime is seeking a $200 billion investment in oil, gas and refinery industries over the next five years.
Iran has only waning pools of oil but may become a “huge provider of natural gas on a global scale,” Vatanka said.
Iran holds the world’s third-largest proven oil reserves and the world’s second-largest natural gas reserves, according to the U.S. Energy Information Administration. This includes the South Pars gas field, the “largest natural gas deposit in the world, which Iran shares with the state of Qatar,” added Vatanka.
The Iranian oil industry has traditionally been aligned with “pragmatic conservatives,” he added, but there has been a shift toward “principalists, the people around Ahmadinejad,” particularly in “this pivotal” sector of the Iranian economy.
In April, Ahmad Ghalebani took over as head of the National Iranian Oil Co. from oil-industry veteran Seifollah Jashnsaz, according to Iranian press reports. Like the Iranian oil minister, Ghalebani does not hail from the oil industry, the reports state.
Regardless of the typical rhetoric emanating from Iran, the country has always had a “pretty well-oiled bureaucracy,” but these “relatively new faces and voices” have spurred more uncertainty for foreign firms, Vatanka said.
Iran has pressured a number of firms to honor previous agreements or pull out of the country entirely. Iran recently gave a two-week ultimatum to Royal-Dutch Shell and Repsol of Spain to forge ahead with their involvement in projects related to the South Pars gas field or be replaced by local firms.
Around the same time, the regime also announced that it is awarding major gas contracts to Chinese, Malaysian and Indian firms for South Pars instead of Western firms widely regarded as frontrunners, according to Iranian news reports.
India is not likely to give up its investments in Iran “without considerable pressure” from the U.N., noted Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based think tank. Not only does India have business interests in the country, Iran provides it with “over 400,000 barrels of oil a day,” Ebel told OilPrice.com.
At the moment, India has proposed resuming talks with Iran on importing gas through a pipeline passing through Pakistan, according to Indian press reports.
China, which has a big interest in Iran as an oil supplier, is unlikely to be fully supportive of the United States and the U.N., Ebel said. About 430,000 barrels of oil move from Iran to China every day, he added. China, India and Japan probably account for half of all Iranian oil exports, Ebel noted.
On the weekend, the head of Brazil's energy regulator was reported as saying that his country could assist Iran with equipment and engineering if Iran offered drills to help Brazil in the exploration of deep-water oil.
Despite these holdouts, many firms have already caved into pressure and abandoned some of their investments as talk of sanctions builds, said Ebel.
Russia’s Lukoil has stopped gas sales to Iran, while India's Reliance Industries will not renew a contract to import crude oil from Iran this year.
China and Japan are cutting crude-oil imports from Iran. Vitol, Glencore and Trafigura have all stopped their gas supplies to the country. And Shell also stopped selling gas to the regime.
At a congressional hearing last week, the U.S. Homeland Security and Governmental Affairs Committee issued international firms a stark warning: “Either do business with Iran’s $250 billion-a-year economy, or do business with America’s $13-trillion economy, but you cannot do business with both.”
The proposed U.S. legislation is known as the Iran Refined Petroleum Sanctions Act and will be tougher on firms than its predecessor, the Iran Sanctions Act. The revised law will pursue financial institutions and firms that do business in Iran’s energy sector or help the regime build its refining capacity.
The Government Accountability Office, an arm of Congress, released a report during the hearing that found that seven of 41 companies previously identified as doing business with Iran received combined payments of nearly $880 million from the Defense Department. This includes $319 million to Repsol and $312 million to Total of France for the purchase of fuel.
Ultimately, the relationship between Iran and the international community will be tough to walk away from, Vatanka of the Middle East Institute told OilPrice.com. While Iran still needs Western technology to expand its energy industry, he said, large companies seeking growing markets will be hard-pressed to “totally look away and abandon Iran for good.”
By Fawzia Sheikh for Oilprice.com who offer detailed analysis on Crude oil, Natural Gas, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com
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Considering what's going down in the Gulf, I would be more uneasy about North American investments. And a "nay" vote for Iran is a "yea" for continued US imperialism.
This has nothing to do with Iran.
Could someone please help me with three ZH abbreviations: ES, momo and the "h/t" which precedes the name at the bottom of some articles.
http://en.wikipedia.org/wiki/E-mini_S%26P
momentum trade strategy
hat tip, polite thank you
Thanks very much
This will crush their already sclerotic oil industry.
The US is a rogue state!
Ap,
I just am enamored, with all the Middle Eastern, REVOLUTIONARY GUARDS...........
They are real bad ass....talk,talk,talk, talk.
Just like Ackbenajkinoff...the leader of the Free Radicals.
He and Kim Jong, need to team up.
If the US tries to put heavy sanctions on Iran, it is all over. And I mean that.
Please define "it's all over"
The Islamic Revolutionary Guard will do just fine managing Iran's energy sectors. Similar, during the Stalin time in the USSR, Soviet NKVD has done outstanding job managing Soviet strategic industries including nuclear weapon development.
Iran leaders are perfectly correct bypassing wester corporations who under US pressure may slow down or even sabotage Iranian programs vital to Iran future. Non-western companies will do just fine job working in Iran. They better understand Iran since their own "democracy" is not any better than Iranian.
As for the US $13T market, it is mostly a consumer market with too many questions in its future vitality.
"The Islamic Revolutionary Guard will do just fine managing Iran's energy sectors. Similar, during the Stalin time in the USSR, Soviet NKVD has done outstanding job managing Soviet strategic industries including nuclear weapon development."
Um. I have no idea what to say to you.
He must be speaking tongue in cheek, right. Yea, he has to be.
Could just be a typical 90-year-old Russian babushka.
I suppose as long as the US finanical system collapses everything will be okay and the world can get on and live happily ever after.
um yeah and Pol Pot was cool too! Hurrah for vicious dictatorships worldwide!
Money changes religious fanatics into consumers that don't give a rats ass about anything.
Another FLY BALL out into left field!
I thought the help from Brazil was interesting considering the US (Obama) loaned Petrobras up to $10 Billion to develope extreme deep water drilling and Soros put huge investment into Petrobras. What a clever way to help Iran without directly helping Iran.
With PBR's recent 52w low they must be pulling the money out.
The IRGC and FEMA are very similar if you understand their true aims and goals. Both were essentially created to prevent/react to events/conditions that unhinge the nations' "equiblibrium" (whether it be the Religious regime's stranglehold or The Military/Industrial/Central Banking Complex) and threaten the dissolution of the government. Both have either directly intervened or have conditions to intervene should disasters or "threatening" conditions arise.
I guess in Iran they have a more blatent display of the iron fist, while in America we have a velvet gloved fist that masquerades as a helpful aide.
"um yeah and Pol Pot was cool too! Hurrah for vicious dictatorships worldwide!"
If not for CIA overthrowing the legitimate Iranian democratically-elected government in 1950s, Iran could be another India or Turkey.
As for Pol Pot, again, we must thanks the USA and Nixon specifically for invading Cambogia leading to the Pol Pot regime.
Did I forgot to mention, Congo, Chile, etc.? The USA were very good in "promoting" democracy all over world.
I just hate demagoguery and hypocrisy.
"I just hate demagoguery and hypocrisy."
Well just listen to yourself then :-)
Your fairy tales are interesting to read in an adult setting.
Bless the Yanks!
They step in and try to convert failed states into something better. Cambodia, Congo, Iraq, etc. would have failed anyhow. Yankee bashers are always able to produce a firm lists of not so happy endings. I truly believe the list of successes is longer and bears more weight.
Unfortunately, you haven't a clue what you're on about, mate, as your name suggests...
I haven't heard anyone make a connection between the mainly euro-denominated Iranian Oil Bourse (which opened in 2008 as the only non-dollar denominated oil market in the world) the sudden and severe sovereign debt crisis in the euro during which frequent signs of financial warfare have been pointed out by this website and many European governments, and the ongoing US foreign policy of defense of the petrodollar. In fact, the web has been strangely quiet on the subject of petrodollar hegemony despite the aggressive ramping up of tensions between the US and Iran. What has been the effect of the declining euro on Iranian oil revenues and to companies doing business through this bourse? How much of the speculation involved in bringing the greek debt crisis to a head faster than most thought possible was really free market action, when the result has clearly benefited the dollar and US foreign policy on multiple fronts?
http://www.breitbart.com/article.php?id=D9FTDV7O1&show_article=1
Oh, goodie..................Congress spending our money AGAIN, I thought BP was going to PAY FOR IT ALL!
Bend OVER...................your going to have *Assitus.* brought to you , courtesy of BP & the CHI TOWN THUGS.
Yeah right, BP is going to pay for it, just like Exxon did for the Valdez spill. Oh wait, that's right. Exxon only payed 500 million, down from the original 5 billion, and not until 20 years after the spill.
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