Iranian negotiators are often caricatured as chess players or carpet sellers. These crude stereotypes apart, the country’s energy executives have too often failed to think strategically or take a good deal.
Tehran now has in its hands an agreement with the US that gives it almost all it could wish. If its new leaders can forge a new business approach, they can turn paper into a durable peace and prosperity at home.
The country emerges from the war having not just survived, but solidified its regional power. But it has suffered fearful damage: years of intense sanctions, followed by the forced shut-in of half its oil production, and the destruction by Israeli and US air attack of crucial gas processing plants, petrochemical sites and steel factories.
After thousands of people were killed by the regime’s security during the protests in January, the new leadership in Tehran must know it is on borrowed time. Ordinary Iranians have suffered and endured, and stood behind their nation even when they detest their government.
After the terrible destruction of the Iran-Iraq war, then president Ali Rafsanjani, in office from 1989 to 1997, sought to liberalise and rebuild the economy. In 1995, US oil company Conoco, which operated Dubai’s offshore oilfields, signed a deal worth $1 billion to develop the corresponding Sirri fields on the Iranian side of the maritime boundary.
This is one of history’s great might-have-beens. Instead, then US president Bill Clinton vetoed the arrangement, and banned all American investment in Iran’s energy sector. Further layers of sanctions over the years did not prevent Tehran from activities that angered the US: supporting terrorism, backing dangerous regional proxies such as Hezbollah, and resuming its halting nuclear programme.
But sanctions did warp the Iranian economy, and allow its dominance by corrupt insiders, sanctions evaders, and the Islamic Revolutionary Guard Corps, who became an army with a country. Western companies were gradually chased out, and replaced by Russians and Chinese.
In 2015, under president Barack Obama, the Joint Comprehensive Plan of Agreement (JCPOA) was concluded. It eased sanctions on Iran in return for strict and exhaustively detailed controls on the country’s nuclear programme. It failed because of political opposition in Washington and Tel Aviv, and Donald Trump’s desire to undo his predecessor’s legacy. But it also failed because it was technocracy, not grand strategy. It did not create a constituency either in Iran or the US for its success.
Western oil executives did fly to Tehran, with the hope of benefitting from the new “Iran Petroleum Contract” for oil and gasfield developments. But yet again, negotiations were painfully laboured. There was no serious progress before the JCPOA was torn up.
This time, Iran needs to reintegrate itself into the global and regional economy. That will ease the miserable economic conditions at home, improve relations with neighbours, and guard against a return to sanctions and war.
The administration of Mr Trump has shown itself very interested in deal-making, even with former enemies. In Venezuela, Syria, Iraq and the Democratic Republic of the Congo, a condition of good diplomatic relations is to provide access to oil, gas and minerals for favoured American companies.
The memorandum’s promise of a $300 billion investment fund is of course a mirage, like most of the big numbers thrown around in other recent agreements. But if the US eases sanctions, and Iran genuinely invites business, that money will appear. It is a country of 93 million well-educated people, with a superbly strategic geography, cultural riches, a wealth of oil, gas, minerals and other natural resources, and a major, if ramshackle, industrial base.
Iran’s needs are enormous. The ageing oilfields need improved and enhanced recovery, new exploration, and the development of the newer discoveries of the West Karoun area along the Iraqi border.
Though it holds the world’s second-largest gas reserves, its gas output teeters perilously on the brink of decline as reservoir pressures drop. It suffers repeated winter gas shortages and summer electricity deficits. Road fuel, gas, power and water are heavily subsidised and used wastefully. Badly-sited dams worsen the country’s water crisis.
Despite expanses of sunny and windy deserts, Iran’s installation of renewable energy is minuscule. Its geography could tie together the electricity and gas resources of Central Asia, the Caspian and the Gulf, with the avid consumers of South Asia, Turkey and Europe. Qatar has already expressed interest in connecting its electricity grid, which would de facto link Iran to the GCC network as well.
Such projects would benefit the Gulf countries most of all. The strategic prize is to convert a hostile, isolated and dangerous opponent into a constructive, normal neighbour. Companies such as Abu Dhabi’s Masdar, Taqa and XRG, or Saudi Arabia’s Acwa Power and Ma’aden, would bring tremendous value. They would also generate trade, services and investment returns for their home nations, helping recovery from the economic damage the war has inflicted.
Of course, Iran will remain a hard place to do business. Repression, and the execution of prisoners from the January protests, continue even after the war. Its politicians excel at terminating promising business on spurious security or nationalist grounds. State companies drag out negotiations, demanding impossibly favourable terms.
The IRGC, its companies, such as construction arm Khatam Ul Anbia, and the supreme leader’s Setad foundation, will continue to stretch their tentacles everywhere. They will try to oppose good business practices, frighten off foreign competition, and monopolise access to government contracts.
Mohammad Bagher Ghalibaf, Parliament Speaker, who signed the agreement from the Iranian side, has emerged as one of the new leadership’s dominant figures. But, a former IRGC commander and Khatam Ul Anbia managing director himself, his 12-year period as mayor of Tehran was marked by many such corrupt deals. He might facilitate a new business-friendly Iran, or prevent it.
We should not believe naive theories that economic engagement inevitably brings peace or liberalises regimes. But sanctions and confrontation have been tested to destruction. Tehran, Washington and the Gulf have the once-in-a-generation chance for a bold, transformational move.
