Tuesday, February 11, 2014

Iran looks to private sector By Chris Cook

Don't miss the latest from Chris Cook at Asia Times on everybody and his neighbor wanting to do business with Iran. 

Iran looks to private sector
By Chris Cook

As the saying goes: "It's an ill wind blows nobody any good." The almost unprecedented snowfall across northern and mid Iran last week spread as far south as the desert town of Yazd and forced the cancellation of a major conference hosted by the energetic Yazd Chamber of Commerce on the subject of empowering the private sector.

I was to be virtually the only non-Iranian plenary speaker during a series of Iranian ministers. But the Yazd snowstorm that forced the cancellation of all flights cleared my diary and opened the way to unplanned and unexpected meetings in Tehran with key public, private and state-sponsored institutions.

I was therefore able to outline in Tehran the simple framework
agreements, credit instruments and financing and funding techniques that open up new public/private policy options for domestic energy economics and international "energy diplomacy" that are emerging as cornerstones of the Hassan Rouhani administration.

Private sector in the lead
In meetings with the public sector oil companies and pension institutions there was great interest in the proposed outcomes but complete pessimism that the public sector could do anything in the face of sanctions. But as my Iranian colleague pointed out, if what we propose were conventionally possible, it would already have been done: our role is to discover and implement new "adjacent possible" solutions.

Following an excellent meeting with the heads of the leading Iranian oil policy think tank we heard today that the Majlis - Iran's parliament - is instructing the oil ministry, using our language almost word for word, to engage with and support Iran's private sector both in domestic and international energy co-operation initiatives.

The international dimension
Meanwhile, it is at last beginning to dawn on Israel that the tactic of attempting to force through further US sanctions and thereby implode negotiations between Iran and the P5+1 - the UN Security Council permanent members plus Germany - has become completely irrelevant in the face of the gold rush now gathering pace. The Israelis have been unusually slow to recognize what has been apparent to the global private sector for some time: Iran means business.

By way of example, last week, I ran into some of the 120-strong French delegation who were all over Tehran like a cheap suit. You name it, they were flogging it, with the exception of EDF and their nuclear technology, (who are probably champing at the bit). The US petro-corporations are watching the Europeans eat their lunch, and you can be sure that the wires to the White House and State Department will be humming.

Hot off the press, Mahdi Hosseini, who was appointed by Oil Minister Bijan Namdar Zanganeh to lead the development of new Iranian contractual terms to entice the oil majors, dangled the prize of US$150 billion in upstream investment in the next five years alone.

Hosseini's team has been trawling the contractual terms of 33 countries, has assimilated 71 PhD dissertations, and now believes that it is closing in on a new hybrid form of contract nearer to production-sharing agreements than the buyback contracts that were so detested by the oil majors. The riskier the project, the more the terms will approach the production-sharing arrangements preferred by the majors, but which they can only impose on minor producing nations.

The dollar trap
As I have been saying in Iran for several years, such contracts can only ever have short- to medium-term application for a very simple reason. This is that these contracts are based upon the pricing and settlement of sales of oil production in US dollars.

So, even if - after long negotiation - a satisfactory formula may be achieved for short-term pricing and settlement in dollars, sooner or later the relationship between Iran's riyal and the dollar, and the relationship between the buyer's currency and the dollar must always diverge. So whichever way this divergence takes place, sooner or later the disadvantaged party will default or demand renegotiation.

The prepay solution
The solution we propose in order to address this intractable issue - which is hard-wired into the bank-centric dollar economy - is for settlement to be made through energy swaps of "prepay" energy-based credits. These are returnable in payment for the downstream energy products such as oil products, petrochemicals, electricity, heat or power, which are the outcome of suitable partnership supply arrangements with Iran.

Now that Iran is once more led by sophisticated strategists of the caliber of President Rouhani, Oil Minister Zanganeh, and Foreign Minister Mohammad Javad Zarif, not to mention Iran's massively experienced and canny OPEC representative Kazempour Ardebili, the possibility of meaningful energy diplomacy becomes more likely by the day.

We recently saw a serious US article contemplating the re-opening of an Iran/Israel relationship once the Palestine question is resolved, which may seem unlikely. But even here I believe that there is scope for an unconventional "adjacent possible" consensual agreement which meets the needs of all stakeholders.

Post Sanctions Iran
For my part, I have another trek to Istanbul in prospect to pick up my visa for the upcoming Post Sanctions Iran conference on March 8/9 at which I am speaking. I am also awaiting formal confirmation of an invitation to present our thinking to another extremely influential institution within the complex Iranian power structure which wields a veto on policy decisions.

My visit to Yazd - one of the most historic of Iran's cities - will have to wait for better weather, which is a shame.

Chris Cook is a former director of the International Petroleum Exchange. He is now a strategic market consultant, entrepreneur and commentator. 

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