Thursday, 15 March 2012

Iran: Who's the boss?

The Majles has approved the outline of a bill to determine the scope of authority for the Ministry of Petroleum (MoP) with regard to the oil sector. The relevant areas of authority are the process of decision making over oil issues, related executive affairs, issues relating to investment, and Ministry international relations.

The bill also envisages a mechanism of common consensus for choosing top directors in key institutions such as the National Iranian Oil Company (NIOC). It calls as well for the approval of all oil and gas contracts by the cabinet before they become effective. MPs are still engaged in discussions over various parts of the bill, and it is expected to be finalised by 21 March. The government has already objected to the bill on the grounds that it would effectively reduce the president's authority over several key oil industry issues. This is particularly significant when considering that a large proportion of government revenues comes from petrodollars and that the president has always tried to put his own picks in crucial MoP posts to make sure decision making supports the interests of his camp.

One controversial aspect of the bill is a mechanism for 'sharing the oil produced at the fields with the contractors.' Production-sharing agreements (PSAs) have always been considered against the Iranian constitution. Critics say that PSAs could also prove detrimental to oil reserves, particularly now that MoP is awarding deals to locals with little expertise. For their part, international contractors have long complained about the inefficiencies of the current buy-back model and emphasised that they would be more interested if Iran adopted PSAs. If the bill is finalised it would open new possibilities for oil industry contracts.

Another controversial aspect of the bill is that it would allow certain state organisations outside the MoP to make decisions about marketing a share of Iranian oil. While the details are still unknown, it is clear that putting decision making over a portion of crucial petrodollars into the hands of institutions beyond the government could disrupt the Iranian economy.

For more news and expert analysis about Iran, please see Iran Strategic Focus.

© 2012 Menas Associates

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