Diplomatic relations between Iran and the US are expected to thaw, as US trade sanctions against Iran are relaxed and Iran begins removing internal barriers for trade with outside investors. But foreign energy companies seeking business in Iran still face considerable obstacles.
Several speakers made those observations at the Eurasia Group Caspian basin forum last week in Houston.
The next US president, whether it proves to be Texas Gov. George W. Bush or Vice-Pres. Al Gore, is likely to begin easing sanctions, US Ambassador Robert H. Pelletreau said. He noted that Richard Cheney, Republican candidate for vice-president, has said trade sanctions against Iran should be ended.
The potential for major oil and gas discoveries and opportunities for development and production work in existing fields in Iran have sparked a scramble for investment there among oil and gas companies worldwide. However, sanctions against Iran have put US companies at a disadvantage to their competitors elsewhere, which are free to do business in Iran.
Pelletreau attributed the current situation to the fact that normal relations never resumed between the US and Iran following the abduction of hostages from the US embassy in Tehran in 1979. He noted that Iran's export of Islamic revolution outside its borders during the 1980s continued the chill in relations.
US Pres. Bill Clinton issued an order in 1995 eliminating trade or interaction between Iran and US companies, preventing Conoco Inc. from signing an oil field development deal. National Iranian Oil Co. then signed a pact with France's Total SA, forerunner of TotalFinaElf SA, for that project.
Other hurdles
But even if trade sanctions were eliminated, US energy companies and other businesses would have to overcome several hurdles to do business in Iran.
Western investment in Iran has yielded mixed results, said A. John Radsan, an associate with the Eurasia Group and counsel for Afridi, Angell, & Pelletreau LLP, a Washington, DC-based consulting group.
One major obstacle is the reluctance of some parts of Iranian society to accept Western investment, which carries with it Western cultural influences, Radsan said.
The fact that Iran's constitution prohibits its president from granting production-sharing agreements also has created problems. Iran is seeking ways to encourage foreign investment, such as creating free trade zones, but foreign companies haven't taken advantage of those as much as Iran had hoped. Radsan said that a legal vehicle to allow Western companies easier access to Iranian business opportunities is needed.
Complications with Iran's legal system and tax code also add to the difficulty level.
Like Russia's, Iran's tax system involves many layers. Radsan said that Western companies should be cautious of how embedded their business will become in the Iranian economy: "Otherwise, they could face more tax obligations than they originally thought."
Iran's bulky public sector and levels of bureaucracy also make business dealings in Iran more challenging, he added.
Despite the US trade sanctions, Iran's energy industry has kept the country's economy afloat. Nevertheless, Iran will seek over the next 5 years to lessen its dependence on oil revenues, said Amir H. Zamaninia, senior counselor for the Mission of the Islamic Republic of Iran to the United Nations. He said Iran also intends to privatize some of its industries and reform its monetary and tax systems.
Zamaninia added that the country will continue its move towards a more democratic society, including the establishment of a free press and civil rights for women.
