Iran to allow foreign investment in Caspian projects via buy-back scheme

The Iranian Majlis (Parliament) has approved a bill that gives National Iranian Oil Co. (NIOC) the right to enter into contracts with foreign firms to explore for and develop offshore resources on Iran's Caspian Sea shelf. The bill allows for foreign investment in Iran's oil and gas sector through the country's buy-back scheme. The measure may complicate the delicate balance of power in the Caspian Sea, where five littoral states disagree about territory ownership.


MOSCOW�The Iranian Majlis (Parliament) has approved a bill that gives National Iranian Oil Co. (NIOC) the right to enter into contracts with foreign firms to explore for and develop offshore resources on Iran's Caspian Sea shelf. The bill allows for foreign investment in Iran's oil and gas sector through the country's buy-back scheme. The measure may complicate the delicate balance of power in the Caspian Sea, where five littoral states disagree about territory ownership.

The Majlis approved the first reading of the bill in late February. It still requires approval of the Council of Guardians, which determines if legislation passed by the Majlis is in keeping with Iran's constitution. The bill was pushed through the conservative-dominated outgoing Majlis by the oil ministry.

While the bill will allow Iran to move into Caspian exploration and development, it may complicate matters regarding the legal status of the Caspian Sea. Iran claims 20% of the Caspian as its territory. However, this claim encroaches on portions of the Caspian claimed by Azerbaijan and Turkmenistan.

New drilling activity in Azerbaijan, the recent report of a 2 billion bbl discovery in the northern Caspian by Russia's Lukoil, and widespread rumors that the Offshore Kazakhstan International Operating Co. is on the verge of a huge discovery all have contributed to concerns within Iran that the country is losing out on Caspian oil and gas development. NIOC is involved with Royal Dutch/Shell Group, Britain's Lasmo PLC, and Germany's Veba Oil & Gas GMBH in the South Caspian Exploration Study.

During the Majlis debate on the bill, a member of the Majlis's oil commission, Mohsen Yahyavi, argued that the bill was in Iran's best interest. "Because of the lack of a legal regime and to assert our sovereignty in light of the unjust exploitation of the Caspian Sea's resources, we have allowed deals made on the buyback program," he said. "Our rivals are making the most of the Caspian resources. We seek deals with foreign partners to develop our 20% share of the sea."

But it remains to be seen when the five littoral states�Iran, Russia, Kazakhstan, Azerbaijan, and Turkmenistan�might take concrete steps to settle the legal status of the disputed sea. Iran and Russia have previously argued that the sea should be shared out in a condominium-type arrangement, whereby Caspian oil and gas resources would be developed within a mutually beneficial context. Kazakhstan, Azerbaijan, and Turkmenistan do not subscribe to that suggestion, and since Lukoil has announced a major find in a location that it has described as the Russian sector of the Caspian, Moscow's position is not really clear.

Political posturing
Meanwhile, Iranian President Mohammad Khatami said earlier this month that the Caspian littoral states should cooperate to promote stability in the area and not allow any foreign power to become involved�a veiled reference to the US. Speaking to naval cadets in the northern city of Noshahr, President Khatami said the sea belongs to the states that border it and that "no foreign power must be permitted to enter the zone." He said Iran's armed forces were prepared to confront any plot that threatened the country's borders or independence.

Washington, DC, has been adamant that Iranian territory not be used as a conduit for the export of oil and gas from the Caspian region. To this end, it has invested enormous diplomatic effort into convincing Azerbaijan, Turkmenistan, and Kazakhstan to commit their future hydrocarbon exports to the US-backed east-west pipeline route.

Washington supports a planned crude oil pipeline from Baku to the Turkish Mediterranean port of Ceyhan and a natural gas pipeline�the Trans-Caspian Gas Pipeline (TCGP)�stretching from Turkmenistan, across the Caspian Sea and into eastern Turkey.

The engineering aspects of the subsea portion of the TCGP have not been revealed, but it could be that the pipeline would come very close to the demarcation line that Iran would probably consider its territorial boundary. However, doubts about TCGP's viability are growing. Despite the fact that a final proposal for the pipeline was presented to Turkmenistan's President Saparmurad Niyazov nearly 2 months ago by the TCGP consortium�comprising PSG International Ltd. and Royal Dutch/Shell�the Turkmen leader has failed to respond. Furthermore, Niyazov is reported to be considering a deal with Gazprom for the export of 50 billion cu m/year of gas to Russia, which may complicate the TCGP proposal.

Gazprom currently has an agreement to buy 20 billion cu m/year from Turkmenistan, and Iran has a deal to receive 5 billion cu m/year. But there are problems with the latter arrangement. Earlier this year, there was talk of Turkmenistan boosting gas exports to Iran by the end of 2000 to 13 billion cu m/year through the 190-km gas pipeline that connects Turkmenistan's Korpedje gas fields and Kord-Kuy in northern Iran. This 3-year-old gas pipeline is the only new gas export line built in Turkmenistan since the country gained its independence from the Soviet Union in 1991. However, Turkmen gas exports to Iran are reported to have dropped to an average of around 1 billion cu m/year.

Iran has said the fault is entirely Turkmenistan's, claiming Ashgabat is experiencing technical difficulties and is unable to provide adequate investment to maintain production.

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