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Progress is slow but countries consider a return to Iran

Iran is complying with the interim nuclear deal struck in Geneva in November, some light sanctions relief is under way and oil companies are already getting hot under the collar as they plot a return to the country’s upstream

Christophe de Margerie, Total’s chief executive, told Bloomberg last week that Iran’s energy ministry would make new contracts “more sexy than before” as it tries to lure in the majors. The ever-quotable de Margerie had just emerged from a meeting with Hassan Rouhani in Davos. The Iranian president, de Margerie said, had told him: “We have plenty of oil and plenty of gas. We need your management skills, we need your technology. We don’t really need your money.” Executives from Eni, BP, GazpromNeft, Lukoil and other firms also attended the meeting. You can only imagine the group’s mood as the men dreamed of new access to Iran’s 157 billion barrels of oil and 33.7 trillion cubic metres of gas.

Analysts say Iran’s buy-back contracts, long maligned by investors, will remain in place – but in name only. Elements of production-sharing contracts could be thrown in, though foreign ownership of reserves is unlikely to be part of the package. The new terms could be unveiled sometime this spring.

Welcoming

The wooing of foreign oil companies has been underway since Rouhani’s election in the summer. Bijan Zanganeh, his appointment as oil minister, has already named seven majors it wants to see back in Iran. Even US companies would be welcome in the upstream, he said back in December.

No one, though, should expect any of this to happen quickly. Whatever the hopes of Western oil companies, several snags need ironing out before Iran and the West reach the kind of comprehensive deal that will bring a full opening of the country’s upstream. The immediate issue is over the joint plan of action signed in November. It came into force on 20 January. “The early signs of the implementation of the interim agreement are good,” said Elizabeth Dibble, the deputy chief of mission at the US embassy in London. Iran, she told a meeting of Iran experts in the UK’s parliament on 28 January, had fulfilled its part of the deal.

Not so the West. While limited sanctions relief has begun – including of petrochemicals sales and a pause on further efforts to reduce oil exports – the mechanics aren’t moving so quickly. Neither the US nor UK has, for example, nominated any banks to handle the transactions Iran is now allowed to make, although doing so was part of the deal. “It would take perhaps a morning in the Foreign Office to nominate a bank,” said Ben Wallace, a member of parliament from the UK’s ruling Conservative party. That is exactly the kind of inaction that could undermine Iran’s faith in the negotiations progress – even before it sends another delegation to New York for another round of talks next month.

Iranians need to feel Rouhani’s concessions are helping the country’s wilting economy. This needs to happen quickly. Although the embargo does not target humanitarian goods, for example, the financial sanctions are so draconian that Iran has struggled to buy basic medicines and hospital supplies, Jon Snow, a British broadcaster who recently returned from Iran, told the parliamentary meeting.

In the background, meanwhile, are persistent efforts in the US Congress to throw another spanner in the works. A bill co-sponsored by 59 of 100 senators would impose further sanctions on Iran. It may be watered down and probably won’t pass even if it is – the White House would veto it – but it gives a good indication of what President Obama is up against domestically. “New sanctions would send a message to Rouhani and to the Supreme Leader that the US is not serious,” said one Iran analyst today. That could end Ayatollah Khamanei’s backing for the negotiations.

A deal too far?

Even if the West gets its act together now, a reckoning will come sooner than later. Rouhani is operating with red lines, say analysts. One of them is that Iran will keep industrial-scale nuclear capacity. It may also also refuse to dismantle Arak, a heavy-water reactor under construction 190 kms southwest of Tehran. Either the West will have to accept a semi-nuclear Iran or there won’t be a deal.

As difficult as it is for Obama to keep Congress onside, Rouhani faces an equally tough job placating equally obstinate members of his legislature, the Majlis. “It’s a difficult path for Rouhani to navigate,” says Wallace, who recently returned from a UK parliamentary group trip to Tehran. He has to cede enough ground to get the sanctions relief without playing into the hands of opponents who will charge him for weakening Iran. And sanctions have benefited some sections of Iran’s society – from Revolutionary Guards, whose business interests blossomed under Mahmoud Ahmadinejad’s presidency and continue to thrive now, to religious leaders who enjoy the sense of victimhood wrought by the embargo.

So what hope is there?

Obama says the prospects of a comprehensive deal remain 50-50. But momentum still seems to be moving in the direction of an agreement. The mood music in Western capitals sounds more peaceable. Eighteen months ago, British diplomats were tasked with drawing up evacuation plans for UK nationals who might be in the line of fire of a retaliatory attack from Iraq. Israeli officials worried that the “window of opportunity” to attack Iran was closing. And so on. Now the UK parliament plays host to Iran discussion groups where the broad consensus is that the West must do more to close the divide.

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