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Iran vote leaves upstream opening on track

The elections damaged the hardliners and opponents of the nuclear deal. But their influence has not been eliminated and wider regional rivalries remain intact

Contract terms and the investment regime have yet to be decided, but the international oil companies (IOCs) eyeing Iran’s upstream can take comfort from the country’s elections on 26 February. Reformists and moderate conservatives gained seats in both the majlis (parliament) and in the Assembly of Experts, largely at the expense of candidates critical of the nuclear deal and of improving ties with the West. President Hassan Rouhani will feel emboldened to pursue economic and political reforms, including measures to draw in foreign investment.

A fresh date for a conference to unveil the terms of the new and flexible Iran Petroleum Contract (IPC) can be expected soon. The ministry plans to offer more than 50 upstream contracts to IOCs under the new terms. The opening can now proceed more smoothly: many of the conservative lawmakers who opposed the plan have now lost their seats in the majlis. It makes realistic the schedule of awarding the first contract within a year.

In the meantime, the oil ministry will focus on restoring pre-sanctions production rates at mature oil fields – a boon to oilfield-services firms, which have already been setting up offices in Tehran. Foreign firms will encounter less resistance from the Revolutionary Guard than might have been expected if reformists had not fared so well. During the eight-year presidency of Mahmoud Ahmedinejad the Guard’s oil services company, Khatam al-Anbiya, won a string of lucrative pipeline and engineering deals.

As significant as the reformists’ success in parliament (reformists and moderate conservatives now hold around 160 of the 290 seats) was their strong showing in elections for the Assembly of Experts. Here too they are now in the majority at the expense of the conservatives – including Mohammad Yazdi, a hardline cleric who was head of the 88-seat assembly. In Tehran, reformists won 15 out of the 16 Assembly seats. The key task of the Assembly of Experts is to oversee the work of the Supreme Spiritual Leader and choose his successor. Ayatollah Khamenei, who is 76, is in poor health. After these elections, the focus of speculation will now turn to his likely successor.

While the conservative Islamic establishment has been weakened by the election results, its influence has not been eliminated. Ayatollah Khamenei’s role has been to keep a balance between the various factions in Iran and he will continue to do this. In his comments on the election, he praised the high turnout, but went on to say that the West should not be allowed to influence the newly elected bodies.

Nor should one expect Iran’s regional policies to change significantly in the aftermath of the elections. Tehran will continue to influence the Shia-dominated government in Iraq and will go on supporting the Assad regime in Syria, providing oil, weapons and money. The Iranians regard Syria as a major strategic ally that they need to keep at all costs.

As a result, relations between Iran and Saudi Arabia will remain under strain, even though President Rouhani is likely to make overtures to Riyadh. The Saudis accuse Iran of seeking to destabilise Arab states in the Gulf and elsewhere. The mass arrival of IOCs and other foreign companies in Iran – when it happens – and the speed-up of the thaw in relations between Tehran and the West will do nothing to coax better relations between Saudi Arabia and Iran, a rivalry that will continue to hang over the region.

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