Iran - Falling Foreign Investment Diminishing Oil Income

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". . .Iran [needs] at least 4.5 billion U.S. investment dollars in its energy industry."

A recent study in Iran shows that the country is in dire need of investment in its energy industry, without which it may suffer grave consequences. A leading official think-tank, the Majlis Research Centre, issued an October 2009 report saying that Iran needed at least 4.5 billion U.S. investment dollars in its energy industry.

Otherwise, it added, in the worst-case scenario—Iran would have to stop oil exports in eight years. Whether realistic or not, the report gives a stern warning to Iranian officials that their nightmare of diminishing oil income may come true in a country where 85% of the annual budget is funded by such revenues.

But how did Iran end up here?

A combination of bureaucracy, wrong foreign policies, sanctions and corruption have brought Iran's energy industry to its knees, making it hard for foreign investors. The roller-coaster of bureaucracy, bottlenecks that a contract has to go through before being signed, inconsistency and officials' indecisiveness are just parts of Iran's diseased contract system.

When Ahmadinejad took power four years ago, foreign investment, particularly by European-based international oil companies, was on the rise. Under the previous reformist administration of Mohammad Khatami, the French oil giant Total defied U.S. sanctions and became the first of many European and foreign companies to come to rescue Iran's war-hit oilfields.

Ahmadinejad's “look to the east” policy brought about rather sudden changes and, in less than four years, the country's energy sector has become a playground for Russian and Chinese oil companies while their western counterparts are growing cautious over investment.

It is clear that the Iranian government desperately needs investment, whether foreign or domestic, in its oil and gas industry. But under current pressures and sanctions and with Ahmadinejad facing a legitimacy crisis after the June 2009 presidential elections, the prospect of further western investment in Iran becomes less and less likely.

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