A Challenge to Big Oil’s Return? Iran’s Guards Have $50B in Oil Deals

This article was last updated on April 16, 2022

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As the thaw in relations between the West and Iran continues, the Islamic Republic is hoping to lure major oil companies back to invest in its all-important energy sector.

But any oil firms that return to Iran will find a new force to be reckoned with: Iran’s Revolutionary Guard Corps, a military force set up in 1979 by Ayatollah Ruhollah Khomeini to protect the country’s Islamic political system.

In particular, oil companies will find it necessary to come to some sort of accommodation with engineering contractor Khatam ol-Anbia, a company wholly owned by the Guards whose name means “Seal of the Prophets.”

Khatam was set up in 1989 following Iran’s war with Iraq to provide employment for Revolutionary Guards and make use of skills developed in the conflict such as building roads and bridges. With up to 40,000 employees, according to U.S. government estimates, the company has expanded to become one of Iran’s largest conglomerates, building everything from ports to highways.

The Revolutionary Guards had only a small presence in the sector when major Western oil companies such as France’s Total SA and Anglo-Dutch company Royal Dutch Shell PLC first signed oil deals with Iran in the late 1990s.

After 2005, though, former President Mahmoud Ahmadinejad signed billions of dollars worth of contracts with companies controlled by the Guards, particularly in the oil and gas sector. His aim was to prop up the most conservative elements in the regime to foster support for his hard-line stance on Iran’s nuclear program.

Khatam is one of those companies, and its influence grew rapidly from 2010, when the last Western oil majors pulled out of Iran as economic sanctions against the country tightened.

Despite the easing of sanctions on Iran for the first six months of 2014, U.S. and European Union companies are still barred from dealing with Khatam, which the U.S. has accused of being involved in Iran’s nuclear program. If that ban remains even after other sanctions are permanently lifted, that could prove an impediment to their plans to re-enter the country.

“An oil major partnering with Khatam? I can’t see that happening,” said a former executive at a European oil giant that previously pulled out of Iran.

In an interview, Hassan Dargahi, Khatam’s managing director for oil and gas, said the company has more than $50 billion of contracts with the Iranian government.

As an example of how Khatam’s influence has grown, after Total and Spain’s Repsol SA exited the giant South Pars gas field in the Persian Gulf in 2010, companies controlled by Khatam were awarded a large part of $21 billion in contracts for drilling, pipeline and platform construction, a spokesman for Pars Oil and Gas Co., the company that oversees the field, said at the time. Khatam has also received billions of dollars of contracts to build a refinery, petrochemical plants and pipelines.

Khatam is currently in talks to secure $5 billion worth of contracts from the government in areas such as petrochemicals and liquefied natural gas facilities, Mr. Dargahi said.

Mr. Dargahi said his company hadn’t benefited from any political favoritism during the period of heavy sanctions. “The contracts were all awarded through tenders,” he said.

Still, since Hasan Rouhani became Iran’s president in August 2013, there has been some pushback against companies like Khatam. Under Mr. Rouhani, who is widely seen as a more moderate political figure, Iranian officials have criticized Guards-controlled companies for alleged mismanagement and delayed projects.

At a recent trade fair in Tehran, Oil Minister Bijan Zanganeh criticized incumbent contractors in Iran’s oil sector — though he didn’t name specific companies.

“I’m not afraid of the hue and cry created by [rent seekers] and God willing I will stand against them,” he told the audience of oil industry delegates from Iran and overseas. Experts in oil-dependent economies generally use the term rent seekers to characterize people and companies who use political protection to overcharge for their services.

Khatam doesn’t yet seem to have fallen far out of favor. At the same trade fair at which the oil minister criticized deals signed by Mr. Ahmadinejad, Khatam’s stand was placed just opposite that of the National Iranian Oil Co., the country’s main state-owned oil company.

Not all foreign oil executives are worried about dealing with Khatam. At the company’s stand at the trade fair, Wolfram Schone, managing director of German engineering firm AviComp Controls GmbH, said the company would sell to Khatam if they weren’t under sanctions.

“They [Khatam] already know about us,” said Mr. Schone, who had traveled from Leipzig.

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