LONDON (ResourceInvestor.com) -- Iran has recently in no uncertain terms threatened European oil majors with the invalidation of their energy contracts with the country if Iranian relations with the British, French and German governments deteriorate further amid their efforts to curb Iran’s nuclear programme, negotiations to which end have not long broken down. Is this just an idle threat, mere posturing by a two bit petroleum state? Or does it presage real trouble ahead?
The situation with Iran seems to have come to something of a head following moves by Europe’s big three, Britain, Germany and France, towards supporting the U.S. desire, in the face of Russian and to a lesser extent Chinese reluctance, to refer Iran to the United Nations Security Council in order to settle the dispute over its nuclear programme, which the Western governments seem almost certain is of decidedly non-peaceful intent. Even if Iran is not referred to the Security Council, further action, including economic sanctions or even military action, remains a possibility.
The issue of Iran’s nuclear programme has surfaced as the realisation dawns on the First World, including the top tier nuclear powers and Permanent U.N. Security Council members Britain, the U.S., China, France and Russia, that the proliferation of offensive nuclear technology may be an issue of far greater urgency during this century than the last.
An imbroglio such as the current one with Iran would in fact be a much simpler matter, were the country not in possession of some of the world’s largest and easiest to extract oil & natural gas resources. As it is, Iran is the second largest oil producer within the Third World oil cartel OPEC, after Saudi Arabia, and is also estimated to have the world’s second largest natural gas reserves, after Russia.
Although U.S. companies have been banned by their own government from investing in Iran since 1995, European and some Asian firms have become heavily involved in the country’s oil & gas sector. At risk if Iran were to carry out its threat to target the European firms would be deals of Anglo-Dutch super major Royal Dutch Shell, as well as France’s Total and Spain’s Repsol.
Some of the fiscal sums involved in Iran’s slated contracts with these firms are in the billions of dollars, and many concern the development of the country’s enormous South Pars gas field, shared partly with Qatar. The deals are vulnerable to repudiation as although there were agreed upon in principle by the last government of Iran, the country’s current government, headed up by populist President Mahmoud Ahmadi-Nejad, must still ratify them if they are to proceed.
Ominously, the government has hinted that sour relations with the foreign oil companies’ nations of origin could preclude the finalisation of any deals, and Ahmadi-Nejad secured his election in part based upon promises to channel more of Iran’s oil wealth to its common people. Rhetoric emanating from Iran on this matter has begun to sound more and more radical, including comments that came to light last week from one hard line legislator espousing the view Iran should leave OPEC and possibly pursue measures to inflate further the global oil price.
Iran may also feel more encouraged to eject European companies from its oil & gas sector now that Chinese oil & gas companies are emerging as players on the world stage and putting themselves forward as sources of the finance, expertise and technology that nations such as Iran need if they are to benefit from their natural endowments of hydrocarbon resources. The Chinese government may also be less concerned for the time being about the purposes of Iran’s nuclear activities.
At the end of the day, the governments of the European big three are in a difficult position, trapped between concerns for their oil & gas firms on one side and a desire to prevent nuclear proliferation on the other.
Nevertheless, the situation is currently developing quickly, and we could now be at the outset of a very interesting chain of events, particularly if Iran is indeed referred to the U.N. Security Council or if contemplation begins to take root in the U.S., Europe or Israel of a more forceful solution to the problem of Iran’s nuclear ambitions. What is certain though is that continuing tension between the West and Iran and the resulting fears of supply disruptions will do nothing to cool today’s soaring oil price.
