Iran signs $2bn oil deal with China

  • the deal reflects Tehran’s attempt to drive a wedge between the US and its allies by attracting non-western companies.

Iran signed a $2bn oil contract with Sinopec of China on Sunday, sending a signal to western companies that they might miss out on potentially lucrative contracts with one of the world’s biggest energy exporters if they continued to heed US-inspired sanctions against Tehran.

“If other countries who like to invest in oil and gas hesitate, they will lose opportunities,” said Gholam-Hossein Nozari, Iran’s oil minister.

The contract to partly develop the giant Yadavaran oil field in south-west Iran is one of the biggest Tehran has signed and is the first with a Chinese company. “Implementation of the contract will start immediately,” Mr Nozari said.

Iran sits on the world’s second largest oil and gas reserves but it has not been able to attract enough investment for its development projects, fuelling fears that it might face an energy crisis in less than a decade.

Tehran has not signed any big oil and gas contracts with foreign companies during the past few years due to the prospect of international sanctions over the country’s nuclear programme. Iran’s buy-back scheme, under which investors must turn over the operation of fields – after their development – to the National Iranian Oil Company is another disincentive.

Sunday’s deal reflects Tehran’s attempt to drive a wedge between the US and its allies by attracting non-western companies.

Yadavaran is estimated to contain 12bn-18bn barrels of oil. The contract involves production of only 85,000 bpd by the time the field is developed in four years. The second phase, to produce another 100,000 bpd, will be decided later.

Sinopec is obliged to give 51 per cent of its sub-contracts to Iranian companies.

Mr Nozari also said Iran had signed multi-billion dollar contracts with some other non-western companies to develop two major upstream oil fields a few months ago. He refused to give more details because the companies feared facing international pressure.

Japan’s Inpex withdrew from the development of Azadegan oil field last year following US pressure.

France’s Total, Royal Dutch Shell and Spain’s Repsol YPF have been negotiating to develop some parts of South Pars, the world’s biggest gas field. Iran has given them an ultimatum that it could wait only until June 2008.

By Najmeh Bozorgmehr in Tehran
Copyright The Financial Times Limited 2007

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