Iran Oil Minister Vows to Revive Output as He Eyes Price War

Bloomberg

Bijan Namdar-Zanganeh is on a mission to make up for the last eight years.

In his first few days as oil minister in President Hassan Rohani’s new government in Tehran, the 61-year-old initiated plans to revive oil production to pre-2005 levels, hinted at a price war to win old customers and brought back managers sidelined by the previous administration.

“Revival of Iran’s lost oil markets is among my top priorities,” Zanganeh told the Fars News agency this week. “We only ask those who have replaced us in the world’s oil markets to know that when we are reentering these markets they will have to accept that oil prices decline or they should reduce their production to create enough space for Iran’s oil.”

Iran, historically the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has slipped to sixth place. Sanctions imposed by the U.S. and its allies against Iran over the past year to curb its nuclear program have restricted the country’s oil exports. That came on top of years of falling output due to underinvestment.

Iran now has to increase its oil and gas exports to revive the economy, which is suffering from inflation topping 35 percent and unemployment of about 12 percent. Even with sanctions, oil revenue accounts for as much as 80 percent of Iran’s export earnings, according to the World Bank.

“The oil industry is Iran’s Achilles heel,” said Alireza Nader, a senior analyst in Arlington, Virginia, at Rand Corp., a 65-year-old research group. “Iran’s economy is in a crisis.”
Pumping Oil

Rohani, 64, is examining budget projections made by the previous administration of Mahmoud Ahmadinejad. Zanganeh, who won parliamentary confirmation last week, vowed to return oil production to 4.2 million barrels a day. The current level is 2.56 million barrels, according to data compiled by Bloomberg. Saudi Arabia’s daily output is 9.65 million barrels.

Brent crude for October settlement was 1 cent lower at $109.80 a barrel on the London-based ICE Futures Europe exchange at noon local time. It’s fallen 1.2 percent this year.

U.S. and European Union sanctions cut Iran’s exports by about a million barrels a day as part of a broader effort to press the country to halt its uranium enrichment activities. Western powers suspect the program is part of a plan to produce nuclear weapons, something Iran denies.

Iran has the world’s fourth-largest oil reserves, with 157 billion proven barrels, and its biggest gas reserves, estimated at some 1,187 trillion cubic feet.
Aging Industry

Getting them out is another matter, while even keeping the status quo will be a challenge.

The energy industry is showing signs of distress regardless of the sanctions. Without substantial upgrades in facilities, production at Iran’s core fields, several of which date from the 1920s, could go into a precipitous decline. Some of Iran’s biggest oil fields face output drops of as much as 13 percent, according to the U.S. Energy Information Administration.

“Turning around the petroleum sector is crucial to Iran’s economy and Rohani’s success,” said Robin Mills, head of consulting at Dubai-based Manaar Energy Consulting & Project Management. “Zanganeh has a lot of managerial experience and can help keep production steady.”

With his dark suits and collarless white shirts, Zanganeh was a regular figure at OPEC when he ran the oil ministry in the government before Ahmadinejad won power in 2005.
Shell, Total

Starting in 1997, he brought in Western companies to revive Iran’s oil and gas fields, mainly through buy-back deals, in which foreign companies were paid in the form of crude oil. Iran attracted $15 billion for projects during Zanganeh’s first tenure from companies including Royal Dutch Shell Plc (RDSA), Italy’s ENI SpA (ENI), France’s Total SA (FP), and Norway’s Statoil ASA. (STL)

Born in 1952, Zanganeh, a civil engineer by training, is used to walking Iran’s corridors of power, holding ministerial posts for more than 22 years. Before taking over the oil portfolio, he was minister of energy for nine years, from 1988 to 1997, and spent five years in charge of agriculture.

Ahmadinejad replaced Zanganeh, who was then appointed to the Expediency Council, an advisory body to the Supreme Leader, Ayatollah Ali Khamenei.

In turn, Ahmadinejad brought in his allies and appointed four different oil minsters during his eight years as president. In 2011, he named Rostam Qasemi, head of Khatam Anbia, the Revolutionary Guards’ engineering arm, to replace Massoud Mir-Kazemi, another Guards commander.

“One of Zanganeh’s challenges is that Ahmadinejad fired 250 experienced managers and replaced them with less qualified allies,” said Sara Vakhshouri, a former adviser to the director of National Iranian Oil Co. International, the foreign trading division of Iran’s state oil company. “Priority is now to get those managers back and ramp up production.”

To contact the reporter on this story: Kambiz Foroohar in New York at [email protected]

To contact the editor responsible for this story: Andrew J. Barden at [email protected]