Are hard-liners moving in on Iran's Oil Ministry?

TEHRAN, Iran — Iran’s crude exports nearly tripled between November 2015 and May 2016. The state-run National Iranian Oil Company (NIOC) hit pre-sanctions levels of sales late this spring, shipping out 2.6 million barrels per day (bpd) — the same level as in 2011. Meanwhile, Petroleum Minister Bijan Zangeneh has vowed that Iran will further boost its crude output from 3.64 million bpd to 4.8 million bpd in the next five years to regain its pre-sanctions OPEC market share of 14.5%.

To realize this ambition, Iran will need to fund a significant expansion of its maintenance, repair and overhaul industry. As such, it will need billions of dollars in foreign investment. Thus, the June 12 replacement of NIOC Director Roknoddin Javadi can be seen as in line with the Iranian oil industry’s new requirements.

Javadi is a longtime, but controversial, energy manager who has attracted negative attention over his handling of a natural gas contract with United Arab Emirates-based Crescent Petroleum more than a decade ago, when Reformist President Mohammad Khatami was in office. That deal stirred controversy when it was later revealed that Iran had to sell natural gas at extremely low prices to the UAE for 25 years, leading conservatives to accuse certain Reformist executives of treason and corruption. Javadi, who was managing director of the National Iranian Gas Exports Company at that time, has come under harsh criticism ever since. But Zangeneh, a Reformist, ignored these criticisms and gave Javadi one of the most important positions in the ministry when he took office in 2013.

Iranian media has generally portrayed the replacement of Javadi as a normal development that could help the NIOC push forward with its new agenda in the post-sanctions era. The new NIOC boss, Ali Kardor, previously served as investment and financing director. To be clear, his appointment comes as NIOC seeks $200 billion in investment to revive Iran’s oil and gas industry.

The Wall Street Journal reported June 13 that the reshuffle was decided after disagreements among top Iranian oil executives over how to handle foreign investment and what kind of terms should be offered to foreign companies. Citing two people familiar with the matter, the journal revealed that the disputes contributed to delays in tendering the new Iran Petroleum Contract (IPC), an issue that reportedly very much upset Zangeneh.

A few days before the ousting of Javadi, the petroleum minister had said that IPC needs revisions, but promised that the first IPC deals would be signed within months, Bloomberg reported June 11, citing Seda Weekly magazine. IPC is designed to lure annual foreign investment of $50 billion to Iran’s oil and gas sector. As such, it appears reasonable that delays in tendering the contract, which covers more than 50 projects, have upset top authorities, including the petroleum minister. However, there are some speculations that the real reason behind Javadi’s ousting was in fact the increasing conservative pressure on the administration of President Hassan Rouhani over the Crescent affair.

After a marathon probe into the deal with the UAE-based energy firm, the Iranian judiciary in February finally ordered the Rouhani administration to dismiss Javadi over corruption charges related to the natural gas contract. In this vein, hard-line media published a list of individuals allegedly involved in the case — including Javadi. Moreover, on June 12 hard-line Raja News referred to Javadi as a state manager deeply involved in the Crescent scandal and hailed his ousting.

Oddly, the new NIOC director has also been accused of involvement in the Crescent affair. Kardor is among the 15 individuals listed by the judiciary as accused of being involved in the scandal. Meanwhile, Zangeneh has interestingly appointed Javadi to another senior position: deputy minister in charge of supervising hydrocarbon resources. This appointment signals that the differences of opinion between Zangeneh and Javadi are not as serious as the media suggested.

As such, it is clear that Zangeneh replaced Javadi under pressure. This development has indeed been the second-biggest blow to the pro-reform camp as a result of the Crescent affair. The first blow came when Mehdi Hashemi — son of former President Ayatollah Ali Akbar Hashemi Rafsanjani — who allegedly played a central role in the Crescent deal was handed a 10-year sentence on charges linked to embezzlement, bribery and what conservative-controlled state TV called “anti-security issues,” referring to the 2009 post-election unrest. Pro-reform figures have never admitted to any wrongdoing in regard to the natural gas contract, with ex-President Rafsanjani calling his son’s sentence unfair and politically motivated. Although the judiciary has imposed a ban on media coverage of Crescent-related trials and developments, hard-line websites such as Moj Resa and Farda News have openly accused junior Hashemi of personally benefitting from the controversial gas deal.

Thus, hard-liners have in reality succeeded in marginalizing at least two prominent figures involved in the Crescent scandal. Despite their defeat in the February parliamentary elections, the hard-liners do not appear to be sitting silent in the face of the petroleum minister and his team, who aggressively seek contracts with major European oil companies. The hard-liners have long since attacked the IPC and are expected to step up their criticism of the new contracts as Rouhani’s current term is coming to an end next year. Therefore, further changes in the Petroleum Ministry should not be seen as out of the question, and as a tactic that the incumbent moderates could use to reduce the overwhelming pressure hard-liners are exerting on them.