Iran’s Rouhani Invites Oil Investment as Sanctions Eased

Jan 23, 2014 9:11 am ET

(Updates with comments from Rouhani from fifth paragraph. See DAVOS <GO> for more on the World Economic Forum.)

Jan. 23 (Bloomberg) -- Hassan Rouhani, the first Iranian leader in a decade to visit Davos for the World Economic Forum, invited oil companies to invest in his country as a nuclear accord with world powers triggers the lifting of some sanctions.

Rouhani told a meeting of about 30 executives, mostly from the oil industry, that Iran has a good investment environment now and that risk is low, said Lin Boqiang, director of China Center for Energy Economics Research, who attended the meeting today.

Iran, holder of the world’s fourth-largest proven oil reserves, saw its economy shrink more than 5 percent in the fiscal year through March under the weight of international sanctions. Some of those trade restrictions and capital controls, imposed over the nation’s nuclear research, are being suspended after a Nov. 24 interim deal to freeze parts of the atomic program. Iranian oil exporters, financial institutions and companies linked to its nuclear work are still sanctioned.

Rouhani’s trip to Davos comes as global companies express interest in the economic opportunities on offer if Iran’s ties with the world community continue to improve.

Renault SA would be willing to re-enter Iran as trade sanctions end, Chief Executive Officer Carlos Ghosn said in a Bloomberg Television interview in Davos today.

“Even with all the sanctions, the Iranian market represents 700,000 to 800,000 cars,” Ghosn said. Once an agreement is in place enabling trade to resume with Iran, the country’s new car market could jump to “anywhere between 1 million to 1.5 million cars.”

Iran’s Will

Rouhani said today said his country won’t impede progress toward a final nuclear accord. The interim agreement implemented this week brought Iran about $7 billion in sanctions relief, according to the U.S.

The deal struck with the the so-called P5+1 group -- the U.S., the U.K., France, Russia, China and Germany -- marked the first breakthrough in a decade-long standoff.

Iran’s will to reach a comprehensive accord is “present and strong,” Rouhani said in a separate speech today in Davos. Hurdles may arise if other parties show a “lack of serious will” to secure a deal, he said.

“One of the theoretical and practical pillars of my government is constructive engagement with the world,” Rouhani said. “Without international engagement, objectives such as growth, creativity and quality are unattainable. We will make use of active foreign policy to achieve economic development.”

Gas Field

Christophe de Margerie, chief executive officer of Total SA, said yesterday he sees potential for the French oil producer to return to work in Iran after halting development of the South Pars gas field in 2009. Eni SpA Chairman Giuseppe Recchi said yesterday he’s interested in seeing Iran open up.

Total, based in Paris, has an “old relationship” with Iran, de Margerie said.

“It is true we know them maybe a little bit more than others,” he said yesterday. “You cannot say Total has more interest than Chevron or Exxon or whatever,” de Margerie said, referring to the biggest U.S. oil companies. “What is more important is when can we really have negotiation.” The time is “still not right but it’s a potential.”

Iran has postponed a conference in London at which it plans to introduce new contract terms to international energy companies to give itself more time to prepare, said Mehdi Hosseini, an adviser to Oil Minister Bijan Namdar Zanganeh.

‘Central Issue’

Iran’s existing buy-back contracts require companies to pay for oil and natural gas exploration and recover their investment from any production at a pre-arranged rate of return. Hosseini said in November that the nation was working on new terms that conform more closely with international norms to attract foreign partners to help develop energy resources.

Rouhani took office in August after being elected on a pledge to steer Iran away from the confrontational stance adopted under his predecessor, Mahmoud Ahmadinejad, and end the country’s growing political and economic isolation.

In his first 100 days in office, he broke taboos by pursuing a rapprochement with the U.S., including a phone conversation with President Barack Obama, and empowering his foreign minister, Mohammad Javad Zarif, to reach the nuclear accord.

As that interim deal kicked in this week, sanctions on precious metals, petrochemicals and shipping insurance as well as airplane and auto parts were lifted, the European Union said. Iran will receive the first payment on $4.2 billion in previously blocked funds on Feb. 1, when it gets a $550 million installment.

To rescue the economy, “it was very clear that Iran had to change its foreign policy orientation,” said Mahmood Sariolghalam, professor of international relations at Tehran’s Shahid Beheshti University, during a panel discussion in Davos yesterday. “The nuclear problem was the central issue.”

--With assistance from Lyubov Pronina, Brian Swint and Francine Lacqua in London, Alaa Shahine in Dubai and Mathieu Rosemain in Paris. Editors: Mark Williams, Alaa Shahine