New oil contracts for those would-be investors are due this summer, and there is some discord inside Tehran regarding the prospective terms. Whereas the Rouhani administration is eager to court investment in order to extend the effects of sanctions relief under last summer’s nuclear agreement, its political adversaries are concerned that the contracts will give Western businesses too much power over the Iranian economy, thereby undermining the Islamic Republic’s reputation as a bulwark against Western influence in the region.
Opponents of the Iranian regime, such as the Paris-based opposition movement that National Council of Resistance of Iran, have long maintained that these political divisions are reflective of different tactics in service of the same fundamental goals, chiefly the retention of independent power for the Iranian regime. In terms of the economic aspects of this goal, President Hassan Rouhani is focused on the recovery of the sanctions-damaged oil economy, whereas Supreme Leader Ali Khamenei has sought to further extend the “resistance economy” strategy that helped Iran to weather those sanctions.
The latter strategy is certainly guided first and foremost by the Islamic Republic’s lifelong anti-Western ideology. But there is also growing uncertainty about whether Iran is even in a position to serve the foreign markets that the Rouhani administration is striving to attract.
On one hand, the expansion of Iran’s oil output has largely exceeded analysts’ expectations since the implementation of the Joint Comprehensive Plan of Action in January. In fact, by May the country’s overall production figures had come close to pre-sanctions levels. But on the other hand, Bloomberg reported on Monday that that strong initial recovery might now be at an end.
The report indicated that Iran’s observed oil exports were 20 percent lower over the first three weeks of June than during comparable periods in previous months. It is highly unlikely that the last week’s figures will close the gap, and Bloomberg speculates that this means the short-term post sanctions oil boom has now ended for Iran. The Saudi Arabian Oil Ministry agrees that the well-recognized oversupply of oil is now coming to an end as Iran faces a diminished ability to vie for expanded market share.
These observations in turn lend credence to the notion that Iran’s own bold claims about the speed of its recovery were backed up in large part by exports that were drawn away from oil surpluses that had accumulated in storage facilities and offshore tankers during a period when sanctions prevented much of that oil from reaching the market.
If Iran has indeed been misrepresenting its short-term output, it has almost certainly been part of an effort to attract foreign investor interest. The “shake-up” of NIOC thus comes at a crucial period, as Iran presumably needs to secure significant such investment before tapering exports show the recovery to be less substantial than previously thought. At the same time, that investment also appears to be essential to Iran’s ability to actually supply the markets that the oil industry seeks to enter.
But it is highly probable that none of this will be an issue in the immediate future, as the Bloomberg report also indicates that virtually the whole of Europe remains extremely wary of returning to the Islamic Republic, either as investors or customers. The relative lack of investment has been given a great deal of attention in recent weeks, especially in light of Iranian officials complaining that remaining US sanctions threats were scaring off banking institutions and European businesses. But what has been given less attention is the fact that Iran has struggled to push its European oil exports beyond half of their pre-sanctions levels, as well as the fact that those exports actually declined during the first three weeks of June.
If these export struggles represent a broader trend, it may suggest that Iran will be forced to work with a less flexible financial situation than its previous public statements would have suggested. This may encourage the Islamic Republic to pull back from prospective investment deals, thereby bolstering the hardliner argument for avoidance of re-engagement. And there may already be signs of this trend emerging in the closely-watched Iranian commercial airline industry.
On Monday, another Reuters report indicated that there were growing doubts regarding the much-discussed deal between Iran Air and the European airplane manufacturer Airbus. Specifically, Iran has indicated that it might cancel the aspect of the deal that involves the purchase of 12 superjumbo A380 jetliners.
“The inclusion of the world’s largest jetliner was hailed as a symbol of thawing relations and a sign of Iran’s determination to compete economically with Arab Gulf states that fly the jet,” Reuters reported before going on to explain that Iran still expects to struggle with financing for the deal, and that it may have to make substantial improvements to the commercial airline infrastructure in order to accommodate the A380s.
Despite the partial recovery of the oil industry, Iran’s domestic economic recovery has been slow in coming, if it has come at all. Although some media attention has recently been given to excessively high compensation for government-affiliated business leaders, the vast majority of the population reportedly lives below the poverty line, and unemployment continues to grow with the closure of industrial factories. Given these conditions, the government can ill afford the high levels of domestic investment that would support foreign purchases of the A380, at least without significant economic reforms.
Some observers have expected President Rouhani to spearhead these sorts of reforms, but others have emphasized that since taking office in 2013 he has failed to present a serious alternative to the hardline policies of Supreme Leader Khamenei. The sole exception to their pattern of agreement or non-interference is the slight tension surrounding the nuclear agreement with the West, and the associated foreign investment strategies such as the appointment of the new head of NIOC.