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Iran's oil minister Kazem-Vazeri Hamaneh has said that the dispute of the does not involve plans to reduce oil exports. "From our point of view there is no link between the two issues," he declared before the latest OPEC meeting in Vienna adding that "Iran's primary responsibility is to optimise facilities and production of oil in order to increase national revenues."
Any disruption to output and investment plans could be extremely detrimental to the country's oil sector which is estimated to need $1 billion investment a year just to avoid a decline in current production levels. Iranian oil fields are reported to be depleting by up to 400,000 b/d every year.
Kazem Vazeri-Hamaneh has the task of achieving a 25 per cent increase in oil output to 5.2 million b/d in the next five years. Even this figure would be below the peak 6 million b/d reached before the 1979 revolution.
Finding foreign investors
Essentially, Hameneh has to decide how to involve foreign companies in the development. The country's fourth five-year economic plan envisages nearly 60 per cent of the projected $70 billion investment in oil and gas projects as foreign sourced. Lengthy negotiating delays over contract terms and the fractured political process in Iran have hampered progress in the past.
Foreign companies are denied title to Iranian natural resources which rules out concessions and production sharing arrangements. However, under buyback agreements, they are permitted to recover investments to develop reserves at an agreed rate of return from the production resulting from their investments.
It is an awkward formula that investors have proved wary of. Deputy Oil Minister Sayid Mehdi Mirmoezzi has suggested extending the length of contract terms with foreign companies to make such investments more attractive.
Courting China
At the same time, Iran is seeking to involve a much wider net of foreign investors into exploration. Iran and China have set up joint working parties to accelerate previously signed oil and petrochemical agreements. These include developing Iran's Yadavaran oil field in Khuzestan, petrochemical investments and the sale of liquefied natural gas to China. The latter already purchases 13 per cent of its crude from Iran.
China's Sinopec has said it could produce 180,000 b/d from Yadavaran and up to 300,000 b/d if well tests show that is feasible. The field is due to come on stream in 2009.
Asian interests also feature strongly in Iran's Azadegan oil field, west of Ahwaz, under development by a consortium led by the Japanese government's exploration company Inpex. The field is one of the largest in the Middle East containing an estimated 26 billion barrels of oil.
