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53 the national bureau of asian research nbr conference report | october 2009 Iran’s Views on the Future of Energy Relations with China and Asia Hormoz Naficy HORMOZ NAFICY is Managing Director of Petroventures Advisory Limited in London. He can be reached at . 55 IRAN’S VIEWS ON THE FUTURE OF ENERGY RELATIONS u NAFICY P rior to the current financial crisis there was a great deal of focus, and barely concealed concern, with what seemed like the insatiable energy demands of China, India, and to a lesser extent the smaller but also fast-emerging economies of the Far East as well as what this demand meant to the West, particularly to the United States. Following from this, and concomitantly, there was the focus and concern that some of the oil producers of the Middle East and elsewhere were responding all too positively to this growing demand in Asia. While some of the traditional oil provinces, such as Saudi Arabia, Kuwait, and the United Arab Emirates (UAE) did not offer a level playing field or remained, on the whole, out of bounds to the national oil companies (NOC) of China, India, and other Asian states, for a variety of political and commercial reasons a few were more open and receptive. This essay is intended to look at one such case—Iran—where the host country not only offered a level playing field but actively promoted the entry of the Asian NOCs (ANOC) into its upstream. After a long, and at times tortuous, internal debate regarding the merits of FDI in the Iranian oil and gas industry, in the late 1990s Iran finally made the decision to reopen its upstream to foreign participation. Soon after this it became evident that Iran fully intended to welcome the participation of the ANOCs along with that of the international oil companies (IOC), which had been forced out of Iran as a result of the Islamic Revolution in 1979. This still fast-evolving relationship between Iran and the ANOCs will be reviewed here, and an assessment offered on the relationship’s likely impact on the fierce competition between the West and the economic powers of the Far East over future supplies of oil and gas. In this connection a reminder is also appropriate that the current financial crisis, and the resultant slowing of the phenomenal growth in energy demand by the major Far Eastern economies, has afforded at most only a brief respite from that fierce competition. New Partnerships in the Upstream Sector The Ancient Silk Road Revisited As ancient Asian civilizations, Iran and China had mutually beneficial trade relations dating back centuries, and equally, Iranian trade with India and Japan had flourished. Reference to “the new energy silk road” is thus entirely appropriate. Even though this trade was at times interrupted, relationships resumed whenever the land routes were secure. Political relations between Iran and these Asian countries has almost always been cordial, the invasion of India by Iran in the 18th century being the one exception. This history has meant that China and India—unlike, for example, Russia, the United Kingdom, or the United States—carried no political baggage when they entered into the Iranian oil scene. Neutrality of the flag mattered and offered these ANOCs substantial competitive advantages. New energy partnerships between Iran and the ANOCs have been forged in the last decade or so, signifying a new chapter in the relationship between the two regions. China’s Sinopec and India’s Oil and Natural Gas Corporation (ONGC) were awarded exploration contracts in 2001 and 2002 respectively, pursuant to the exploration and development bidding round announced by the National Iranian Oil Company (NIOC) in 1998. Those were the first of many contracts, and it became quite apparent that these ANOCs were no longer content with being importers of Iranian oil or just buyers of oil in the open marketplace. These firms had begun to seriously invest in the upstream projects of Iran in order to become equity owners in their own right. It is stating 56 nbr conference report u october 2009 the obvious that this meant that the political stakes had risen substantially to correspond with the growing commercial benefits of these new partnerships. Furthermore, these two ANOCs of China and India were not the only new players from that region. The 2004 exploration licensing round saw the entry of the China National Petroleum Corporation (CNPC) and Thailand’s PTTEP, both in 2005. Sinopec was also awarded a second block in 2005...


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