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December 27, 2006
Iran's oil production
There are many better able than I to comment in relation to the current position and likely future trends in respect of Iran's production of crude oil, oil products and LNG.
However, my perspective is based upon five years or so - on and off - actually engaging with Iran in respect of a single project - the "Iran Oil Bourse" as it is popularly known. This project was initiated in early 2001 after - as a former Director of the UK's International Petroleum Exchange concerned at rampant market manipulation - I wrote to the Iranian Central Bank governor recommending a new Persian Gulf oil pricing benchmark.
I have observed 3 principal themes which are particularly relevant:
(a) National Identity;
(b) Governance - ie Democracy and Decision Making;
(c) Market Economy/ Management.
Iran's Persian antecedents have roots some 4000 years old. And certainly for the last few hundred years they have seen their nation under attack most recently and bloodily by Saddam - the latest in the series of Western sponsored attempts to access Iran's oil. There is therefore a huge resistance to letting foreigners having any more than minimal rights to Iran's oil, and this makes investment in Iranian energy projects protracted and tedious at best and impossible at worst.
Iran actually is quite a vibrant democracy in many ways - there is nothing of the autocracies typical of most Arabic states - but the Constitution and decision-making structure is horrendously complex and hierarchical. There are very few decision-makers, and even these will rarely make a decision without a protracted process of consultation among the elite. As a result delay and corruption are an ever present fact of life, since too many top officials are in place not because of what they know, but who they know. This tends to add a further dimension to already tortuous contractual negotiation.
From the Islamic revolution onwards there has been a deep suspicion in Iran of the "Western" Market Economy. Those with any understanding of it left Iran in droves, the Stock Exchange was closed for some years and has always been viewed with suspicion, particularly by the religious conservatives.The lack of understanding in Iran of markets (I did not say trading, they are pretty good at that) is almost total. By way of example, when the Stock Exchange crashed not long since, this was actually blamed by politicians and the Iranian Press on the stock exchange management, as opposed to supply and demand. The hierarchical and bureacratic nature of government and business alike also constitutes a management vacuum, which only those who have experienced at first hand will appreciate.
In attempting to put in place an energy marketplace able to interface with the existing global market, a railway analogy comes to mind. The current position of the Tehran Stock Exchange is a bit like a diesel engine: they can run it, and even repair it, but there is little understanding about how they might set about the necessary project to build and operate electric traction.
Iran's Westernised financial system - Central Bank, Stock Exchange and so on - sits very uncomfortably upon their Society, and through privileged access to oil wealth, the Iranian elite continue to enrich themselves at the expense of the average citizen.This issue of Social Justice underpinned the surprise win by the current President: his inability so far to get to grips with the Market Economy has led to Rafsanjani's recent "come-back" on behalf of the elite.
The central thrust of my work has been to design, and if possible to implement, new financial tools and products - much of it based upon developments familar to anyone in the UK and US in the "Social Enterprise" sector. I believe that if these are adopted-the effect would be a thriving Iranian economy, and in particular the enabling of the necessary investment to stem the suggested decline in Iranian oil output. In doing so I am suggesting that it is possible to create "Asset-based" financing and trading tools which combine with a new partnership-based enterprise model to give an outcome acceptable to all parties and a deep-seated compatibility with Islamic Values.
I also believe that that even were Iran so minded, which is by no means demonstrated - their progress towards nuclear weapons would suffer from exactly the same shortfalls in decision-making and management deficiencies which has held back the Iran Oil Bourse project for years.
Chris Cook, United Kingdom