Trend – The nomination of General Rostam Ghasemi as Iran’s Minister of Oil is another attempt by the Islamic Revolutionary Guards Corps (IRGC) to bring the country’s economy under its full control, which will have a devastating impact on both the economy and the Iranians, U.S. Northeastern University Professor Kamran Dadkhah believes.
“The nomination of General Ghasemi to take over the Oil Ministry is a power play by the IRGC to consolidate its dominance over the Iranian economy,” Dadkhah wrote in an email. “IRGC controls many economic activities, operates port facilities, makes investments, and wins government no bid or sole source contracts. By appointing a senior member of the IRGC to control the main source of foreign exchange and government revenues, the takeover of the economy is complete. General Ghasemi has already said that his unit, Khatam ol-Anbia, will be active in oil and gas projects.”
On Wednesday, July 27, President Mahmoud Ahmadinejad nominated Brigadier General Rostam Ghasemi, the commander of Khatam ol-Anbia, a major construction contractor and the economic arm of IRGC, as head of the Oil Ministry.
In February, 2010, the Treasury blacklisted Ghasemi banning him from doing business with U.S. firms or holding assets in the U.S.
IRGC, an Iranian elite unit, is the real power in society, which is represented not only in administration, but also in financial and commercial sectors. The Guard Corps has extensive economic interests in the defense materials, construction, oil and nuclear industry. Currently, its influence on the Iranian economy grows as many foreign companies have been unable or unwilling to compete for tenders because of the international sanctions.
According to Dadkhah, while this appointment is a victory for the IRGC, it is a defeat for the Iranian economy and Iranian people.
“The Iranian economy has been badly hurt by international sanctions: Iran’s oil production is in decline according to both international and official Iranian sources. Further, Nigeria overtook Iran in oil export to become the second highest oil exporter among OPEC members, after Saudi Arabia,” he told.
Early July, the Head of the Parliament’s Energy Commission Hamidreza Katouzian said that Iran’s oil production decreased by 72,000 bpd compared to 2008.
The Organization of Petroleum Exporting Countries (OPEC) has recently released a report saying Nigeria with 2,248,000 barrels output daily has replaced Iran, the second largest oil producer.
Later, Iranian OPEC Governor Mohammad Ali Khatibi rejected reports that Iran is listed after Nigeria in the oil cartel ranking.
Dadkhah believes the decline in Iran’s production is the result of lack of investment in maintaining old fields and in developing new fields.
“International sanctions have deprived Iran from access to badly needed international capital and technology. Iran has been unable to collect the proceedings from the sale of oil to India due to sanctions,” he told.
Iran’s refusal to abandon its nuclear activities has resulted in resolutions adopted by the UN Security Council in 2010, as well as additional unilateral sanctions approved by the U.S. Congress and the foreign ministers of all EU countries, which were primarily directed against the banking, financial and energy sectors of Iran.
Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran’s energy sector which is a major source of revenue for the Iranian regime; the same measure refers to the refining industry.
Last September, expanded U.S. sanctions on Iran there have prompted four of Europe’s five biggest oil companies – Total, Statoil, Eni and the RD/Shell – to stop investing in Iran. Later, in October, Inpex, Japan’s top oil explorer, announces withdrawal from Iran’s Azadegan oil field project to avoid U.S. sanctions. Inpex has invested $153 million in this giant project.
Since December, 2010, India and Iran try to find ways for New Delhi to pay for imports of 400,000 barrels per day or 12 percent of its oil demand after the Reserve Bank of Indiahalted a clearing mechanism under U.S. pressure.
The appointment of a sanctioned officer as the oil minister will make matters worse, Dadkhah thinks.
“Mr. Ghasemi may not be able to travel to many countries to negotiate investment and technology transfer. Many countries and companies would shun such a character,” he told. Thus, while the IRGC will control the main source of revenues in the country, the Iranian economy will be worse off.”
Furthermore, Ghasemi will be handicapped in presiding over OPEC and his presidency will be detrimental to OPEC’s position, because he would be unable to go anywhere except to a few very friendly countries, Dadkhah believes.
“It is also difficult to imagine that other members would take such a person seriously. The affairs of the organization would be handled by others who have more freedom of movement. It would be easy for Saudi Arabia to simply ignore or belittle such a person,” he told.
In January, Iran assumed the presidency of the OPEC for the first time in 36 years. The country’s oil minister was elected as OPEC president at a one-day meeting of the group, which is made up of 12 oil producing states.
According to Dadkhah, OPEC has not been an effective factor in the oil market except one reason – the conflict among its members particularly Saudi Arabia and Iran.
“The two countries have been in conflict over many issues including OPEC’s decisions and quotas. The fact of the matter is that the real power in OPEC is Saudi Arabia, the only country with enough excess capacity to affect the market and enough financial resources to curtail its production and live with less revenues. Other OPEC members neither have a large excess capacity nor the ability to forgo their oil income,” he said.
In the last OPEC meeting Iran and other members opposed Saudi Arabia’s proposal to increase production.
Saudi Arabia, OPEC’s biggest producer, possesses 20 per cent of the world’s proven petroleum reserves and ranks as the largest exporter of petroleum. The petroleum sector accounts for roughly 75 per cent of budget revenues, 45 per cent of gross domestic product, and 90 per cent of export earnings.
Iran, till recently, the group’s second-biggest producer, has historically taken a hard line on oil prices, and its OPEC Governor said on June 6 that his country would argue against raising output because “there is no need to increase production” at this time.
Yet, in June, Saudi Arabia announced plans to increase its oil production to the highest level in 30 year.
Saudi Arabia has about 3.5 million barrels spare daily oil production capacity that has not been used so far. Currently, Saudis are producing about 9 million barrels a day which is about 1 million above its official quota and leaving it another 3 million barrels a day of spare capacity.
Saudi Prince Turki al-Faisal warned Riyadh could easily offset any reduction of Iranian oil exports. Indeed, when Iran announced that it will curtail or stop oil shipment to India, Saudi Arabia stepped in and said it would sell the needed oil to India.
“All in all, the appointment of General Ghasemi will not bode well for Iran or OPEC,” Dadkhah concluded.