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Iran's oil production capacity will fall 5 percent a year if investment in the sector does not increase, according to Akbar Torkan, managing director of state-run Pars Oil and Gas Co., Shargh newspaper reported July 9. Torkan said European banks' restrictions on financial projects have hindered more development, but added that the Oil Ministry is trying to create investment and guarantee funds to get around restrictions. Torkan's comments follow a July 8 statement by Iranian Oil Minister Kazem Vaziri-Hamaneh, who said sanctions are hindering Iran's ability to invest in oil infrastructure. Vaziri-Hamaneh added that Tehran is trying to recoup lost income from windfall receipts caused by high oil prices worldwide to make up for the lack of foreign investment.
Iranian officials are clearly making a point of illustrating the harmful effects of Western sanctions on Iran's energy industry. But this vulnerability was exposed to a greater extent June 27 when riots broke out across Tehran after the government announced it would impose fuel rationing to cut down on Iran's massive gasoline consumption and subsidies.
Iran's energy industry has taken a beating from years of sanctions designed to undermine the country's position as the world's fourth-largest oil exporter. Without foreign investment, Iran lacks the technology to maintain and upgrade its facilities to expand production and refine enough crude oil into gasoline to meet the energy demands of its own citizens. The United States understands this well and has made it a point to use Iran's gasoline imports as leverage against the clerical regime.
But much like Iraq under Saddam Hussein, Iran is well accustomed to toughing out sanctions, letting its energy industry suffer while it pursues its political agenda. Moreover, there are no signs Iran has slowed down gasoline imports from its major foreign suppliers, which suggests Tehran is not in as serious economic trouble as it is suggesting.
So why would Tehran take such care to expose its greatest vulnerability, especially while it is engaged in intense negotiations with the United States over the future of Iraq? Typically in such negotiations, each side will go to great lengths to present a solid front and conceal any weaknesses as it pushes for its demands. But the Iranians are complex negotiators, and there appears to be a larger strategy in play.
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