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Iran's Oil Industry Intensifies, But Ahwazis Are Marginalised

Iran has ramped up its crude oil exports to 2.1mn barrels per day (bpd) in its drive to become OPEC's second biggest oil producer, but indigenous Ahwazi Arabs in the country's main oil producing region continue to suffer extreme poverty.

Minister of Petroleum Bijan Zangeneh said he hoped that Iran - currently the third largest OPEC producer - will shortly surpass Iraq's production amid intensified foreign investor interest in the Ahwaz region's oilfields.

Oil export growth is exponential. In 2015, Iran exported around 500,000-600,000bpd and exports reached 1.7mn bpd in March.

However, there are renewed calls among local Majlis (parliament) members and the indigenous Arab population for the development of the oil industry to employ more local workers and redistribute oil revenues to invest in social projects for the poor.

Decline of Iranian oil

Sanctions had cut Iran's oil output by 1mn bpd to 2.7mn bpd, while exports were hampered by restrictions on oil cargo, hull insurance, foreign exchange problems and the refusal of banks to issue lines of credit. The lifting of sanctions in January enabled the regime to trade oil freely on the global markets.

However, the oil industry is in a state of disrepair and productivity of oilfields has declined. The Iranian government has found it difficult to acquire technology, such as gas reinjection, to raise oil flows while the pipeline infrastructure is in a state of decay with frequent breaches.

New contract model

The Ministry of Petroleum is now waiting approval for the new Iran Petroleum Contract (IPC) that works around constitutional restrictions that ban foreigners from owning oil assets, but boosts investment. The government hopes that the offers will spur interest. The National Iranian Oil Company (NIOC) expects to sign USD25bn in IPC deals with foreign oil companies over coming years.

Russia and China are in line to nab some IPCs, but they are competing with European majors such as BP, Shell, Total and OMV. Russian and Chinese oil officials facilitated illicit oil exports while Iran was under sanctions.

Under the Ahmadinejad administration, the deals were facilitated by UAE-based Iranian businessman Babak Zanjani. However, he failed to transfer much of the oil revenue traded with Russia and China to the Iranian government. In 2013, he was arrested for embezzlement of EUR2.7bn and in March was sentenced to death for "spreading corruption on the earth" - a charge usually used against political opponents of the regime.

Ahwaz: Key to Iran's revival

The Ministry is initially targeting the development of oil and gas fields that straddle the Ahwaz-Iran border, namely Yaran, Azadegan and Yadavaran. Crude production from these fields has risen from 70,000bpd in 2013 to 215,000bpd and there are hopes to reach 300,000bpd by the end of the current Iranian year in March 2017. By the end of the decade, the Ministry hopes to target 700,000bpd.

China is currently the main investor in Ahwaz's oil fields. Production from phase 1 of the Yadavaran field (85,000bpd) has started, while a second phase expansion adding 95,000bpd is being discussed with China's Sinopec. Production was launched from China's CNPC-led North Azadegan field in April. Output is currently at 75,000bpd.

The National Iranian Drilling Company has this month announced the completion of drilling of 20 new wells in the South Azadegan field out of a total 40 planned for the year.

Paranoia over foreign interests

Approval of the IPC model had been expected in December 2015 but has been continually delayed due to internal paranoia. Domestic disagreement centres on fears that the IPC could emulate the 1901 D'Arcy Agreement that led to significant British involvement in Ahwaz's oilfields, facilitated by the local Arab ruler Sheikh Khazaal, the sheikh of Mohammerah (Khorramshahr).

The D'Arcy Agreement formed the basis for the development of the Anglo-Persian Oil Company, which became BP, and saw much of the wealth taken from Ahwaz for British profits at the expense of Iran.

After seizing power, the Khomeini regime appropriated all oil assets, although many Ahwazis believed that revenues continued to be squandered by an elite - in this case, a domestic cabal instead of foreign companies.

Ahwaz poverty: a consequence of oil production?

Meanwhile, the Arabs inhabitants of the Ahwaz region are suffering levels of poverty comparable to sub-Saharan Africa - a stark contrast to Arabs in nearby Gulf states who enjoy Western standards of living. This is in spite of the region's oil fields containing more oil reserves than Kuwait and the UAE combined.

Growth in the oil industry that marginalises Ahwazi Arabs and destroys the natural environment will create tensions between the indigenous population and foreign investors. Many compare the situation to Nigeria's Delta region, where indigenous populations have suffered deprivation and environmental destruction due to Western oil extraction. This has led to direct conflict between indigenous people and Western oil corporations, notably Shell and Chevron.