Iran’s National Interest and Buy-Back Oil Agreements

The Islamic regime’s mismanagement of the economy has not spared Iran’s oil industry. Indeed, the regime’s shortsighted and irrational policies have adversely affected the performance and prospects of this once efficient and most profitable industry. Within the past two decades, Iran, which was once the world’s fourth largest producer, and second leading exporter, of oil, has nearly lost its influential role in OPEC. More importantly, due to inappropriate production practices and inability to implement projects for increasing production capacity and secondary recovery, Iran’s oil fields have been seriously and perhaps irrecoverably damaged. Furthermore, the initial decision of the Islamic Republic to cancel all of Iran’s oil agreements concluded prior to the revolution, not only forced Iran to pay compensation to foreign oil companies but also eventually led to the conclusion of the so-called buy-back agreements. These agreements, that ignore many of the most common and internationally accepted provisions of oil agreements, have patently been detrimental to Iran’s national interest.

These agreements are apparently more compatible with the provisions of the Islamic Republic’ Constitution. However, they have saddled Iran with extraordinary financial obligations on the one hand, and exposed its oil fields to the long-range negative effects of short-term extensive exploitation, on the other. Under the terms of these agreements, Iran has no role in the determination of the amount of initial investment for exploration or its timetable. Furthermore, foreign oil companies, assured of high returns on their short-term investments, have no incentive to enter into long-term contractual agreements with the Islamic Republic, which would inevitably pave the way for the transfer of the latest drilling and exploitation technologies to Iran.

Parviz Mina & Farrokh Najmabadi
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