Author:Collett, Naomi

Football matches against the US, foreign oil companies returning after an eighteen year hiatus and a new law advocating foreign investment. Is Iran about to forgive the villains of the 1979 revolution?

Eighteen years after their dramatic expulsion the Islamic Republic is set to welcome foreign investors back into the country. But behind the words of welcome on pro-Western President Khatemi's lips lies concern over Iran's harsh economic realities. Burdened by a growing population and faced with a long-term slump in oil prices, the Iranian government has admitted, for the first time, to severe fiscal difficulties.

Spending for the current state budget has been cut by $1.4 billion, as the government struggles with a hefty debt payment of $5.4 billion. Iran's longer-term outlook looks equally bleak as the oil industry is finding it increasingly difficult to meet production quotas. Output is unlikely to grow unless the government can find the cash to invest in the oil sector. Oil minister Zangeneh has hinted at the possibility of an international debt issue as a means of funding investment in the industry, but this would not solve the problem of Iran's need for foreign technology.

As a result the government is now turning to the West with renewed vigour in the search for sources of investment. Iran's earlier attempts to attract foreign investment in the oil and gas sectors had been scuppered by a mixture of the poor commercial terms offered and US opposition. This saw off Conoco's $1 billion agreement in 1995 to develop Iran's Sirri gas fields, while the subsequent passing of the US Iran-Libya Sanctions Act deterred companies worldwide from carrying out business with the Islamic Republic.

However, low oil prices have hardened the Iranian government's resolve; and with revenues for the 1998-9 budget presuming $5.7 billion in overseas investment in the oil sector, they are in no position to dictate terms. Fortunately for the government, and to the surprise of many analysts, the threat of US sanctions against European companies investing in Iran was finally removed in mid-May. This saw the US government settling instead for guarantees that exports could not be co-opted for use in Iran's alleged terrorist activities.

The lifting of the ban signalled a great rush of interest from overseas oil companies, with over 150 companies attending a conference held in London in late June, outlining new projects.

Many of the projects are on offer for the first...

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