The merits of the Iranian petroleum contract model to meet the development needs of Iran's oil resources sector

Abstract

This research provides an examination of the Iranian Petroleum Contract (IPC) system from inception to the present day. First, the thesis analyses the expansion of petroleum contracts from the initial Concession Agreements to the termination of all obligations following the Islamic Revolution of 1979 and the Nationalisation Movement. Second, the thesis examines the ongoing policy tension between the Iranian oil industry's need to access foreign funding and technology and its aim to avert foreign exploitation of its natural resources. Focus is given to the impact of this tension on Iran's current position regarding foreign investment and the development of the current contractual model. In this context, the thesis compares the Buy Back Contract as a model for access to Iranian petroleum in the period since 1989 with the IPC model, noting that the latter is fundamentally characterised by the provision of funds by foreign investors for the development of oil fields. The thesis argues that the IPC model, where rights are granted to successful foreign investor companies to access their capital, technology, and know-how in exchange for remuneration and the potential reward for successful production, is essentially a compromise approach that addresses the twin national priorities of (1) accessing international funds, expertise and services while (2) constraining the exploitation of natural resources by foreign parties. The thesis provides an extensive analysis of the IPC structure and relative advantages via a comparative analysis with the Buy Back Contract model. The thesis also analyses other major contractual models in the international arena and assesses their suitability for the oil industry in Iran. The thesis concludes that notwithstanding the demonstrable flaws in the IPC model, its revised terms and conditions regarding key elements related to contract length, risks borne by investor companies, and the mechanism for remuneration approach make it the best contract structure to meet the development needs of Iran's oil and gas sectors. Based on this conclusion, the thesis recommends that in the current economic, political and legal climate, the IPC model provides a framework for Iran to initiate reforms to its resources sector while at the same time preserving Iran as an attractive option to foreign investors.

Date of Award	2020
Original language	English