Rouhani Still Seeks Economic Engagement with the West

By Alex Vatanka | Senior Fellow - Middle East Institute | Sep 28, 2017
Rouhani Still Seeks Economic Engagement with the West

President Hassan Rouhani continues to insist that the 2015 nuclear deal is safe, despite very vocal agitation from the Trump White House. The Trump administration’s September 14 decision to continue to waive sanctions on Iran’s oil and gas industries—as is required by the nuclear deal as long as Tehran is compliant with its obligations—also points to the deal’s strong likelihood for survival in the foreseeable future.

From Iran’s point of view going forward, the worst scenario is if the United States can somehow convince other world powers to seek to expand the deal to encompass non-nuclear issues—such as Iran’s ballistic missile program—as part of future negotiations. In Tehran, such possible add-ons to the agreement are considered as secondary in importance and escapable while the core of the 2015 nuclear deal is seen to be secure.

Given Iran’s overall assessment of the durability of the nuclear deal, the Rouhani government is focused on pursuing a two-pronged effort intended to speed up Iran’s economic rehabilitation on the international stage. On the foreign policy front, the Rouhani government is in particular increasing pressure on the Europeans to follow through on the delivery of commercial agreements, principally on the question of Iran’s purchase of aircraft. Besides Iran’s practical aviation needs, Tehran’s authority to receive new aircraft, which was included in the 2015 nuclear deal, is symbolically sensitive for Rouhani. In fact, advancing the sale of some 200 aircraft that Tehran ordered has become a litmus test for Iran’s engagement efforts with the global business community.

Meanwhile, the issue of access to foreign financing remains a concern for Iran and is hence another key priority. At the moment, Iranian officials readily admit that only access to external financing can enable large-scale renewal of the Iranian economy. While large international banks are still hesitant at best to deal with Iran, Tehran continues to engage with a variety of alternative financing sources. In September, the Iranian authorities signed a $10 billion financial deal with CITIC group, China’s biggest conglomerate. The deal is reported to include financing of energy projects in Iran. According to the head of the Iranian Central Bank, a number of E.U. states (Austria, Denmark and Italy have been mentioned) are also in talks with Tehran to open up lines credit of about €22 ($26) billion. While most of the pledged agreements are yet to be fulfilled, the lack of notable pushback from hardliners in Tehran against large-scale financial agreements with foreign entities shows the extent of consensus in the Iranian regime for engaging the international community.

The hardliners have also been notably powerless in hindering the agenda of Iran’s Oil Minister Bijan Zangeneh, who continues to look for ways to attract foreign partners. Zangeneh is one of Tehran’s key proponents of economic detente with the West. According to his reports, negotiations are continuing with 28 major international oil and gas companies (I.O.C.s) to develop a number of oil and gas fields, which include the giant Azadegan oil field that Tehran had been hoping to develop by a consortium of I.O.C.s.

Zangeneh’s upper hand in this domestic tussle over the future of the Iran Petroleum Contract has been evident in the implementation of the South Pars deal signed with Total in July 2017. Senior officials in the National Iranian Oil Company have defended the contract as a case of best serving the national interest and an act of “national economic resistance.” Several large components of the Total project at South Pars gas field—such as 20,000-ton platforms and undersea pipelines—will be manufactured in Iran, but under Total’s supervision. The argument is that, in the manufacturing process, the Iranians will learn new skills from the French company that possesses cutting edge technology, an important step toward self-sufficiency.

Zangeneh’s defense of the Total deal as a “technological milestone” that will give Iran the edge in the region in terms of gas production might be a case of boldness. However, hardliners have recently reduced their attacks on him. Following the signing of the deal with Total, not only did Zangeneh secure a solid vote of confidence from parliament to remain in the second-term Rouhani government as oil minister, but the deal was later notably approved by both the hardline-controlled judiciary and relevant parliamentary commissions.

It clear that Rouhani’s pursuit of economic engagement with the outside world is facing less opposition from Iran’s hardline camp, which has struggled to come up with an alternative blueprint. 

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