Iran talks, but does anyone listen?

(also on as Iran Offers Global Oil Companies Favorable Terms…Should They Sign?)

On October 19, Iranian oil minister Bijan Namdar Zanganeh called on OPEC to cut production to bring oil prices into the $70 or $80 a barrel range, stating that “no one is happy” with the current prices. But, at the same time he said Iran:

“…won’t seek permission from anyone for our production … we will bring our production back to the market, and the market will absorb it. All of those OPEC members whom I speak with welcome this.”

What is the message behind Zanganeh’s bizarre bluster? Is he threatening to leave OPEC if production quotas are not enforced? Should investors be concerned?

Remember, rhetoric like this from Iran is not really designed for Western ears, but actually intended for the Iranian people. Zanganeh is projecting an image of strength to make his government appear strong and forceful to an audience of the Iranian populace. We have seen this same pattern time and again from the Islamic Republic, and we should interpret Zanganeh’s message accordingly.

What investors should focus on instead, is Iran’s search for over $100 billion in foreign investment. The National Iranian Oil Company (NIOC) desperately needs this cash influx to even consider bringing Iran’s oil industry back to its full export potential. European companies like Total SA (N:TOT), Eni SpA (N:E), and Royal Dutch Shell A (N:RDSa) have been in Tehran, pitching their businesses to the NIOC and government officials, but just how profitable could these contracts be?

Although Iran’s oil resources are relatively easy to extract and could command greater profit margins compared to assets like offshore Arctic oil, Iran has prohibited foreign companies from owning any assets in Iran since 1953. Instead, Iran negotiates contracts with foreign companies, though traditionally they have not been especially profitable for foreign companies. This time around, Iran has promised more favorable terms – but not without a catch. Iran claims companies will be able to take home a greater share of the profits, but in exchange for sharing their technology with Iranian companies.

Will foreign companies take the bait? At the very least, the Europeans are putting on a good show for the Iranians this week in Tehran. Whether the contracts Iran offers will be lucrative enough to justify any technology sharing remains to be seen. With the Iranians, what they say is not necessarily what they mean and the fine print is everything.