Post-election Iran

March 8, 2016 - 0:0

As the chair of the 3rd Iran Oil, Gas & Energy Week conference on 1st/3rd March in Istanbul I had a distinct sense that the discussion has moved on from “post-sanctions” Iran to what I suggested to the participants might better be described as “post-elections” Iran.

After the close of the conference I was able to reflect upon the conference proceedings in dialogue with oil and gas expert, Chris Cook.

I asked Mr. Cook, as a frequent visitor, observer and occasional advisor to Iran on energy matters since 2004, what in his views are of the potential changes in Iran’s oil and gas policy?

“I have been fascinated since I first came to Iran by the political governance and economy of Iran and its differences to other systems, in the West and elsewhere. I was intrigued by contrasting events in the two countries – North Korea and Iran – which U.S. President George Bush so stupidly, and with such tragic consequences for so many people, referred to in 2003 as an ‘Axis of Evil’.”

I have to say I was surprised by the reference and asked Mr. Cook what he meant by it?

“On the one hand we have seen in North Korea a young, impetuous and autocratic leader with absolute power – Kim Il Sung – threatening the use of nuclear weapons. While on the other hand we have seen a democratic election in Iran with potentially far reaching results, domestically and internationally.”

I admitted that I was still unclear as to Mr. Cook’s thinking?

“It has been said that there is only one thing stronger than the Will to Power (or to dominate) and that is the Will to Freedom. We in the West tend to view Iran through our own political lens of dominant control and our economic lens of absolute property rights.

Now, it occurs to me that the two political systems are at opposite ends of a spectrum of dominance. In North Korea, the power vested in the Leader is a power of dominant control. In the West dominant powers are exercised by an executive branch of government more or less subject to political direction and supervision.
But the power vested in Iran’s Supreme Leader by the Constitution written after the 1979 revolution seems to me to be that of ultimate veto power.”

I firstly commented that the view that such absolute rights can only be divine rights is enshrined in Iran’s post-1979 Islamic constitution, and I went on to suggest to Mr. Cook, that while Iran’s Supreme Leader has the ultimate say as to what will not happen, it is for the other institutions of Iran’s Islamic system to propose and implement policies subject to this ultimate veto.

Mr. Cook continued, “My instinct as an outsider looking in is that the most important outcome of Iran’s recent elections may well be that conservative factions in the Majlis – who as conservatives will by definition act to block or veto changes to the status quo – will no longer have the power of veto in respect of certain policy areas, notably Iran’s all important energy sector.”

I tended to agree with Mr. Cook’s interpretation, and I asked him what policy changes he had in mind, bearing in mind that Iran’s historic experience of being dominated by Western powers in pursuit of oil has led to explicit provisions in Iran’s constitution prohibiting foreign domination, and ensuring the sovereignty of Iran’s natural resources generally, and oil & gas specifically.

Mr. Cook responded, “Unfortunately, Iran’s constitutional provisions conflict with the Western system of finance capital based upon absolute (equity) ownership of productive assets through shares is the legal entity of a Joint Stock Company and upon debt claims over productive assets manufactured by banks.”

I remarked that much of the discussion at this conference in relation to the Iran Petroleum Contract (IPC), which has been under development now for the last two years, directly related to this fundamental conflict. Is there no solution to this problem? Well, while ingenious lawyers and advisers can formulate solutions on a case by case basis, at least in the short term, the underlying problems arising from the use of Western absolute property rights, and the threat of imposition by military or economic force, remain intractable.

Mr. Cook has proposed for several years a complementary approach to investment in Iran’s sovereign resources which is in addition to conventional methods, and he talked about it in the conference to the concept of Nondominium. I asked, what does he mean by creating a new word?

“The term Dominium comes from the Latin language of ancient Rome, and many English words, such as dominate, dominance and domain, reflect the exercise of power by one person over another. The word Condominium is not only in widespread use in the U.S. for a form of co-ownership tenure, but it is also used in respect of territories which are disputed between nations, but which has not been valuable enough to justify war.”

He added, “The word aims to describe a relationship between people, organisations or even nation states where no one has dominant rights to direct or dispose, but all parties have agreed veto rights.”

I see. Then I asked him: Are you describing a neutral relationship whereby every party’s position is respected? But how does the private sector fit into Nondominium? Surely financing would be unobtainable?

He answered, “That is a very astute observation, and it is indeed the case that the Western instruments of debt and equity based upon absolute property rights are inconsistent with such an agreement in the way that they constitute absolute claims. However, the age-old mechanism of the prepay credit instrument, which pre-dates Western finance capital, enables this problem to be resolved.”

So, by way of example I asked him to be more specific and for example does he means that NIGC might – through participating as a member of such a Nondominium agreement – issue prepay credit or promissory instruments to investor members who provide money, and these gas credits would be accepted in due course by NIGC in payment for a supply of natural gas?

He replied, “Exactly. NIGC would accept these prepay gas instruments in addition to (say) rials, dollars or euros. But note that investment is not limited to bank-created money such as euros and dollars. Suppliers of gas related technology such as engines, pumps and turbines (many of whom who were present at the conference in Istanbul) could swap the use of their technology for rights to the flow of gas.”

I observed that in my experience such a technology for energy swap would be of great interest to the providers of the technology and equipment needed by Iran to upgrade critical energy infrastructure and to develop a new and efficient energy grid. I also suggested that such undated prepay credits over the use of Iran’s natural resources are consistent with my understanding of Iran’s Constitution and subsequent judicial interpretations.

So, to return to our original discussion, I asked Mr. Cook that is he saying that it is the consensual “non-dominant” nature of partnership/swap agreements which is the crucial point here?

He said, “The consensual nature of the agreement is crucial, but the indeterminate, timeless and non-absolute nature of the prepay credit instrument is also essential.”

The outcome of our discussion was shared with participants in the workshop that Mr.  Cook and I held on the 3rd of March in Istanbul after aforementioned conference which was organized by the International Research Network (IRN) in association with ICCIMA Education & Research Institute & the Iranian Association for Energy Economics (IRAEE). Participants thanked us for interesting discussions that we had during the workshop. One of the participants asked Mr. Cook about his views and thoughts in relation to the post-election Iran?

He replied, “I am optimistic that political obstacles to Iran’s energy cooperation and energy diplomacy preventing progress may now have dissolved and that Iran may now lead regional energy development through the use of agreements and instruments which are entirely consistent with Iran’s 4000-year cultural and spiritual heritage.”

All participants in the workshop shared his views and they said they also have the same opinion.