Oil And Gas Privatisation In Iran by Reza MolaviOil And Gas Privatisation In Iran by Reza Molavi

Oil And Gas Privatisation In Iran

byReza Molavi

Paperback | May 11, 2012

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Iran is the fourth largest producer of oil in the world, and its coastline stretches the entire length of the Persian Gulf, one of the world's most strategic waterways in terms of energy security. The establishment of the Islamic Republic after the 1979 Revolution paved the way for religious clerics to gain ultimate political control in Iran and to crackdown on political dissenters. The only subject on which differences of opinion were tolerated was the role of the private and public sectors. Indeed, the role of the private sector was at the center of discussions between the two main factions in the Islamic Republic Party and, later on, between the two main wings in the Majlis. Two decades later, Iran appeared to be entering another era of transformation with the election of reformist president Mohammad Khatami in 1997. But the reformists failed to deliver on their promises and, in 2005, Khatami was replaced by the ultra conservative Mahmoud Ahmadinejad, who promised the Iranian people an end to economic hardship. Yet the structural failure of Iran's economy makes it very difficult for any president, whether conservative or reformist, to deliver on such promises. In this book - now available in paperback - author Reza Molavi explores the potential for the privatization of some of Iran's national institutions, in particular, whether there is the political will to privatize the Iranian oil and gas industry. Molavi begins by providing a theoretical basis for the determination of privatization policy. Subsequently, he explores a set of international precedents and then presents an historical overview of Iran since World War II in order to build a context for the determinants of privatization policy in Iran. Finally, the specific background, the legal and institutional framework, and the policy-maker perspectives are incorporated into the overall analysis. Together, these three approaches provide a cumulative understanding of the determinants of privatization policy in Iran.
Dr Reza Molavi is the Executive Director of the Centre for Iranian Studies at the University of Durham. He is also the Executive Editor of The Iranian Journal of National Interest, and a Senior Research Associate at the Centre for Strategic Research, Tehran.
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Title:Oil And Gas Privatisation In IranFormat:PaperbackDimensions:224 pages, 9 × 6 × 0.4 inPublished:May 11, 2012Publisher:Garnet PublishingLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0863724221

ISBN - 13:9780863724220

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Editorial Reviews

In an academic environment that is heavily concentrated in Iranian social issues or political matters of state-sponsored terrorism and nuclear capabilities, Reza Molavi's work is a refreshing change of scenery. While scholarship chases social movements and international hostilities, Molavi quietly turns our attention back to the powerful resource that has for decades linked Iranian politics, society, and culture. He does so with an inventive approach centered on assessing the politicalwill to privatize. Examining such a subjective topic takes the discussion far beyond the tired discourse of economy and commodity. It taps into the Iranian social psyche. It engages Iranian political philosophy. The approach transforms oil from a mere domestic resource to a commanding institution that impacts both personal and professional livelihoods. Readers will quickly realize that the ramifications of privatization for Iranian society cannot be underestimated. Whether the wage-earner or the manager, the soldier or the President, the debate over public versus privately held oil has, and will continue to have, enormous domestic and international consequences for Iran. Thematically, Molavi has chosen a difficult task. Assessing political will requires a broad sweeping analysis incorporating both the technical and abstract. Molavi does just that. With skill and clarity, he interweaves specialized oil economics with the particulars of Iranian culture and society, thereby creating a portrait of political will. For Iran, though, the privatization debate pivots on an apparent reluctance" rather than a contest between public and private (p. 1). Interestingly, "reluctance" suggests privatization is inevitable, but at what cost? It is from this vantage point that Molavi launches his treatise. To start, Molavi lays the foundation with four political and economic realities that, he contends, account for Iran's political reluctance to privatize. The first reality is the disjunctionbetween the Iranian state and society, or as scholar Homa Katouzian calls it, the "theory of arbitrary rule" (p. 12). Molavi argues this chasm or disconnect between the state and society severely impacts policy, especially privatization. Molavi identifies the second reality as similar disjunction between economic and socio-political modernization. From the Shah to the Ayatollahs, the history of uneven, government-directed modernization has created a gap between society, politics, and economy. The third reality is Iran's economic dependence on oil. An economy so heavily tied to one product would make it nearly impossible to withstand the market volatility associated with privatization. One temporary economic downturn, Molavi points out, would have devastating consequences. The fourth, and perhaps most influential, is Iran's relationship with the West. Privatization, championed by the West, is suspect in the eyes of Iranian officials. Domestic perspectives in Iran consider the West to beimperialistic, and therefore, taint any substantive dialogue over how to privatize. These realities act as philosophies that inform all aspects of the privatization debate. The body of Molavi's work is segmented into six chapters, frequently transitioning between thematic and chronological. His recursive organization causes redundancy at times, but that redundancy can serve to reinforce technical and abstract ideas that might otherwise be difficult to digest with only one reference. Privatization is such a topic. At first glance the idea seems straightforward, a rather basic economic idea, however, Molavi takes great care in explaining why it is not. Drawing largely on oral interviews with Iranian government officials and authorized publications, Molavi divides privatization between theory and practice arguing that privatization theories arise from interplay between various actors, the international system, and the evolution of ideas. From them emerge practices that are equally varieddepending on precedence, experience, and individual circumstances. In short, theories and practices of privatization (even in the West) are projects tailored to the actor and fluid in execution. What makes Iran's situation special, Molavi contends, is the relationship between religion and the state. Privatization would involve the Islamic government, considered to be the ultimate authority over property rights with accountability only to God, to release control over oil. This essential and decisive perspective validates, or at least rationalizes, "reluctance." The reluctance, however, should not hamstring the government, Molavi suggests. Models in Pakistan, Azerbaijan, and India, among others, have implemented varying degrees of privatization based on their economic and geographical circumstances. The result is an assortment of projects in government-owned oil, joint ownership, and private oil holdings. The next section is a critical juncture in Molavi's monograph, one that readers should review with great care. In chapters two through four, Molavi employs a litany of secondary work from credible scholars to painstakingly outline Iran's extensive history of domestic turmoil and foreign manipulation. While interpretations of privatization are important, Iran's recent history is perhaps the greatest contributor to their "reluctance." He first focuses domestically on political fractionalization. This century-old plague on Iranian politics has resulted in political splintering that has given minority groups the potential for absolute rule. Fractionalization, along with the Shah's cozy relationship with the West, he argues, was responsible for the Shah's prolonged centralized and oppressive regime. This is a fundamental reality that spurred anti-U.S. sentiment and nationalism, which "proved to be critical ingredients in the appeal of the anti-Shah forces in the late 1970s" (p. 52). Molavi also underscores the CIA-led overthrow of Prime Minister Mohammad Mossadegh in 1953 as an event that would later embolden Khomeini's supporters and, for the most part, undo what was left of pro-U.S. sentiment. Referencing Ervand Abrahamian's Khomeninism, Molavi goes on to recount the Ayatollah's convincing populist rhetoric that took sway over the country. Khomeini almost immediately took a position of absolute rule and, as the story goes, Iranian society did not realize the oppressive state that was upon them until too late. In the midst of his historical narrative, Molavi highlights two important factors. First, the Council of Guardians - the supremely appointed committee charged with ensuring all state decisions and political appointees are compatible with Islamic law - and second, the varying interpretations of Shi'ism that fosters further fractionalization. These two characteristics of the Islamic State highlight the difficulty facing the Iranian government in reconciling absolute control with privatization. Molavi's comprehensive retelling does not introduce new information, but instead, summarizes the circumstances leading to the Islamic State's reluctance to privatize. Molavi begins his descent describing a country in a state of economic turmoil, in desperate need of modernization, and concludes his monograph with a range of his own assessments on Iran's way forward. He first reminds readers there are models to emulate that could lessen the chances of damaging fluctuations associated with privatization. Furthermore, restructuring state-owned companies is a must even in the face of enormous corruption and efficiencies. The Council of Guardians, in particular, with their rigid control measures remains a serious barrier to essential economic development. Most importantly, Iran is in need of foreign investment, but the only countries able to provide the sizable investments necessary are tied to current sanctions. All this said, Molavi believes Iran "will continue to be sensitive to global issues, since elasticity of its oil revenues is linkedto its awareness of, and connection to, the global system" (p. 180). Therefore, he finishes where he starting, claiming it is not whether privatization will happen, but more about "a matter of pace and extent" (p. 182). For his part, Molavi uses incredible detail and clarity in assessing the political will. His conclusions are honest and realistic. The considerable use of oral evidence is particularly interesting. Molavi is sensitive to accuracy, but cognizant of restricted candor among officials. He deserves enormous credit for such balanced interpretations after navigating those waters. His chosen recursive organization, however, may be the only drawback to an otherwise splendid publication. At times, it reads as occasional pieces pulled together to form a book. Redundancies can be helpful, but clearer transitions are absolutely essential with such an approach. All in all, Molavi's broad approach has given scholars the foundation from which to forge specialized studies on oil culture and political will. Review by David A. Grantham, PhD Texas Christian University In an academic environment that is heavily concentrated in Iranian social issues or political matters of state-sponsored terrorism and nuclear capabilities, Reza Molavi's work is a refreshing change of scenery. While scholarship chases social movements and international hostilities, Molavi quietly turns our attention back to the powerful resource that has for decades linked Iranian politics, society, and culture. He does so with an inventive approach centered on assessing the politicalwill to privatize. Examining such a subjective topic takes the discussion far beyond the tired discourse of economy and commodity. It taps into the Iranian social psyche. It engages Iranian political philosophy. The approach transforms oil from a mere domestic resource to a commanding institution that impacts both personal and professional livelihoods. Readers will quickly realize that the ramifications of privatization for Iranian society cannot be underestimated. Whether the wage-earner or the manager, the soldier or the President, the debate over public versus privately held oil has, and will continue to have, enormous domestic and international consequences for Iran. Thematically, Molavi has chosen a difficult task. Assessing political will requires a broad sweeping analysis incorporating both the technical and abstract. Molavi does just that. With skill and clarity, he interweaves specialized oil economics with the particulars of Iranian culture and society, thereby creating a portrait of political will. For Iran, though, the privatization debate pivots on an "apparent reluctance" rather than a contest between public and private (p. 1). Interestingly, "reluctance" suggests privatization is inevitable, but at what cost? It is from this vantage point that Molavi launches his treatise. To start, Molavi lays the foundation with four political and economic realities that, he contends, account for Iran's political reluctance to privatize. The first reality is the disjunctionbetween the Iranian state and society, or as scholar Homa Katouzian calls it, the "theory of arbitrary rule" (p. 12). Molavi argues this chasm or disconnect between the state and society severely impacts policy, especially privatization. Molavi identifies the second reality as similar disjunction between economic and socio-political modernization. From the Shah to the Ayatollahs, the history of uneven, government-directed modernization has created a gap between society, politics, and economy. The third reality is Iran's economic dependence on oil. An economy so heavily tied to one product would make it nearly impossible to withstand the market volatility associated with privatization. One temporary economic downturn, Molavi points out, would have devastating consequences. The fourth, and perhaps most influential, is Iran's relationship with the West. Privatization, championed by the West, is suspect in the eyes of Iranian officials. Domestic perspectives in Iran consider the West to beimperialistic, and therefore, taint any substantive dialogue over how to privatize. These realities act as philosophies that inform all aspects of the privatization debate. The body of Molavi's work is segmented into six chapters, frequently transitioning between thematic and chronological. His recursive organization causes redundancy at times, but that redundancy can serve to reinforce technical and abstract ideas that might otherwise be difficult to digest with only one reference. Privatization is such a topic. At first glance the idea seems straightforward, a rather basic economic idea, however, Molavi takes great care in explaining why it is not. Drawing largely on oral interviews with Iranian government officials and authorized publications, Molavi divides privatization between theory and practice arguing that privatization theories arise from interplay between various actors, the international system, and the evolution of ideas. From them emerge practices that are equally varieddepending on precedence, experience, and individual circumstances. In short, theories and practices of privatization (even in the West) are projects tailored to the actor and fluid in execution. What makes Iran's situation special, Molavi contends, is the relationship between religion and the state. Privatization would involve the Islamic government, considered to be the ultimate authority over property rights with accountability only to God, to release control over oil. This essential and decisive perspective validates, or at least rationalizes, "reluctance." The reluctance, however, should not hamstring the government, Molavi suggests. Models in Pakistan, Azerbaijan, and India, among others, have implemented varying degrees of privatization based on their economic and geographical circumstances. The result is an assortment of projects in government-owned oil, joint ownership, and private oil holdings. The next section is a critical juncture in Molavi's monograph, one that readers should review with great care. In chapters two through four, Molavi employs a litany of secondary work from credible scholars to painstakingly outline Iran's extensive history of domestic turmoil and foreign manipulation. While interpretations of privatization are important, Iran's recent history is perhaps the greatest contributor to their "reluctance." He first focuses domestically on political fractionalization. This century-old plague on Iranian politics has resulted in political splintering that has given minority groups the potential for absolute rule. Fractionalization, along with the Shah's cozy relationship with the West, he argues, was responsible for the Shah's prolonged centralized and oppressive regime. This is a fundamental reality that spurred anti-U.S. sentiment and nationalism, which "proved to be critical ingredients in the appeal of the anti-Shah forces in the late 1970s" (p. 52). Molavi also underscores the CIA-led overthrow of Prime Minister Mohammad Mossadegh in 1953 as an event that would later embolden Khomeini's supporters and, for the most part, undo what was left of pro-U.S. sentiment. Referencing Ervand Abrahamian's Khomeninism, Molavi goes on to recount the Ayatollah's convincing populist rhetoric that took sway over the country. Khomeini almost immediately took a position of absolute rule and, as the story goes, Iranian society did not realize the oppressive state that was upon them until too late. In the midst of his historical narrative, Molavi highlights two important factors. First, the Council of Guardians - the supremely appointed committee charged with ensuring all state decisions and political appointees are compatible with Islamic law - and second, the varying interpretations of Shi'ism that fosters further fractionalization. These two characteristics of the Islamic State highlight the difficulty facing the Iranian government in reconciling absolute control with privatization. Molavi's comprehensive retelling does not introduce new information, but instead, summarizes the circumstances leading to the Islamic State's reluctance to privatize. Molavi begins his descent describing a country in a state of economic turmoil, in desperate need of modernization, and concludes his monograph with a range of his own assessments on Iran's way forward. He first reminds readers there are models to emulate that could lessen the chances of damaging fluctuations associated with privatization. Furthermore, restructuring state-owned companies is a must even in the face of enormous corruption and efficiencies. The Council of Guardians, in particular, with their rigid control measures remains a serious barrier to essential economic development. Most importantly, Iran is in need of foreign investment, but the only countries able to provide the sizable investments necessary are tied to current sanctions. All this said, Molavi believes Iran "will continue to be sensitive to global issues, since elasticity of its oil revenues is linkedto its awareness of, and connection to, the global system" (p. 180). Therefore, he finishes where he starting, claiming it is not whether privatization will happen, but more about "a matter of pace and extent" (p. 182). For his part, Molavi uses incredible detail and clarity in assessing the political will. His conclusions are honest and realistic. The considerable use of oral evidence is particularly interesting. Molavi is sensitive to accuracy, but cognizant of restricted candor among officials. He deserves enormous credit for such balanced interpretations after navigating those waters. His chosen recursive organization, however, may be the only drawback to an otherwise splendid publication. At times, it reads as occasional pieces pulled together to form a book. Redundancies can be helpful, but clearer transitions are absolutely essential with such an approach. All in all, Molavi's broad approach has given scholars the foundation from which to forge specialized studies on oil culture and political will. Review by David A. Grantham, PhD Texas Christian University"