This piece is an amended extract from the new book Iran Oil: The New Middle Eastern Challenge to America by Roger Howard (published on 23 November 2006 by I.B. Tauris).

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Iran Oil: Petrodiplomacy and the Challenge to America
Author: Roger Howard
Hardcover: 272 pages
Publisher: I. B. Tauris (January 9, 2007)
ISBN: 1845112490

In their political armoury, the Iranian mullahs know that their formidable oil weapon takes pride of place. But this is not just for the obvious reason that any major producer of oil can threaten to retaliate against the outside world by cutting back on its output if it doesn’t get what it wants. There are, instead, some much more subtle ways in way the mullahs have already used their energy resources to maximum political effect.

Consider the facts and figures about Iranian oil that are habitually repeated, like a mantra, throughout the media. Iran, we often hear, has “the world’s second largest deposits of oil”, made up of “proven reserves” of 130 billion barrels of oil that are surpassed only by those of Saudi Arabia.

The truth, however, is really rather different. In the world of oil, there is never really such a thing as a “proven reserve” even at the best of times: “oil data is (always) like paint thrown across a canvass, as one analyst has put it, “you get the broad outline of the situation, but even then the paint later moves of its own accord”. But more importantly, in the world of international affairs there is no way of knowing who is telling the truth about what they do or don’t happen to have: the outside world is forced to take on trust all the assertions about how much oil any particular country says it has.

In the fall of 2003 some independent analysts were highly sceptical of unexpected Tehran’s claims about the size of the Bushehr field, claims that bolstered the size of Iran’s national oil reserves up from 95 to 130.8 billion and made them much larger than Iraq’s deposits. So although this figure has been accepted by some highly respected sources, a leading Honolulu-based consultancy claimed that the Iranians had double-counted existing reserves and assumed a recovery rate that was well above the average figure of 26%.

The mullahs have strong motives to exaggerate the size of these “proven reserves”. They know that, under OPEC rules, their output of oil depends on how big it says those reserves are: a higher output obviously means more foreign exchange to keep the regime afloat. So the mullahs’ dubious self-assessment has often really just been a bid to convince OPEC that Iran should continue with a high export quota that other countries might imperil[i]. Put bluntly, they were cheating in the same way that other countries have cheated when they have sought to maximise their own output: when in the 1980s OPEC decided to switch to a quota production system based on the size of its reserves, other countries immediately revised the size of its “proven reserves”: Kuwait inflated its own figure upwards by 50% while Saudi Arabia added a colossal 88 billion barrels.

But the mullahs have sometimes made announcements about their oil industry at curiously convenient times, almost as if to tempt international governments with carrots that can win their support just when Tehran most needs it[ii]. They know that they can use their natural resources

to exploit political fissures that surround their nuclear programme, and adequate testimony to this awareness is their tactic of linking the rewards and penalties yielded by their energy resources with the outside world’s cooperation on the hot political issues of the day.

So it is probably no coincidence that the Iranian authorities have suddenly and unexpectedly announced the discovery of new oil or gasfields, or the availability of new contracts to develop them, just as international negotiations on the nuclear issue have reached important junctures. So on 26 August 2002, just days after the world had been shocked by the exposure of a covert uranium enrichment programme, the Iranian Oil Minister Bijan Namdar Zangeneh had held a press conference and announced that at least 50 billion barrels of new oil reserves had been found in Iran in the course of the preceding four and a half years. And when the following year controversy over the issue flared up again, as Iranian officials denied weapons inspectors access to one of their suspected nuclear facilities, the director of Iran's Oil Development and Engineering Company (ODEC) on 14 July suddenly announced the discovery of another new reserve, not far from the Iranian Persian Gulf port of Bushehr, whose estimated 38 billion barrel deposits promised to make it the world's second biggest oil field after Saudi Arabia's Ghawar development. More was to come, for in March 2005, as the Iranians tried to extract as much concession as they could from European negotiators in return for surrendering their nuclear ambitions, Zanganeh announced that new oil and gas fields have been discovered in the southern province of Khuzestan and south of the South Pars gas field in Bushehr province, with an estimated capacity of 5,700 million barrels of oil.

The Iranians have made similarly dubious claims about the size of their natural gas reserves. These announcements have to be viewed with a sceptical eye because it is likely that they have sometimes reflected ulterior motives, such as an effort to lure outside investment or lure the outside world when Tehran has most needed its support. In 2005, for example, another report by the FACTS independent consultancy[iii] argued that the size of the giant South Pars field might really be overrated: “most foreign companies with hands-on experience in South Pars believe the capability to be 13-15 billion cubic feet per day (cfd). (But) Iranian field engineers estimate the field to be more productive based on the results of the first three phases and believe the upper limit is 20 billion cfd”.

No one disputes that Iran has huge potential as a major player in the future oil industry, and while in recent years Iranian wells have certainly been producing oil at a sharp rate- between 3.5 and 4.2 million barrels every day, which amounts to around 4% of global production- most analysts reckon that, with sufficient investment, they have the potential to increase such capacity considerably.

But next time you hear the mullahs, or anyone, talk about their “proven reserves” of oil and gas, be on your guard.