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Iran's Revolutionary Guard Corps expands role in sanctions-hit oil sector

By Thomas Erdbrink
Wednesday, May 5, 2010; A12

TEHRAN -- Taking advantage of the very sanctions directed against it, Iran's Revolutionary Guard Corps is assuming a leading role in developing the country's lucrative petroleum sector, Western oil executives and Iranian analysts say.

The Guard's engineering companies, replacing European oil firms that have largely abandoned Iran, have been rewarded with huge no-bid contracts. Experts warn that U.S. efforts to prevent international investment in Iran's oil industry are giving the Guard more clout. Iran is the second-largest oil producer in the Organization of the Petroleum Exporting Countries.

"The Revolutionary Guards are smiling at the idea of new sanctions against Iran," said a Western executive who represents one of the world's largest oil companies. "Sanctions against the industry or preventing foreign companies from selling gasoline to Iran will mean more money, power and influence for the Guards," he said.

In the past, the Guard's role in Iran's petrochemical sector was restricted to related infrastructure projects, including building roads and canals. But now Guard-affiliated companies oversee the development of most oil projects, and they have taken the lead in key parts of the gigantic South Pars liquefied natural gas project in the Persian Gulf town of Asalouyeh, with Chinese companies increasingly acting as subcontractors.

"It will take them longer, and they will be less efficient, but the Iranian oil and gas sector will continue to grow despite the international obstacles," said the oil executive, who has spent years in Tehran.

In Washington, a senior U.S. official who spoke on the condition of anonymity said it was not unusual for some government insiders to figure out how to benefit in countries under international sanctions. But the Iranian government is clearly worried about the prospect of new sanctions, he said, noting its intense diplomatic efforts to avert them.

The Revolutionary Guard Corps, which was established to protect Iran's Islamic system, is obliged in peacetime to use its capabilities to advance the nation, its commanders say. Under President Mahmoud Ahmadinejad, the Guard has vastly increased its business activities.

Working through its construction-sector arm, the Guard operates Tehran's international airport, builds the nation's highways and constructs communications systems. It also manages Iran's weapons-manufacturing business, including its controversial missile program.

Iran's leaders view the Guard's involvement in the oil industry as normal and say the elite military branch is merely helping to develop a nation under sanctions. The Guard's construction arm acts as a commercial company, but it is unclear how its revenue is handled. Commanders say the Guard's income is transferred to the national treasury, but no public records detail the amounts.

Western oil companies still trying to work with Iran are faced with tough decisions. Iran recently gave Royal Dutch Shell and Spain's Repsol a week to finalize a deal allowing them to develop parts of the Pars gas field or pull out of the project.

Iran also recently shelved a $7 billion deal with Turkish Petroleum International Co. to develop another part of the South Pars field after the Turks failed to commit. Iran's Ministry of Petroleum is negotiating with a domestic consortium made up largely of Guard affiliates, the Aftabnews Web site reported. No other parties have bid on contracts to develop the field, essentially because no domestic companies are capable of handling the enormous project.

The Guard, whose Khatam ol-Anbia arm is the biggest construction contractor in the country, publicly boasts of its growing experience in huge oil projects.

"Today, the Revolutionary Guards are proud to have such knowledge and capability that we can easily replace big foreign companies like Total and Shell in taking over big projects at Asalouyeh," senior commander Yadollah Javani told the semiofficial Iranian Labor News Agency last weekend. Western analysts say that on major projects, however, the Guard typically subcontracts the most complex work to foreign companies, most of them now from China.

Special correspondent Kay Armin Serjoie in Tehran and staff writer Mary Beth Sheridan in Washington contributed to this report.

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