Political turmoil slows big oil moves in Iran

By Simon Webb - Analysis

DUBAI (Reuters) - Political upheaval in the aftermath of Iran's disputed presidential election has slowed international oil firms' efforts to find a way through sanctions to invest in the world's second-largest oil and gas reserves.

Just a few months ago, overtures to Tehran from the United States under President Barack Obama had the world's most powerful energy companies reassessing the risks of working in Iran and optimistic the shadow of sanctions might start to lift.

But outcry following the June election stirred the biggest internal crisis since the 1979 Islamic revolution, slowing Iranian bureaucracy and spooking dealmakers in big oil firms.

"It's hard to slow down a turtle, but this has," said an executive at an international oil company (IOC) on condition of anonymity as he was not authorized to speak publicly. "This has put everything into freefall, no decisions are being made."

In the first months of Obama's presidency, energy firms stepped up contacts with Iranian oil officials hoping that with or without President Mahmoud Ahmadinejad, U.S.-Iran relations would improve. But tentative rapprochement has ended, and executives are back to playing a tricky holding game.

"I think there is no way forward in Iran," said an executive at another big oil firm with experience working in the Islamic Republic. "There is nothing happening, nothing at all, and I think there is no risk that anything will happen any time soon after this election."

Sanctions have long stopped U.S. firms investing in Iran's energy sector. European firms were less constrained, but have delayed new deals due to political pressure from Western governments aiming to isolate Iran over its nuclear program. The West says Tehran is working to develop nuclear bombs, while Iran says that it needs atomic electricity.

The politics left Europe's energy giants trying to convince Iran they wanted contracts while playing down their interest back home.

"IOCs are keeping a watching brief so that if things change they would be in a position to start doing business," said Ross Cassidy, analyst at consultancy Wood Mackenzie. "The turmoil will make things a bit more difficult and a bit slower."

Most of Europe's largest energy companies have Iran plans they would like to advance. Anglo-Dutch Royal Dutch Shell (RDSa.L), Spanish Repsol (REP.MC), Total of France (TOTF.PA) and Austria's OMV (OMVV.VI) all have gas export projects on hold.

Norway's StatoilHydro (STL.OL) wants a service contract for a gas field project, while Eni (ENI.MI) of Italy is eyeing more work at the Darkhovin oilfield.

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The prospect of changes at the oil ministry has exacerbated the impact of political turmoil on the public energy sector.

President Ahmadinejad is forming his new cabinet, and new faces at the ministry and in other senior energy positions could further delay energy sector development.

"Changes in the oil sector are expected, likely creating more gridlock both for ongoing negotiations and for getting approvals in the state company, NIOC, for daily activities," said Julia Nanay, analyst at consultancy PFC Energy.