Big oil watches Iran vote, but investment distant

By Luke Pachymuthu and Simon Webb - Analysis

DUBAI (Reuters) - Iran's presidential election on June 12 may mark a small step toward the return of big oil's cash to the country's energy sector, but it could be years before investment flows freely.

Iran sits on the world's second-largest oil and gas reserves, a mouth-watering prospect for international firms starved of access to Middle East fields. But Tehran has not signed a major deal with a large western oil company for years as political pressure over its nuclear program kept them out.

"If you are an energy company, Iran is too big to ignore," energy consultant Mehdi Varzi said. "You want to get involved. But if your government says no, you simply can't."

U.S. President Barack Obama has said he wants a new relationship with Iran, raising the prospect that U.S. oil firms long banned from working in the country may make a comeback.

"Like many people I am very optimistic and hopeful that we have a possibility of something being resolved there," said Jonathan Whitehead, head of commodity sales and structuring for Barclays Capital in Europe, the Middle East and Africa.

"When that happens, how it happens and whether it opens the door for some of these big hydrocarbon-based projects I'm just not really sure."

There is no guarantee the election would result in progress on the nuclear dispute and to sanctions easing, both required by big oil.

Whether the winner is anti-American incumbent Mahmoud Ahmadinejad or his more moderate key rival, former Prime Minister Mirhossein Mousavi, Iran's nuclear policy is controlled by its supreme leader, Ayatollah Ali Khamenei.

"I can't foresee billions of dollars of investment in Iran from Western companies anytime soon... sanctions removal won't happen overnight, regardless of who is elected president," said Julia Nanay, analyst at consultancy PFC Energy.

"And relations could still get more tense and additional pressure could be applied if there is no progress on nuclear discussions."

The United States has accused Iran of seeking to develop a nuclear weapon, while Tehran says it needs nuclear electricity.

HOLDING GAME

Energy firms have for years played a tricky holding game in Iran, aiming to look keen and yet keep the distance required by home governments.

It hasn't always worked. Iran on Wednesday replaced France's Total (TOTF.PA), which had delayed committing to a multi-billion dollar gas deal, with China's state firm the China National Petroleum Corporation on Wednesday [ID:nDAH335106]

In 2006, Iran stripped Japan's INPEX of most of its 75 percent stake in the Azadegan oilfield for moving too slowly on drilling.