Iran Oil Deal & Malaysia

Iranian National Oil and Malaysia's SKS Ventures signed a US$6 billion contract to develop the Golshan and Ferdows offshore gas fields in Iran, which contain an estimated 60 trillion cubic feet of gas. A second part of the deal to build plants to produce liquefied natural gas worth US$10 billion would soon be ready for signing. The initial project was expected to be completed by 2014, with Golshan delivering 2.5 billion cubic feet of gas a day,and Ferdos producing more than 880 million. SKS Ventures is a privately held company of Syed Mokhtar AlBukhary. The announcement came just two weeks after China's Sinopec announced a US$2 billion contract to develop the Yadaravan oil field in south-west Iran.

The deal is not so straight forward as it seems. The US government have tried very hard to discourage foreign companies from investing in Iran over concerns that the money could be used to support a nuclear weapons program in the country. Following China, now Malaysia is thumbing their noses at the US.

Iran's oilfields are no small potato. After Russia, Iran is estimated to have the world's second-largest natural gas reserves, though due to US and United Nations-imposed sanctions, Iran has been having problems developing their oilfields.

Energy companies such as Royal Dutch Shell, France's Total and Austria's OMV, have remained involved in operations in the country despite political condemnation. Over the weekend Iran said that it was close to signing an agreement with Italian power company Edison to pump 4.5 billion cubic feet of gas to Europe. Malaysia, like China, has strong business links with Iran, including through Pertonas, which has a 10% stake in the Pars Liquified Natural gas project, led by Total.

There are two ways of looking at Iran, the more belligerent the attitudes towards a country, the less they have to lose. To engage them is a better way. Most global problems can be traced to a lack economic power. Hence helping Iran develop its economic prowess can be argued as a better long term solution. The existence of "allies" to Iran will also help in future negotiating tables. To isolate and demand changes usually backfires.