Islamic Republic officials recently announced proposals to attract American companies to a range of projects, including oil and gas. Iranian officials floated a similar idea after the signing of the 2015 Joint Comprehensive Plan of Action nuclear deal, but no American company ultimately agreed to enter the Iranian market.
At the time, Iranian authorities sought to court [Honeywell] Universal Oil Products, one of the largest U.S. technology and engineering firms, to invest and provide advanced technologies for Iran’s petrochemical sector. Iranian officials held parallel negotiations with European and Japanese companies. Royal Dutch Shell and Total together agreed to invest $2.35 billion in Iran, though these companies proceeded with caution and, following lengthy negotiations, withdrew from their contracts after the United States exited the Joint Comprehensive Plan of Action.
Today, Iranian officials again raise the prospect of American corporate participation, as part of renewed negotiations.
Only France’s Total (TotalEnergies) moved forward, signing a contract to help develop Phase II of the South Pars gas field, alongside China National Petroleum Corporation and a local Iranian partner. The French and Chinese firms invested around $50 million before the U.S. withdrawal from the nuclear deal prompted both companies to halt development and cancel the contract.
Today, Iranian officials again raised the prospect of American corporate participation, as part of the failed negotiations. Yet even if Tehran and Washington were to reach a new agreement, such participation would remain unrealistic, at least in the short and medium terms.
For Iran, attracting American companies is vital for several reasons. First, six of the country’s ten refineries were built before the 1979 revolution, largely under American licenses and with U.S. technology. Iran has failed to modernize them. As a result, these refineries still convert roughly one-quarter of the crude oil they process into fuel oil and bitumen, whereas modern refineries typically limit such output to around 4 percent. For years, Iran has attempted without success to replace American-licensed technology with Chinese or domestically developed alternatives.
Second, Iranian officials appear to believe that if American firms enter Iranian projects, major European, Japanese, South Korean, and other international companies no longer would hesitate to sign contracts with Tehran. According to official statistics, 85 percent of the technology licenses used in Iran’s petrochemical complexes originate from European companies. Given two decades of equipment wear and tear, Iran needs renewed Western technological engagement. Iran ranks second in the region after Saudi Arabia in petrochemical production and generates approximately $16 billion annually in petrochemical exports. However, due to a range of problems including equipment deterioration, petrochemical plants now operate at only 60–70 percent of capacity.
Third, Iranian authorities seem to assume that if American companies bring their capital into Iran, future U.S. administrations would be constrained from reimposing sanctions. From the perspective of Western—and especially American—companies, however, entering the Iranian market entails at least three fundamental risks.
First, they see the Islamic Republic’s political structure as unreformable, and its hostility toward the West as enduring. Even if a nuclear agreement were reached, a range of disputes would persist, including Iran’s missile program, its destabilizing regional influence, support for internationally designated terrorist groups, and human rights violations.
Western companies increasingly prefer production-sharing agreements in the region, but Iranian law prohibits such contracts.
Second, Iran ranks among the least transparent economies in the world. Moreover, the extensive influence of the Islamic Revolutionary Guard Corps across industrial projects, trade, the broader economy, and even political governance, would pose an insurmountable problem for Western firms that cannot legally interact with a body designated by both the U.S. Department of the Treasury and the European Union for its terrorism links. Even if the law allowed, companies would hesitate to undertake the reputational risk.
Third, significant legal obstacles remain. Western companies increasingly prefer production-sharing agreements in the region, but Iranian law prohibits such contracts. Foreign firms are permitted to operate only as contractors or investors, settle accounts with the Iranian government upon project completion, and then withdraw. These arrangements are unattractive to Western corporations.
Finally, the broader issue of political legitimacy poses a profound risk. The Islamic Republic faces uncertainty, with the U.S.-Israeli strikes that are ongoing. There is no guarantee that a future administration would honor contracts signed by predecessors who lacked domestic legitimacy. The possibility of internal instability or civil conflict would represent a severe risk for foreign investors.
Iranian strategists might have imagined they were clever to speak about business to President Donald Trump’s envoys, but they were kidding themselves if they believed any businessman would invest in a regime so riddled with inefficiencies, legal impediments, and terrorism.
