Putting the squeeze on Iran

Los Angeles Times, LONDON - As Washington wages a very public battle against Iran's quest for nuclear power, it is quietly gaining ground on another energy front: the oil fields that are the Islamic Republic's lifeblood.

Iran's oil industry has raked in record amounts of cash during three years of high oil prices. But a new U.S. campaign to dry up financing for oil and natural gas development poses a threat to the republic's ability to continue exporting oil over the next two decades, many analysts say.

The campaign comes at a moment of unique vulnerability for Iran's oil industry, which also faces challenges from rising domestic energy consumption, international isolation, a populist spending spree by President Mahmoud Ahmadinejad and trouble closing contracts with foreign oil companies — a recipe for potential disaster in a nation with one of the world's largest reservoirs of oil.

"If the government does not control the consumption of oil products in Iran … and at the same time, if the projects for increasing the capacity of the oil and protection of the oil wells will not happen, within 10 years, there will not be any oil for export," Mohammed Hadi Nejad-Hosseinian, Iran's deputy oil minister for international affairs, said in a telephone interview.

If Iran were to suddenly stop exporting its 2.6 million barrels of oil a day, such as in the event of a military strike, world oil prices probably would skyrocket. But a gradual decline might be offset by other OPEC members, analysts say, particularly as Iraq increases its oil production and Saudi Arabia carries out plans for significant increases in its production capacity.

The efforts by the United States and its allies over the last few months to persuade international banks and oil companies to pull out of Iran threaten dozens of projects, including development of Iran's two massive new oil fields that could expand output by 800,000 barrels a day over the next four years.

"Many European banks which had accepted financing some oil industries projects have recently canceled them," Nejad-Hosseinian said.