Durham E-Theses An assessment of the political will for oil and gas privatisation in Iran. Reza Molavi, How to cite: Reza Molavi, (2007) An assessment of the political will for oil and gas privatisation in Iran., Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/2578/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk AN ASSESSMENT OF THE POLITICAL WILL FOR OIL AND GAS PRIVATISATION IN IRAN Reza Molavi The copyright of this thesis rests with the author or the university to which it was submitted. No quotation from it, or information derived from it may be published without the prior written consent of the author or university, and any information derived from it should be acknowledged. A thesis submitted in partial fulfilment of the requirements of Durham University, Faculty of Social Sciences, School of Government and International Affairs, for the degree of Doctor of Philosophy Apri12007 1 8 APR 2008 ABSTRACT This study explores issues surrounding the potential for the privatisation of some of Iran's national institutions. In particular, it addresses the issue of what the determinants of the Iranian policy of privatisation are, in order to ascertain whether there is the political will to privatise the Iranian oil and gas industry. In order to answer this question, this study takes a three-pronged approach which relies on multiple methodologies. It begins by providing a theoretical basis for the determination of privatisation policy. Subsequently, it explores a set of international precedents that bind the possibilities of privatisation policy. It then presents an historical outlook on Iran since World War II in order to build a context for the determinants of privatisation policy in Iran. This historical analysis is based on a political economy framework. Finally, the specific background, legal and institutional framework, and policy-maker perspectives are incorporated into the overall analysis. In this final section, particular attention is paid to the views of Iranian policy-makers that have been gained through personal interviews and questionnaires. Together, these three approaches provide a cumulative understanding of the determinants of privatisation policy in Iran. Based on this general assessment, the study makes specific appraisals of the political will of Iranian policy-makers to privatise the oil and gas industry. 11 ACKNOWLEDGEMENTS There are many people without whose support and co-operation this thesis would not have been possible. The list is endless and I mention but a few. I would firstly like to thank my supervisor Professor Anoushiravan Ehteshami. It was his personal interest in my subject, constant coaching and encouragement that made this journey a pleasant experience for me. This thesis would not have been completed without the support of Christine Bird, the President of CHC Helicopters International, and Chris Krajewski, the Vice President of CHC Helicopters International. Their encouragement and interest in my research was an inspiration and a major source of motivation for me throughout this undertaking. Much of the fieldwork could not have been carried out without the help of various colleagues in Iran. In particular, I wish to extend my thanks to Seyed Kamal Hosseini and his staff at Iran Economics, for scheduling my interviews within a tight timeframe and making sure that my interviewees were available on the dates designated for the interview. I also wish to thank Ghobad Shirzadi for sourcing articles on privatisation through newspapers and magazines in Iran, during the course of 2005. Dr. David Kerr deserves a special thank you for his assistance and help at the earlier stages of my writing and for his advice in steering me towards my final working title and the slant towards a political dimension of my topic. His reading and commenting on the initial three chapters of this work set the tone and arguments for the final three chapters. I owe a debt of gratitude to my family for their support and consistent encouragement. Their understanding for my absence and creating a climate which made it conducive for my research to make progress without hindrance to the workings of the family home is noteworthy. Narges, Babak and Cyrus were all brilliant in coping and putting up with me. Finally, my thanks go to John Spelman of Avalon Associates for his assistance with the final formatting, printing and binding of this thesis. 111 TABLE OF CONTENTS Page Abstract 11 Acknowledgements lll CHAPTER 1: INTRODUCTION 1 Part One Introduction 1 1.1 Overview and Impetus for this Study 1 1.2 Context to the Study 2 1.2.1 Privatisation Debate 3 1.2.2 Background 5 1.3 Research Question 12 1.4 Summary of Methodology and Argument 14 1.4.1 Part Two- Theoretical and Precedent-based Context and Determinants 15 1.4.2 Chapters 2, 3 and 4 - Historical, Political Economy Context and Determinants 15 1.4.3 Chapter 5 - Specific Determinants of Iranian Privatisation Policy 19 1.4.4 Chapter 6 - Conclusions and Implications 20 1.4.5 Note on Research Methodology 21 Part Two Privatisation Theory and Comparison of Precedents 22 1.5 Introduction 22 1.5.1 Privatisation and Related Concepts 24 1.5.2 Forms of Privatisation 26 1.5.3 Right to Property 29 1.5 .4 Alternatives to Privatisation 40 1.6 Privatisation From a Comparative Perspective 41 1.6.1 Geographically Related Cases 42 1.6.1.1 Pakistan 42 1.6.1.2 Azerbaijan 44 1.6.1.3 Kyrgyzstan 45 1.6.1.4 India 46 1.6.2 Sectorally Related Cases 47 1.6.2.1 Egypt 48 1.6.2.2 China 49 iv 1.7 Conclusion 53 1.7.1 Theoretical Boundaries 53 1.7.2 Constraints 56 1. 7.2.1 Impetus 58 1.7.2.2 Models 59 1.7.3 Constraints: Lessons Learned 61 1.8 A Final Note 64 CHAPTER 2: POLITICAL ECONOMY OF OIL NATIONALISATION AND PRIVATISATION IN PRE-REVOLUTION IRAN 65 2.1 Introduction 65 2.2 Politics Leading up to the Shah 66 2.2.1 Key Features of Iran's Political-economy During the First Stages of Economic and Political Modernisation- Up to 1953 67 2.2.2 External Relations: Building the Perception of the West 71 2.3 Mohammed Reza Shah's Rule 73 2.3.1 The Features of the Regime: Centralised Power, Clientelism, Factionalism and Arbitrary Rule 74 2.4 External Relations 77 2.5 Economics Under the Shah 79 2.5.1 Oil- Reversing Nationalisation While Keeping Control 81 2.5.2 Relations Between the State and Capitalists 82 2.5.3 State of the Economy 84 2.5.4 Attempts at Economic Reform 85 2.5.5 Social Tensions Caused by Development 87 2.6 What the Fall of the Shah says about Iranian Society, Political Life and How it Impacted on Economic Policy 88 2.7 Conclusion 93 CHAPTER 3: POLITICAL ECONOMY OF OIL POLICY: 1979 TO 1989 95 3.1 Introduction 95 3.2 The Novelty of the Revolution 97 3.2.1 Brevity of the Revolution and Continuity of Thought 98 v 3.2.2 The New Political System: Continuity and Change 100 3.2.2.1 Ideological Makeup 102 3.2.2.2 Parallel Institutions 105 3.2.2.3 Factionalism and its Consequences for Political and Economic Policies 106 3.3 Features of the Iranian State: What Changed in the State-society Disjunction 111 3.3.1 Post-revolution Government 113 3.3.2 The Role of the Leader: Khomeini's Political Views: Populism, Shi'ism and Popular Sovereignty 113 3.4 External Relations 120 3.5 Economic Evolution 123 3.5.1 Economics and Islam 127 3.5.2 Nationalisation 128 3.5.3 Bonyads 132 3.5.4 Evolution of Oil Policy 134 3.6 Conclusions 136 CHAPTER 4: POLITICAL ECONOMY OF OIL POLICY: 1989 TO PRESENT 140 4.1 Introduction 140 4.1.1 History in Brief 141 4.2 Internal Politics 142 4.2.1 Role of the Leaders: Has Anything Changed From Khomeini's Time? 143 4.2.2 The Political System: Features 148 4.2.3 The Relationship Between State and Society 150 4.2.4 Factionalism 152 4.3 External Politics 156 4.3.1 The Gulf War 156 4.3.1.1 Hezbollah 158 4.3.2 The War on Terror and the Axis of Evil 159 4.3.3 The War in Iraq 160 4.3.4 Nuclear Technology 162 VI 4.4 Economics 163 4.4.1 Economics and Islam 165 4.4.2 Economic Development 169 4.4.3 The Evolution of Economic Policy 171 4.4.4 The Financial Sector 172 4.4.5 Oil 174 4.5 Conclusions 176 CHAPTER 5: PRIV ATISATION IN IRAN 179 5.1 Introduction 179 5.2 Background 180 5.2.1 Analysis of Background to Privatisation in Iran 187 5.3 Legal and Institutional Framework 190 5.3.1 Analysis of Legal and Institutional Framework 199 5.4 The Oil and Gas Sector 201 5.4.1 Analysis of the Oil and Gas Sector 210 5.4.2 Relevant Policy-makers' Views 214 5 .4.2.1 Analysis of Primary Research Methodology 217 5.5 Findings From Primary Research 222 5.5.1 Why, How, When and What Kind of Privatisation 223 5.5.2 For or Against 226 5.6 Analysis of Relevant Policy-maker Views 231 CHAPTER 6: CONCLUSION- PROSPECTS FOR THE FUTURE 233 6.1 Summary of Argument 233 6.2 Summary of Conclusions 234 6.2.1 Theoretical and Precedent-based Conclusions 234 6.2.2 Political Economy Conclusions 236 6.2.3 Contemporary Iran-based