Energy:

Firms Reported in Open Sources as Having Commercial Activity in Iran's Oil, Gas, and Petrochemical Sectors

GAO-11-855R: Published: Aug 3, 2011. Publicly Released: Aug 3, 2011.

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Iran's economy and government are reliant on revenues from its oil and gas industry. According to the 2011 Central Intelligence Agency World Factbook, oil accounts for approximately 80 percent of Iran's exports, and, according to the International Monetary Fund, Iran's 2009 oil revenues were about 66 percent of the Government of Iran's revenues. According to the Department of Energy (DOE), Iran ranks among the top three holders of proven oil and natural gas reserves in the world, and is one of the largest exporters of crude oil in the world. While Iran continues to produce significant amounts of crude oil, its peak production occurred in 1978 and has not been matched since then because of a high rate of natural decline in mature oil fields, limited investment, and sanctions. IHS Global Insight found that the oil sector will require approximately $25 billion in annual investments to maintain existing production and considerably more to develop and enhance recovery techniques that would lift Iran's daily output to 5.8 million barrels by 2015. While Department of State (State) officials state that sanctions have an impact on Iran, the Iranian government continues its attempts to increase the development of its oil and gas sectors through foreign investment. U.S. law restricts U.S. firms from investing in Iran's energy sector through a variety of sanctions administered by the Department of the Treasury to discourage Iran from supporting terrorism and developing nuclear weapons. In addition, the Iran Sanctions Act, as amended, provides for sanctions against persons, including foreign firms, who invest more than $20 million in Iran's energy sector. The Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA) of 2010 added new activities for which entities can be sanctioned under the Iran Sanctions Act. In March 2010, we identified 41 firms with commercial activity in Iran's oil, gas, and petrochemical sectors, based on reliable open source reporting. The Senate Committee on Armed Services directed that we update this report. We also reported recently on companies that export sensitive technology to Iran and are currently working on a report of companies that sell refined petroleum products to Iran. In response to the Senate committee directive, this report (1) provides a list of companies reported to have commercial activity in Iran's oil, gas, and petrochemical sectors between January 2010 to May 2011 and companies reported to have withdrawn from commercial activity in Iran, and (2) identifies which of those companies have contracts with the U.S. government.

Using open source information, we identified 16 foreign firms that had commercial activity in Iran's oil, gas, and petrochemical sectors from January 2010 through May 2011, including 2 firms not listed in our prior report. According to our review of reliable open sources, foreign firms have significantly decreased commercial activity in Iran's oil, gas, and petrochemical sectors since we last reported. Twenty of the 41 firms listed in our 2010 report declared in their public reporting or in letters to GAO, which were also confirmed by State, that they have withdrawn or are withdrawing from commercial activity in Iran's energy sector. The companies that withdrew from Iran cited several reasons for ceasing activity, including sanctions imposed by the U.S. government, as well as other international organizations, and the difficulty associated with conducting business with Iran. According to Oil and Gas Journal, Iran's oil production could fall by more than 25 percent over the next 5 years because of a lack of investment in the country's energy sector. However, IHS Global Insight and DOE report that Indian and Chinese state oil companies have increased interest in the construction of Iranian refineries, and Iran is looking to India and China to increase development of oil exploration and production. Of the 16 foreign firms identified as having commercial activities in the oil, gas, and petrochemical sectors in the latest review period, two firms have U.S. government contracts totaling approximately $4 million in obligated funds. In comparison, our 2010 report found that the U.S. government obligated almost $880 million in contracts to 7 of the 41 firms having commercial activity in the Iranian energy sectors between 2005 and 2009. However, by May 2011, 5 of these 7 companies had withdrawn from commercial activity in Iran's energy sector. We are making no recommendations in this report.

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