Page last updated at 21:35 GMT, Monday, 18 August 2008 22:35 UK

Oil discovery transformed Iran

By John Leyne
BBC News, Tehran

Iranian oil refinery
Iran provides 5% of the world's oil needs
They call it "Well Number One". A sign proudly proclaims the spot where the first middle-eastern oil was discovered 100 years ago.

The oil derrick is still there - it produced oil for 70 years.

The town itself - Masjid e Suleiman - in south west Iran, is still an oil town. The countryside is criss-crossed with the pipelines that bring oil from each wellhead to the refinery or the export terminal.

But much else has changed.

For nearly 50 years the Iranian oil industry was controlled by the British Anglo-Persian Oil company.

You can still see the names of British companies on some of the older plant. But the British only paid $75,000 (40,000) for the original 60-year concession - and a small share of the profits.

To this day, that is the source of enormous bitterness in Iran.

British presence

"No fair British person can be proud of that part of the history of the UK in Iran," argues the Iranian National Oil Company's Vice-President for investment, Ghanimi Fard.

"Unfortunately the overall presence of the British in those years in the Anglo-Persian and Anglo-Iranian oil companies was disastrous for Iran", he says.

Total Chief Executive, Christophe de Margerie
European oil companies are wary of investing in Iran

Back in those days, thousands of Western oil workers were based here.

Now the bungalows that used to house them have been taken over by Iranians. The Golf club, where the Westerners used to relax, has been turned into an army base.

In fact across the oilfields of south-west Iran you hardly see a foreigner any more.

Instead the emphasis is on self-sufficiency. At Azadegan, the Iranians have taken over development of a vast new oilfield, after the Japanese pulled out because of political pressure.

Iran still provides nearly 5% of the world's oil needs. It is strange then, that an industry of such global importance should be so isolated.

But the Americans have had sanctions in place since the 1979 Islamic revolution, and European companies have become increasingly reluctant to invest.

The French company Total is the latest to put its projects on hold, saying it just could not raise the billions of dollars needed to finance them.

We would be more than happy to supply part of Europe's energy needs, provided that this would be a two-sided deal.

Dr Ghanimi Fard

Iranian National Oil Company

The Chinese, Indians and Russians are moving in - but they cannot yet fill the gap.

To some extent the isolation is self-imposed. The Islamic Republic retains a latent suspicion of foreign involvement in the oil business - international companies describe how difficult it is to do business here.

It is not just the history of British involvement that makes the Iranians wary.

In the Iran-Iraq war from 1980-88, Saddam Hussein targeted the Iranian oil industry - dramatically reducing production. He had at least a degree of Western support.

Some of the biggest Iranian oilfields run along the border with Iraq - almost in sight of British and American forces. So a degree of paranoia is understandable.

And Iran argues that it does pretty well on its own - maintaining or increasing oil production, and working on petro-chemicals and gas.

International cooperation

But the lack of technology hurts badly in some areas. Iran does not have the ability to freeze gas, for example, for shipping to overseas markets. So the vast gas reserves are underdeveloped.

And even a staunch nationalist like Mr Fard accepts that Iran does need more international co-operation.

President Mahmoud Amadinejad
President Ahmadinejad campaigned on a pledge to spread Iran's oil wealth.

"We would like to have this interaction with the world," he says.

"We would be more than happy to supply part of Europe's energy needs - provided that this would be a two-sided deal. In some cases exchange of information, science, expertise can help this.

"Otherwise who is going to be hurting more? Very easily I can say that the standard of living in European countries, many western European countries, when they will not have enough energy, is going to be shattered in the long run," Mr Fard adds.

And despite having curtailed the multinationals, there are still doubts about how much Iran is benefiting from its oil wealth.

The town of Masjid e Suleiman, where oil has been produced for 100 years, is still a dusty impoverished-looking place.

With high oil prices, Iran is now earning $7.5bn (4bn) per month from the trade. President Ahmadinejad campaigned on a pledge to put oil money on people's tables.

But many Iranians see ever-spiralling prices and high unemployment, and there are wider questions about the long term impact of Iran's vast oil wealth.

Global economy

Bijan Khajehpour, of the company Atieh consulting, argues that so much oil money in the hands of the government changes its relation with society.

Instead of living on taxes, the government has the power to hand out money.

"You will find many Iranian elite members argue that oil for us historically has been a curse, because it has slowed down the overall economic development of the country, it has undermined social and political developments" he explains.

"Personally I am not so sure whether Iran without oil would have been different, Iran without oil would have had many other resources to look towards and develop", he adds.

For the West, oil gives Iran a strategic importance that makes it hard to contain. With oil prices over $100 (53) a barrel, heavy sanctions on Iran - let alone military action - could endanger the global economy.

So that oil discovery in a sleepy corner of Iran continues to affect Iran and the world - in a way the British engineer directing the drill could never have dreamt of when he struck oil 100 years ago.

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