October 11, 2016 | Policy Brief

Supreme Leader’s Conglomerate Poised to Reap Oil Windfall

October 11, 2016 | Policy Brief

Supreme Leader’s Conglomerate Poised to Reap Oil Windfall

As Iran opens its petroleum sector to the world following last summer’s nuclear deal, business interests under the direct control of Supreme Leader Ali Khamenei are making sure they are the prime beneficiaries. Iran’s Oil Ministry last Tuesday provided at least $2.2 billion in preliminary contracts to a subsidiary of the Execution of Imam Khomeini’s Order (EIKO), a conglomerate that Khamenei controls, to increase production from four oil fields.

EIKO’s name refers to an edict issued by Khamenei’s predecessor, Ruhollah Khomeini, shortly before his death in 1989, to manage and sell all property abandoned in the chaotic period following the 1979 Islamic revolution. From that original mandate, the network has grown into a vast business conglomerate – everything from agriculture to leisure resorts, parking lots, and residential complexes.

In 2013, the U.S. Treasury blacklisted EIKO and 37 of its subsidiaries for generating substantial unreported profits for Khamenei. The corruption was massive. Several months after the designation, a Reuters investigation found EIKO to be worth at least $95 billion, with stakes in oil, telecommunications, agriculture, micro-finance, pharmaceuticals, and even ostrich farming.

In January, Treasury delisted EIKO as part of a nuclear-related sanctions relief package, even though the original designation of the conglomerate was not tied to Iran’s nuclear program. Despite never having opened its books to outside auditors, and posing serious money laundering and terror finance risks, the supreme leader’s business empire was again able to do business with foreign firms.

In July, Iran’s Oil Ministry listed EIKO as an eligible partner under the government’s new contracting model, the so-called Iran Petroleum Contract, which stipulates that a foreign firm seeking to invest in Iran’s oil sector must partner with an Iranian counterpart. Announcing the preliminary agreements last Tuesday, the oil minister said EIKO had promised to find a foreign partner to provide financing and technology.

Meanwhile, as Iran rolls out its new oil contracts, EIKO director Mohammad Mokhber laid out an ambitious plan for EIKO to become Iran’s first major oil exploration and production company, to compete in the international market, and even to drill abroad. Although he insisted EIKO would not accept foreign leadership of projects, EIKO is nevertheless reportedly in talks with European and Russian companies to partner over the four oil fields in question. Mokhber also announced that EIKO is looking to sign a contract with the Oil Ministry to develop the 33-billion-barrel Azadegan oil field in southwestern Iran.

This past week’s developments in Iran’s energy sector underscore an unsavory but unavoidable truth. In the oil sector, as in other key sectors from petrochemicals to telecommunications, it will be the regime’s most intransigent elements – not the Iranian people – that are set to gain the most from sanctions relief.

Saeed Ghasseminejad is an associate fellow at the Foundation for Defense of Democracies, where Amir Toumaj is a research analyst. Follow them on Twitter @SGhasseminejad and @AmirToumaj