In Sanctions Exit Strategy, Iran’s “Second Foreign Minister” Takes Center Stage

In the eight months since Iranian president Hassan Rouhani took office, his government has launched a full-court international charm offensive that has sparked optimism among some observers and deepened others’ suspicions. For the most part, the public face of this campaign has been Foreign Minister Mohammad Javad Zarif, whose social media savvy and adroit stewardship of the nuclear negotiations has made him something of a celebrity.

However, there is another individual who is playing an equally important role in Iran’s intense effort to crack its international isolation and rebuild its economy, Oil Minister Bijan Namdar Zanganeh. The Iranian press has dubbed Zanganeh the country’s “second foreign minister,” and the moniker is not far off the mark. A long-time technocrat renowned for his aggressive reopening of Iran’s oil sector to foreign investment, Zanganeh was a strategic cabinet pick at least as important as Zarif. His return to the helm of the Oil Ministry signaled a decisive end to ideological excesses of the Ahmadinejad era and Tehran’s determination to re-open for business.

The installation of heavy-hitters known for their unabashed eagerness to reengage with the world in the regime’s two most consequential cabinet portfolios was no accident. Both Zanganeh and Zarif’s nominations initially elicited hard-line grumbling. However, their swift approval by the parliament in August and the wide latitude they have been accorded since in revamping sensitive Iranian policies leave no doubt that Supreme Leader Ayatollah Ali Khamenei has endorsed their agenda. Their missions are directly interlinked — end the sanctions and reclaim Iran’s status as an energy giant and budding regional power. Iran’s future trajectory hinges on their uncertain prospects for success.

Like Zarif, Zanganeh can draw on the technocratic bona fides and a high-powered Rolodex amassed during his prior stints in power. And both have pursued pragmatic agendas that are seen by hard-liners as subverting the revolution’s core principles — mistrust that is compounded in Zanganeh’s case by persistent allegations of corruption.

Zanganeh is part of the revolution’s old guard, an engineer by training who helped found Jihad-e Sazandegi (the Reconstruction Crusade). He led that organization’s efforts to promote rural development and infrastructure building throughout the war with Iraq. It was a role that honed his skills in bureaucratic infighting, fending off efforts to subsume the Jihad’s activities within the regular government and engineering its 1984 elevation to a full government ministry. (President Khatami later merged the Jihad with the Ministry of Agriculture.)

Shortly after the August 1988 cease-fire, Zanganeh was tapped to take on the energy ministry and remained there through the eight-year presidency of centrist power broker Ali Akbar Hashemi Rafsanjani. His stewardship of the Energy Ministry came just as Tehran launched a desperately-needed post-war reconstruction program — a time when war damage to power networks still plunged the capital and other cities into prolonged daily blackouts. He was credited with rehabilitating domestic power generation capacity, a vital task for Iran’s industrial recovery as well as the regime’s popular legitimacy. He became known as a competent minister who could deliver results.

After reformist president Mohammad Khatami won the presidency, Zanganeh shifted over to the oil ministry, where he pursued an ambitious agenda of increasing production, securing foreign investment, and reforming the sector itself. During his tenure, Iran unleashed a barrage of new tenders for upstream activity that attracted interest from all the major European and Asian oil companies. He demonstrated real political savvy, reaching beyond the traditional majors to the national oil companies that were beginning to emerge as significant industry players — and whose host governments were perceived as useful diplomatic partners for Iran’s rehabilitation.

At the time and to a lesser extent today, Zanganeh’s efforts provoked controversy in a country that had fought a 70-year battle to wrest its own oil resources from the control of foreign companies. As Oil Minister, he remained a vocal and unapologetic advocate for foreign investment. In a 2001 interview with a reformist newspaper, Zanganeh argued that “Iran’s oil industry has two choices: either it wants to be an updated mainstream industry and be present globally, or else this is absolutely not important,” adding that “we opted for the first choice.”

Zanganeh’s leadership of the Oil Ministry began shortly after the intensification of U.S. sanctions on Iran, through Clinton administration measures that not only banned American investment in Iran but also sought to deter other foreign investment in Iran’s oil sector. Zanganeh — like most Iranian officials at the time — saw the advantage on Iran’s side, and openly derided American economic pressure as “a joke,” even as he openly agitated for the return of U.S. companies to the Iranian oil sector. Sanctions precluded any U.S. firms from joining the bidding wars for Iranian projects, but the sense of momentum persuaded several to try to position themselves for a future in in Iran.

Despite his successes, Zanganeh’s leadership of the Oil Ministry made him a lightning rod for criticism and corruption allegations. Although the decision to open the sector to foreign investment had been approved at the highest level long before he took over, Zanganeh’s strenuous advocacy for the return of Western firms and his brash efforts to restructure the sector sparked unease motivated both by political considerations as well as ideological concerns. 

And then there were the widespread insinuations of graft throughout Iran’s energy activities. Ayatollah Ahmad Jannati, then-head of Iran’s Council of Guardians and a scion of Iran’s old-guard conservatives, inveighed publicly against Oil Ministry embezzlement, and the reformist-led parliament pressed for greater transparency over foreign contracts. Rafsanjani’s son Mehdi Hashemi was widely believed to be among the beneficiaries of well-greased exchanges between Iranian officials and the foreign companies vying for deals.

Ahmadinejad owes his first presidency in part at least to a campaign that centered on promises to rid Iran of its ‘oil mafia,’ a thinly-veiled jab at Zanganeh, Rafsanjani and the many others who personally benefitted from Iran’s early openings. Zanganeh left his post only to watch from the sidelines as the petroleum sector was buffeted by Ahmadinejad’s chaotic management and international sanctions that drove away most foreign investors and eroded Iran’s exports by more than half. Since leaving office, Ahmadinejad’s own associates have been accused of epic corruption, allegedly involving the direct siphoning of $2 billion in oil revenues to overseas accounts. 

Since Rouhani returned him to the Oil Ministry, Zanganeh has hit the ground running. He has played a prominent role in Iran’s diplomatic and economic rehabilitation, brokering attention-grabbing deals with Iraq, Oman and (most ominously for the sanctions regime) Russia, and wooing foreign oil companies in European capitals. The role comes naturally to a man who has been an able diplomat for the theocracy since the 1980s, and particularly helped hammer out a constructive relationship with Saudi Arabia on oil issues during his previous stint as minister. At home, he has surrounded himself with industry heavy-weights who were purged by Ahmadinejad. They have already begun previewing a new contract model designed to lure the energy majors back to Tehran with better terms, longer time horizons, and even the possibility of booking some reserves.

But like the Foreign Minister, Zanganeh will have his work cut out for him. He recently described the state of the sector as a cause of shame, and resuming the pre-sanctions oil output of 4 million bpd will remain challenging given the decline rates in Iran’s aging fields and continuing limitations on technology transfer. Tehran is also struggling to expand gas production simply to meet considerable domestic demand, much less fulfill the flashy export deals he has been pursuing.

Zanganeh’s push to lure back Western investors will remain in limbo, awaiting a comprehensive nuclear deal and what would likely be a protracted bureaucratic process of relaxing and/or waiving some sanctions in its aftermath. The same timeline also constrains his leverage for inducing those firms that remain in Iran, particularly Chinese state oil companies, to speed up long-stalled projects. Finally, he will have to carefully manage Iran’s precarious position within OPEC, where the prospect of revived production from Tehran has already elicited concerns from Iran’s adversaries in the Gulf about price erosion.

At home, the Oil Minister will also have to contend with the political fallout from his decision to oust Revolutionary Guard affiliated companies from several projects, his efforts to revamp the contract model, and the resumption of a complicated government program to eliminate costly fuel subsidies. All told, it is a tough agenda, with a multiplicity of potential roadblocks.

So far, the Oil Minister is experiencing something of honeymoon, winning plaudits in the Iranian press and displaying a flair for social media. A Facebook page in his name features personal dispatches and copious photos of his public appearances, and he recently released his email address to solicit direct communication with employees. But if a nuclear deal remains out of reach, and sanctions persist, the honeymoon is unlikely to last.