Iran Likely to Spend Oil Funds on Aircraft, Car Parts

TEHRAN—On the eve of an expected, temporary easing of sanctions against the Islamic Republic, a handful of Iranian energy officials sketched out their vision of an economic détente with the West—promising contractual reform in Iran's energy sector and financial benefit for those executives willing to reengage with them.

In an interview here, an Iranian deputy oil minister said Tehran would likely spend billions of dollars in soon-to-be-unfrozen oil proceeds on buying foodstuffs and auto and aviation parts from U.S. and European companies. A separate oil official, involved in drafting contracts for exploiting Iran's energy reserves, said Tehran was soliciting feedback from Western oil firms about how to restructure those contracts in a way that would draw more global interest.

Six Western powers have agreed to temporarily ease some sanctions, allowing Iran to buy western car and airplane parts, sell petrochemical products and import precious metals, among other measures. The deal will also unfreeze some oil payments that Tehran hasn't been able to access, and it will allow for the financing of some humanitarian purchases, for instance of food and medicine.

The relaxation is set to officially take effect Monday, though many companies newly able to do business with Iran are likely to spend weeks, if not months, sorting through the legal and logistical hurdles that still may lie ahead for resuming commercial ties. The easing is temporary and contingent on Iran's living up to its side of the bargain in a broad agreement over its nuclear ambitions. Political opposition in Washington against any further easing of sanctions could also scuttle any longer-term thaw.

But for Iranian economic officials, the race is now on to drum up international interest. Iran has to maximize its public-diplomacy efforts now because "the window could always close" amid the threat of a political backlash, in either Tehran or Washington, said Denis Florin, head of the Paris-based energy advisory firm Lavoisier Consulting.

In a weekend interview with The Wall Street Journal here, Ali Majedi, deputy oil minister in charge of international affairs and commerce, said Tehran would likely be spending $4.2 billion in cash that is expected to be unfrozen by the temporary deal on foodstuffs, aircraft and auto parts from the U.S. and Europe.

Allowing this money to move freely opens "a new window of cooperation with the Europeans and the U.S.," Mr. Majedi said.

The deal that goes into effect Monday won't materially affect Iran's crude-oil exports, which have been limited to a maximum of about one million barrels a day—less than half the level from two years ago. But it has raised hopes of an eventual return by big, international energy players to Iran's oil patch, home to some of the world's largest deposits of crude.

Mehdi Hosseini, who heads a committee set up by Iran's oil ministry to revise oil contract terms, told the Journal that Tehran was consulting with international oil companies and soliciting their views on how to make contracts more attractive, should Western firms be allowed back in. In particular, Tehran may be willing to make it easier for companies to recoup costs in projects and work with companies to create conditions that will allow them to book reserves—an important accounting consideration for Western firms. But any reserve booking would have to be compatible with Iranian law, which bans foreign ownership of oil reserves, he said.

Western oil giants were forced to pull out in 2010 as the European Union banned their participation in the Islamic Republic's oil sector. Iranian officials have been openly courting Western oil executives for months, eager to lure their investment and technical know-how. But even before Western sanctions limited foreign participation in recent years, Iran's tough terms for foreign firms working on energy projects have been a big obstacle.

"We are trying to find a winning formula for both sides," Mr. Hosseini said.

Write to Benoît Faucon at [email protected]

WSJ.com