Karsanat Gas Contract: 'Iran Awaits Billions in Corruption Penalties'

In the weeks leading up to the final arbitration session at The Hague regarding the $18 billion damage claim by Hamid Jafar, CEO of Crescent Petroleum, against Iran, the sudden dismissal of Assadollah Noori, the Iranian arbitrator and representative of Iran, by the Ministry of Oil of the Islamic Republic, and his replacement by Makhdum Ali Khan, a Pakistani lawyer, has sparked internal government factional disputes surrounding this controversial case. The Tasnim news agency, close to the Revolutionary Guards, is among the media questioning the rationale behind this change, labeling it 'strange.' Alireza Zakani, a former conservative member of parliament who was involved in addressing the dimensions of corruption related to this suspicious and controversial contract, has described the replacement of the Iranian representative with a 'stranger' as 'dangerous' for Iran, claiming that Assadollah Noori has been aware of the details of the case and the 'collusions' that took place in The Hague from the beginning, and that the Oil Ministry under Zanganeh has long sought to dismiss him. Iran possesses one of the two largest gas reserves in the world, and the Crescent contract, if executed with integrity and free from conspiracy and corruption in setting the terms of the agreement, could have provided Iran with its second real opportunity for gas exports after the gas sale contract to Turkey. The issues surrounding the contract and its stakeholders were finalized in 2001 during the tenure of Oil Minister Bijan Zanganeh in Mohammad Khatami's second administration, with an agreement between the National Iranian Oil Company and the mentioned company to export between 500 to 600 million cubic feet of sour gas daily to the Emirate of Sharjah starting in 2005 after laying a pipeline from the Salman oil field in the Persian Gulf (a shared reservoir with Abu Dhabi). The price of gas in this contract was set based on 1,000 cubic meters of gas, equivalent to one barrel of oil. In the first seven years of gas sales, the price of oil was fixed at $18 per barrel, and the price of each 1,000 cubic meters of gas was set at $17.5 accordingly. For the subsequent 18 years after the initial seven years and until the end of the 25-year contract, the price of gas was fixed at $38.85 per 1,000 cubic meters based on the price of Dubai crude oil ($40 per barrel). In addition to the very low initial gas price and the stabilization of prices during the seven and eighteen-year periods of the contract, the signing of the agreement occurred under exceptional circumstances, with Crescent being the first commercial company to secure such a contract with Iran without competition, while all previous gas sale contracts had been made directly with the purchasing governments. After the change of government, due to internal disputes, Iran refrained from executing the gas sale contract with Crescent. Mohammad Reza Rahimi, the then-head of the Court of Audit who was later appointed as the Vice President (under Ahmadinejad's administration) and is now accused of financial and administrative corruption, issued an order to halt the execution of the contract, calling its signing 'treason.' After signing the contract with Iran, Crescent registered another company named 'Dana' as the project executor, holding 100% ownership rights. The projected profitability of the gas sale contract to Crescent was astronomical, to the extent that after the shares of 'Dana' were offered on the UAE stock exchange, its nominal assets increased by nearly $80 billion due to the rise in share prices. In practice, the Crescent contract involved four stakeholders: the National Iranian Oil Company as the seller, Crescent as the buyer, Dana as the executor, and the UAE (Sharjah) as the final recipient and consumer. Despite the confidentiality of the contract's terms (at Zanganeh's insistence and under the pretext of preventing rival companies and countries from learning about Iran's contracts!), the contract was accompanied from the outset by a wave of widespread allegations of corruption, bribery, and conspiracy. In 2013, an Iranian-British dual national named Abbas Yazdanpanah Yazdi, born in Sirjan and a classmate of Mehdi Hashemi, the son of Hashemi Rafsanjani, was kidnapped shortly before testifying in the Crescent case in Dubai and was reportedly murdered. In connection with Yazdanpanah's murder, a court in Dubai sentenced three Iranians to life imprisonment the following February, and the prosecutor in Dubai's criminal court stated that Yazdanpanah had provided evidence related to the Crescent contract to the arbitration court shortly before his abduction. According to the content of a video released by conservative sources in the Iranian regime, Abbas Yazdanpanah, in addition to revealing the names of those involved in this mafia case, referred to the establishment of a company called 'Jabal' on behalf of Mehdi Hashemi to obtain a share of the oil contracts with multinational companies. Mehdi Hashemi was reportedly one of the initial negotiators of the gas sale contract with Crescent, but was sidelined during the finalization and signing of the contract. Following the overall agreement to sell gas to Crescent, the political landscape in Iran changed, and Hashemi Rafsanjani, who had become a presidential candidate, was defeated by Mahmoud Ahmadinejad, effectively pushing him to the periphery of politics. Mehdi Hashemi, his son, who was apparently studying for a doctorate at Oxford University in the UK, may have returned to Tehran considering the fate of Abbas Yazdanpanah and feeling more secure within the country, and after his arrest, he was sentenced to 15 years in prison. The charges and the reasons for Mehdi Hashemi's conviction are not fully clear to the public, but he is reportedly accused of inciting unrest in the days following the 2009 elections, and Ahmad Tavakoli, a former member of parliament, has also accused Mehdi Hashemi of receiving a $15 million bribe from the Norwegian oil company 'Statoil.' Following the widespread political-media controversy related to bribery for signing oil contracts with the officials of the Islamic Republic, Statoil witnessed significant changes at its senior management level. With the election of Hassan Rouhani as president, Hashemi Rafsanjani regained a more active role in Iran's domestic politics, and Bijan Namdar Zanganeh once again became the oil minister, bringing a new chapter to the Crescent case. Four years after Ahmadinejad's government's decision not to execute the gas sale contract to Sharjah, Crescent filed a lawsuit in The Hague in 2009, and the court ruled in 2013 that the contract must be executed by Iran in a timely manner. In typical defiance of Ahmadinejad's government style, Iran ignored the court's ruling and instead sought ways to amend and change the contract, although these efforts did not yield the desired results. During the next session, the arbitration court in The Hague ruled that Iran must pay $18 billion in penalties to Crescent. The arbitration court is an institution for resolving financial and commercial disputes in which the parties voluntarily participate, each introducing a representative, and the issuance of a final ruling in the court is contingent upon the decision of the independent representative. The Hague court is under the supervision of the International Arbitration Court in Paris. Regarding the case of Crescent's complaint against Iran, an independent Australian lawyer serves as the third representative, and his ruling on the case is final. The Crescent case and its controversial contract exemplify the operational processes in Iran's highly corrupt administrative environment, which significantly impacts all foreign buying and selling contracts and the granting of domestic concessions. The exposure of part of the administrative corruption in a specific issue usually occurs during the transition of government and executive responsibilities from one team to another and the time for internal accountability. In the case of the Crescent file, especially in the post-JCPOA era and the lifting of sanctions, many foreign oil companies and potential investors have been drawn to it. What has heightened external sensitivities regarding the Crescent case is not the mafia aspect, the corruption of the administrative apparatus, and changes in Iran's domestic policy, but the reliability and enforceability of contracts that Iranian officials officially agree to in one government, which may later be labeled as 'treason' by representatives of the subsequent government and lead to non-execution.