Courtesy of STRATFOR (subscription required), a report on Iran’s new contract regime:

The Iran Petroleum Contract has passed a major milestone, with the first two foreign firms signing a preliminary agreement under the terms. The contractual regime, put in place in April 2016 and meant to help attract $130 billion in foreign investment, is part of moderate President Hassan Rouhani’s broader push to liberalize the oil and natural gas sector. On Nov. 8, France’s Total, China’s China National Petroleum Corp (CNPC) signed a heads of agreement with the National Iranian Oil Company (NIOC) and its subsidiary Petropars to develop the South Pars 11 offshore natural gas field. (South Pars is the world’s largest natural gas field, shared between Iran and Qatar.) A heads of agreement is non-binding but lays out the main points of a tentative deal. The four parties plan to finalize the agreement within six months.

Once completed, Total will take a 50.1 percent stake in the project, CNPC 30 percent and NIOC 19.9 percent. Both Total and CNPC have been involved in South Pars before. Total was developing several other parts of the giant South Pars natural gas field before being forced to exit the country and abandon the project because of Western sanctions in 2010. CNPC was previously a partner on South Pars 11 before Iran kicked it out for working too slowly. With sanctions suspended and better terms on offer, it is no surprise to see these companies returning.

Total’s return shows that European companies are still willing to be involved in Iran despite the fact that U.S. sanctions have only been suspended and not fully removed. Total is navigating this obstacle and will be using euros to finance the deal in order to skirt remaining sanctions. In the coming weeks, foreign companies are likely to strike a few more of these preliminary agreements on the Yadavaran and North Azadegan oil fields, for example. BP and Shell are expected to sign tentative deals and Wintershall also expressed interest Nov. 8.

The success of the Iran Petroleum Contract is critical to the Iranian president’s long-term economic strategy of opening to the West and foreign investment. The licensing regime is designed to improve the investment terms and model for international oil companies. It allows for deals similar to joint ventures, which are forbidden under the Iranian Constitution to prevent foreign ownership of oil and natural gas. Finalizing these deals will be critical for Rouhani’s bid for re-election in May. In his 2013 campaign, he promised to sign the nuclear deal with the West, get sanctions removed and improve the economy.

Iranian hard-liners are still hesitant to fully back the Iran Petroleum Contract and are skeptical of the opening of the economy. While they do not reject the process outright, they are seeking ways to ensure that economic interests built up under sanctions remain intact. For example, the Islamic Revolutionary Guard Corps recently established localized construction bases to help develop communities, which will allow the group to continue expanding its business interests in the areas of logistics, transportation and construction. Other entrenched interests in Iran will make similar moves as the economy opens up.