Total will invest an initial US$1 billion (880 million euros) in the South Pars offshore gas field as part of a consortium with Chinese and Iranian firms.
The 20-year project, which will eventually see the firms inject US$4.9 billion, is by far the biggest vote of confidence in the Islamic republic since sanctions were lifted under a 2015 nuclear deal with world powers.
“Today, for Total, is a historic day, the day we come back to Iran,” Total CEO Patrick Pouyanne said at the signing ceremony in Tehran.
“We aren’t a political organisation, but I hope this agreement will encourage other companies to come to Iran because economic development is also a way of building peace,” he told AFP.
“We are here to build bridges, not walls,” he added.
The project in South Pars, a field shared between Iran and Qatar, is the first under a new Iranian Petroleum Contract which offers better terms to foreign investors but has faced intense criticism from hardliners who said it was too generous.
Oil Minister Bijan Namadar Zanganeh said the deal was a direct result of moderate President Hassan Rouhani’s resounding re-election victory in May and strong public support for rebuilding ties with the West.
“The people said firmly that our oil policies should continue,” he said. “We shall never forget Total being the forerunner.”
Zanganeh said Iran’s oil industry needs some US$200 billion in investment over the next five years, and European firms have been hungrily eyeing opportunities in a country with the world’s second-largest gas reserves and fourth-largest oil reserves.
But they have been cautious about investing due to continuing US sanctions.
Total has appointed a compliance officer with the sole task of ensuring it does not fall foul of US measures against Iran.
In particular, it must prevent cash flowing to Iran’s elite Revolutionary Guards — a tall order given their extensive and shadowy presence across the Iranian economy.
Just a fortnight ago, the US Senate overwhelmingly passed a bill targeting the Guards over their involvement in regional conflicts and the country’s ballistic missile programme.
The White House is also in the midst of a 90-day review on whether to abandon the nuclear deal entirely, which President Donald Trump threatened to do during his election campaign.
The uncertainty has been enough to deter global firms such as BP from dipping their toes in Iranian waters, while Shell and Russia’s Gazprom have signed only preliminary deals to date.
Even without the threat of sanctions, investing in the Iranian economy is not for the faint-hearted.
Foreign firms in Iran still face “pervasive corruption… high levels of red tape; potential for currency instability (and) reluctance to allow foreign involvement within the domestic economy,” consultancy firm BMI Research wrote in a briefing note Monday.
For all that, Iran’s large population of middle-class consumers presents an irresistable opportunity for many businesses in Europe and beyond.
At the signing on Monday, Pouyanne said, “Total has a long history in Iran,” pointing to its development of phases two and three of South Pars in the 1990s.
It will take a 50.1 per cent stake in the new phase 11 project, while China National Petroleum Corporation (CNPC) will own 30 per cent and Iran’s Petropars 19.9 per cent.
The aim is to start pumping into Iran’s domestic grid in 2021, eventually reaching 56.6 million cubic metres (2 billion cubic feet) of gas per day.
Iranian officials said the products would be worth a total of US$54 billion at current prices.
Total had signed up to develop phase 11 back in 2009 but was forced to abandon its Iranian projects in 2012 when France joined European Union partners and imposed sanctions, including an oil embargo.