Iran's oil industry, desperately in need of foreign investment after years of neglect, has been in trouble for some time anyway but has been supported by China, which wants Iran's oil and natural gas.

One of the most important projects China is aiding is the Yadavaran oil field in southwestern Khuzestan province near the Iraqi border.

Beijing's state-run Sinopec company has a 51 percent stake with the National Iranian Oil Co. to develop the field, Phase One of which is expected to produce around 85,000 barrels per day.

However, as the sanctions bite deeper, the Iranians are finding its links to the outside world are shrinking and progress in Yadavaran has been slow.

The Middle East Economic Digest, a weekly published in the United Arab Emirates, reports that "a number of sources in Iran are now concerned that Sinopec is looking to exit the project."

MEED noted that much of Iran's output of around 3.5 million bpd comes from mature fields, some of which have been producing since the 1950s and are in decline.

Production has been falling steadily in recent years because of war, poor management and earlier sanctions packages. Shortly before the 1979 Islamic Revolution toppled the Peacock Throne, Iranian output was more than 5 million bpd.

That level will be extremely difficult to restore in the current circumstances.

Unless the Tehran regime abandons uranium enrichment, the heart of its contentious nuclear program, so that sanctions can be eased or lifted, there seems little expectation that the erosion of the energy industry will continue.

Iran's woes are worsened by the fact that it depends on oil selling for $69 a barrel to balance its budget. That, MEED noted, makes it "one of the members of OPEC most vulnerable to a sudden drop in demands and prices."

Indeed, Iran, which already has to import petroleum because it lacks the refining capacity to meet its own requirements, risks becoming a net importer of oil if production rates go on slipping.

Gasoline imports have fallen by almost 90 percent from a year ago and Iranians fear Tehran is planning to cut gas subsidies as shortages mount.

Iranian Oil Minister Masoud Mirkazemi denies Iran's growing isolation and the sanctions are affecting the oil industry. But he warns the sector needs investment -- meaning foreign money -- of $150 billion-$200 billion over the next few years to turn production around.

Meantime, the campaign of rolling sanctions by the United Nations, the United States and the European Union launched in June keep getting tighter. Washington announced Sept. 30 that Royal Dutch Shell, Total of France, Statoil of Norway and Eni of Italy had pledged to curtail their investments in Iran's energy sector and to foreswear further investment to avoid U.S. penalties.

This made it difficult for the state airline, Iran Air, the main link to the outside world for many Iranians, to refuel its aircraft in Europe.

And that marked a significant shift in U.S. policy away from the earlier objective of seeking to avoid hurting the Iranian people.

The sanctions have been gradually widened to include Iran's financial, insurance and transportation sectors and the foreign governments, companies and institutions which deal with them. These too affect ordinary Iranians.

Earlier this month, Japan's leading oil explorer, the Inpex Corp., announced it had pulled out of a project to develop Iran's Azadegan oil field, which contains an estimated 42 billion barrels of oil.

Inpex, in which the Tokyo government has a 30 percent stake, said it did so to avoid threatened U.S. sanctions. Japan imports about 11 percent of its oil from Iran.

Iran has over the years developed a clandestine network of phone companies and black market dealers through which it acquires goods and funds it cannot acquire legitimately.

But these are being exposed. On Oct. 15, The Times of London reported U.S. court documents showed that two major British banks had helped Iran access up to $600 million in the U.S. financial system by masking customers' identities.

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