"People are afraid to make decisions -- they're always looking over their shoulder", said an Iranian official, who declined to be identified. "We are losing investment opportunities because the whole process is politicised".

Since opening its vast oil and gas riches to the outside world seven years ago, the Islamic republic has signed only a handful of deals worth about $10 billion in investment.

Oilmen salivating for years over Iran's big oil prizes, Bangestan and Azadegan, risk getting caught up in a rising tide of distrust with foreign capital and political back-stabbing.

An embattled President Mohammad Khatami has spent the past two years deflecting the knives of hardliners opposed to reforms aimed at luring foreign capital to revive an economy stagnating since the 1979 Islamic revolution.

"In this atmosphere, it's very hard to de-politicise the process but it has to be done", said Namazi.

Some see signs of the turf wars easing, especially as all involved recognise the need to pump foreign funds into the energy sector where ageing oilfields need reviving to sustain output and new discoveries demand the latest technology.

Oil Minister Bizhan Namdar-Zanganeh, who likes to be seen more as a technocrat than a politician, has replaced some hardcore politicos with less controversial figures, analysts said.

After a public slanging match over corruption charges against Namdar-Zanganeh and top officials early this year, Iran's leader Ayatollah Ali Khameneh’i and the president agreed to keep the investigation out of the public eye.

While the oil minister is said to enjoy the support of the leader, even that high-level vote of confidence offers little help in Iran's complex decision-making process.

Even if the back-stabbing is less rampant, many remain deeply suspicious of foreign capital and are reluctant to give up their country's crown jewels, namely the onshore oilfields

Washington's decision to turn its back on Khatami for his failure to carry out reforms, while temporarily uniting Iran's feuding factions, may have fanned the flames of distrust

That is bad news for Royal Dutch/Shell, ENI, TotalFinaElf and BP that have been in the race for one of Iran's gems, the $3 billion Bangestan oil development, and for Japanese firms up for the prized Azadegan.

U.S. firms are blocked from the investment race due to Washington's unilateral trade sanctions. European majors have ignored Washington's Iran Libya Sanctions Act, which seeks to bar foreign firms from making big investments.

Oil officials have managed to appease Iran's more xenophobic element by circumventing a constitutional ban on foreign ownership of oil using its so-called buy-back contract under which investors get returns from early production

Tehran may be adjusting, but so far only Italy's ENI has secured an onshore deal of significance -- the Darkhovin field.

From now on, companies might have more success in Iran's gas fields, which hold the world's second biggest reserves after Russia. Its showpiece development is the offshore South Pars field, which shares a border with Qatar's North field.

Iran is expected soon to seal phases 9-10 of the South Pars project, most likely to a consortium led by South Korea's LG. ENDS IRAN ENERGY INVESTMENTS 7802

Editor’s note: Reuters published this article on 6 August.

Highlights are from IPS