Shell, Repsol, Total, Defy U.S. to Seek Iran Deals

Feb. 23 (Bloomberg) -- President George W. Bush's campaign to turn Iran into an economic pariah is being rebuffed from Spain to Malaysia as countries and companies pursue long-term agreements to tap into the world's second-largest reserves of oil and gas.

Shell, Repsol, Total, Defy U.S. to Seek Iran Deals (Update1)

By Celestine Bohlen

Feb. 23 (Bloomberg) -- President George W. Bush's campaign to turn Iran into an economic pariah is being rebuffed from Spain to Malaysia as countries and companies pursue long-term agreements to tap into the world's second-largest reserves of oil and gas.

Royal Dutch Shell Plc, Europe's largest oil company, and Spain's Repsol YPF SA -- which last month signed a new agreement on a three-year-old gas production project, estimated at more than $10 billion -- are among those who can ill afford to give up oil and natural-gas projects in Iran, said James Bell, president of Gas Strategies, a London-based consulting firm.

``Companies who want a piece of the action in Iran have no choice but to stay in the long, patient waiting game,'' Bell said in a telephone interview.

U.S. officials have issued explicit warnings against such deals and even threatened to use a 1996 law to levy penalties against foreign companies that do business both in the U.S. and in Iran, now subject to United Nations sanctions for refusing to halt its nuclear program.

Still, Austria and Switzerland last month signed ``memorandums of understanding'' for gas deliveries from Iran in 2012 via a pipeline that has yet to be built. In Tehran this month, Indian Foreign Minister Pranab Mukherjee reopened talks on a long-stalled project to pipe in gas from Iran.

Thierry Desmarest, chairman of Paris-based Total SA, Europe's third-biggest oil company, said Feb. 14 that negotiations are continuing with Iran over a major liquefied natural gas project.

`In Everybody's Interest'

``There's no denying the fact that barring certain political considerations, it is in everybody's interest that investments be made in Iran to boost capacity of oil and gas production,'' Desmarest told an analysts' conference in Paris.

Adam Newton, a spokesman for Shell based in London, said Shell had signed a ``framework agreement'' with Iran on Jan. 27. ``We are satisfied with progress on this project, and we would expect to make a final decision on whether to go ahead in a year's time,'' he said in a telephone interview on Feb. 8.

While the energy industry isn't the target of the sanctions package imposed against Iran by the UN in December, the U.S. is pointing out that possible further sanctions might pose a threat to it.

``If a country is going to fall under sanctions and if the sanctions will be strengthened, do you really want to do business with it?'' Undersecretary of State for Political Affairs Nicholas Burns said Feb. 14 at the Brookings Institution in Washington. ``There are alternatives,'' such as Kazakhstan, if a country is ``looking for energy relationships,'' he said.

`We Want Them to Be Nervous'

In an interview, Burns cited U.S.-led pressure on financial institutions, which he said is already working. Iranians are ``nervous that the financial markets are going to turn away from them, that they're going to see investment dry up,'' he said. ``And we want them to be nervous, frankly.''

Congress is also sending warning messages. A Jan. 7 accord for the Malaysian company SKS Ventures to develop two gas fields in Iran prompted Representative Tom Lantos, the new chairman of the House Foreign Affairs Committee, to threaten to hold up a pending U.S.-Malaysia trade agreement. He also called on the Bush administration to impose sanctions against China National Offshore Oil Corp. for its $16 billion oil and gas deal in Iran.

Lantos, a California Democrat who backed legislation to allow exports of nuclear-power technology to India, is also dissatisfied with the Indian government's discussions with Iran on a gas pipeline. Lantos said he supports Bush administration efforts to stop the 2,700-kilometer (1,680-mile) pipeline linking Iran to India via Pakistan.

``Delhi should not do business with an Iran that is relentlessly seeking to acquire nuclear arms, and our dealings with India should be contingent on how it observes this principle,'' Lantos said in an e-mail.

`Dire Need'

So far, the U.S. pressure hasn't met with much success. Indian Prime Minister Manmohan Singh, in an interview with the Italian newspaper Corriere della Sera published on Feb. 9, said his country will forge ahead with the pipeline. ``We are in dire need of energy and we are keen on carrying out this project,'' he said.

To many nations, particularly in Europe, Iran has emerged as a key alternative to dependence on Russian gas. Austria's OMV AG is heading a group that has backing from the European Union to build a 5 billion euro ($6.6 billion) pipeline, known as Nabucco, that would go through Turkey into eastern and central Europe.

``Iran would be the ideal partner for us,'' said OMV's exploration chief, Helmut Langanger, during an auction of Iranian oil-exploration tenders in Vienna Feb. 1. ``No company can afford not to look at Iran.''

`A Sure Sign'

Dozens of oil-company representatives from Europe, India, Russia and China attended the Vienna auction. National Iranian Oil Co. director Gholam Hossein Nozari said the attendance was ``a sure sign companies do not cower to U.S. pressure,'' according to the official IRNA news agency.

Iran has 18 percent of the world's gas reserves, second after Russia, and 11 percent of oil reserves, ranking behind Saudi Arabia. Iran now exports $47 billion worth of oil around the world, except to the U.S., which has unilateral sanctions in place against it.

Akbar E. Torbat, a sanctions expert at California State University at Dominguez Hills, said that Iran has been trying to sign new energy deals before the UN assesses the response to its demands and considers possible new sanctions at the end of February. The first round of sanctions, imposed two months ago, was aimed principally at individuals and materials involved with Iran's nuclear program.

New Sanctions

The prospect of new, perhaps tougher, sanctions ``encouraged Iran to give more incentives to international companies before the 60 days were up, so energy companies had to rush to take it or leave it,'' Torbat said in a telephone interview. In Tehran on Feb. 17, Oil Minister Kazem Vaziri Hamaneh said Iran was preparing several contingency plans in the event that new UN sanctions include the oil industry.

Not all companies have rushed into Iran. In January 2005, John Browne, then chairman of BP Plc, the biggest oil and gas producer in the U.S., explicitly ruled out investments in Iran because they ``would be offensive to the United States and therefore against BP's interests.'' And U.S. pressure accounted for a decision last September by Tokyo-based Inpex Holdings Inc., Japan's biggest oil explorer, to drop its share in Iran's 26 billion-barrel Azadegan oil field to 10 percent from 75 percent. In the meantime, OAO Lukoil, Russia's largest oil company, agreed in January to take over a majority share.

Jeroen van der Veer, chief executive officer of The Hague- based Shell, said in Feb. 1 comments to reporters in London that as important as Iran's reserves are, ``we have all the short-term political concerns.''

``We have quite a dilemma,'' he said.

To contact the reporter on the story: Celestine Bohlen in Paris at cbohlen1@bloomberg.net .
Last Updated: February 23, 2007 06:29 EST