U.S. Cautions Europeans to Avoid Oil, Gas Deals With Iran

By Steven Mufson
Washington Post Staff Writer
Thursday, February 1, 2007

The Bush administration is warning European oil and gas companies against investing in Iran, trying to head off a push by Tehran to attract new investment by international petroleum giants.

In the past two weeks, the administration has met with European oil company executives about the Middle East, and during one session a senior State Department official cautioned that the situation with Iran was "hot and is going to get hotter," one executive said.

An executive from another major European company said, "The administration is putting the full-court press on foreign companies and is going all out to impress upon them that it would be a mistake to do anything with" Iran.

Despite the administration's pressure, however, many of the world's biggest oil companies were expected to attend a meeting in Vienna today and tomorrow held by National Iranian Oil Co. to drum up interest in 12 onshore and five offshore blocks. Executives from Royal Dutch Shell PLC, Russia's Lukoil, China's Sinopec International Petroleum Exploration and Production Corp. and Austria's OMV will give presentations.

"Obviously Iran is very interesting oil territory for everybody," said Patricia Marie, spokeswoman for the French oil company Total S.A., which invested about $4 billion in Iran between 1995 and 2002 and is sending a representative to the meeting. As for U.S. admonitions, Marie said, "We are listening. . . . But we respect the French law, the European laws; we are not obliged to respect American law."

Marie said Total will decide this year whether to proceed with a liquefied natural gas (LNG) project in the south of Iran.

Last week, Royal Dutch Shell and the Spanish company Repsol YPF S.A. signed a preliminary agreement with Iran to explore the possible development of another multibillion-dollar LNG project.

Oil company executives and consultants said any reluctance to invest in Iran ultimately has more to do with the stingy terms Iran offers than with arm-twisting by the U.S. government. Generally, Iranian contracts let foreign companies recoup costs and give them enough oil for them to make a small profit before control of the fields is turned over to National Iranian Oil.

"In effect, the Iranians have made our sanctions work better than we have," said Gary G. Sick, an expert on Iran at Columbia University.

One international executive said Iranians usually offer single-digit rates of return for investments in the oil sector, far less than what companies can make elsewhere.

"The Iranians always argue that there is no need for them to offer more because of the very low geological risk in Iran, because they know it's a country with substantial reserves," he said. "But you have to factor in political risk and all sorts of other things."

The struggle over oil investment is part of the Bush administration's campaign to isolate Iran and curtail its funds because of its pursuit of nuclear technology that might help it build nuclear weapons.

U.S. companies are barred from doing business with Iran. In 1995, an executive order stopped them from even bringing Iranian oil to Europe. In 1996, Congress passed the Iran-Libya Sanctions Act, enabling the U.S. government to sanction foreign firms doing business with Iran. Though the United States has issued waivers to European companies involved in Iran's oil sector, one European executive said the Bush administration might change that stance.

On Monday, State Department spokesman Sean McCormack said of Shell's Iranian negotiations: For investments over a certain level, "policymakers take a look at it and see if there's any further steps that we, as a government, take."

A Shell spokesman said yesterday that "nothing has been decided" and that a decision on the project was "a year or so away."


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