European Oil Companies pledge to end oil investment in Iran over nukes program

story by Washington Post
written by John Pomfret

The United States announced Thursday that four of Europe's five biggest oil companies would end their energy investments in Iran, a significant advance in the Obama administration's efforts to pressure the Iranian government to enter negotiations over its alleged nuclear weapons program.

At the same time, U.S. officials said they were working to pressure China and other countries to bar their companies from filling the vacuum created by the departing Europeans.

Deputy Secretary of State James B. Steinberg said Royal Dutch Shell, based in Britain and the Netherlands; France's Total; Eni of Italy; and the Norway-based Statoil had committed to no further investments in Iran.

"These companies have provided assurances they will stop or are taking significant verifiable steps to stop their activity in Iran," Steinberg said. He also announced that the United States was slapping sanctions on a subsidiary of an Iranian oil company in Switzerland.

Steinberg's announcement marked the first public actions on the issue since the United States tightened sanctions against Iran on July 1, when President Obama signed the Comprehensive Iran Sanctions, Accountability and Divestment Act into law. Since enhanced U.N. sanctions were authorized against Iran in June, the United States, the European Union, Japan, South Korea, Canada, Norway and Australia have passed legislation further targeting Iran's economy and energy sector. Iran says its nuclear program is entirely peaceful.

Among the other moves announced Thursday, the State Department said European and Kuwaiti firms along with Russia's Lukoil, India's Reliance and Turkey's Turpras have stopped or promised to stop selling gasoline and other refined products to Iran. British Petroleum and Shell said they are no longer supplying jet fuel to Iran Air. And Lloyd's of London announced it would not insure or reinsure petroleum shipments going into Iran.

While Iran's president, Mahmoud Ahmadinejad, has said the effect of the sanctions so far has been "pathetic," Steinberg contended that they had begun to bite.

"We have pretty good indications," he said, "that whether it's in the financial sector, whether it's in shipping and transportation, that these measures are increasingly having a significant impact on Iran. There's no question that . . . their ability to do business is being hindered in lots of different ways."

The four European oil companies are not the only ones committing to ending investment in Iran. Japanese officials said this week that the Japanese oil giant Inpex was readying an announcement that it, too, would halt its investments in Iran's largest onshore energy project, the Azadegan oil fields. Japan obtains one-fourth of its oil from Iran. U.S. officials had threatened to place Inpex on a sanctions watch list if the firm did not end its business in Iran.

Steinberg also announced that the State Department would begin investigating other oil companies that had not committed to winding up their Iranian investments. Among those companies, sources said, are China's oil firms, such as the China National Offshore Oil Co., China National Petroleum and Sinopec.

Robert Einhorn, a senior U.S. official, has been in Beijing this week with a delegation from the Treasury and State departments to persuade China not to engage in, as Steinberg put it, "backfill."

Asked specifically about China, Steinberg replied: "Without mentioning specific countries or companies, we have made clear to all of . . . our international partners that we are strongly discouraging" those companies from increasing their investments in Iran while other firms back out. Japanese officials have told their U.S. counterparts that they are particularly concerned that as Inpex exits the Azadegan oil field, Chinese companies will step into the breach.

Iran is China's third-biggest supplier of oil, after Angola and Saudi Arabia. Chinese state-owned oil companies have signed memorandums committing to invest more than $100 billion in Iran's energy sector over the past few years, although only a small fraction of those funds have been invested.

Chinese companies have a history of moving in on projects that Western and Japanese firms have left dangling. In June 2009, China National Petroleum signed a $5 billion contract with National Iranian Oil to develop the massive South Pars gas field, after the Iranians accused French oil producer Total of delaying the project. And last year China National Petroleum reportedly agreed to invest around $2 billion to develop the South Azadegan fields in place of Inpex, which had cut its share.

In a letter to Secretary of State Hillary Rodham Clinton on Tuesday, Sens. Charles E. Schumer (D-N.Y.) and Jon Kyl (R-Ariz.) pushed for sanctions against three Chinese companies for continuing to do business with Iran.

Some diplomats questioned whether the United States has the stomach to sanction major Chinese companies given the sensitive nature of Washington's relations with Beijing. The Obama administration is focused on trying to persuade China to allow its currency to appreciate against the dollar. Ties with China's military, which have been suspended for months, are only just resuming. And, diplomats said, there are questions about whether the threat of U.S. sanctions would actually worry China's oil giants. They have little business in the United States. One of the firms active in Iran, the China National Offshore Oil Corp., or CNOOC, was stopped from buying the U.S. oil firm Unocal in 2005.

"The goal here is not to impose sanctions for sanctions' sake but to end companies from doing business with Iran," Steinberg said. However, he added, "if we conclude that that cannot be done and, under the requirements of the law, that we need to impose sanctions, we will do it."