Despite Sanctions, U.S. Allies Aid Oil, Gas Pipeline Projects

Andrea R. Mihailescu, United Press International:

Iran is expanding its oil, gas and petrochemical projects with American allies such as Iraq and India, finding ways to increase its energy deals and foreign investment, in effect doing an end run around U.S. sanctions threats.

Tehran's success comes in the face of a 1996 U.S. law targeting non-U.S. companies investing more than $20 million annually in Iranian oil and gas interests.

There's growing sentiment in Congress for a complete U.S. aid cutoff to countries whose companies deal with Tehran, and the Bush administration reportedly is ready to target the U.S. assets of firms dealing with Iranian partners. READ MORE

But Iraq and U.S. allies such as Pakistan and India are strongly considering deals that would skirt -- if not directly violate -- the sanctions, even as a new hard-line president prepares to take power in Tehran.

Iran and Iraq have been discussing a swap deal for more than a year, according to Iranian Oil Minister Bijan Namdar Zanganeh. A proposed pipeline from Bandar Imam in Iran to Iraq's Basra port would carry Iraqi crude oil to Iran's Abadan refinery and refined oil products back to Iraq.

Industry experts said it was too soon to tell whether the deal violates the U.S. sanctions, but the 1996 law specifically targets direct investment and ownership of Iran's petroleum resources. Oil swaps, as well as contracts to sell goods and service to Iranian interests, are not punished under the law.

"We have offered a proposal for receiving about 370,000 barrels of crude oil from Iraq to feed the Abadan refinery," said Mr. Zanganeh.

Another plan is for a 1,700-mile pipeline -- sometimes referred to as the "peace pipeline" -- that would transport Iranian natural gas through Pakistan to India.

Although the deal is seen as a way to ease India-Pakistan tensions, Assistant Secretary of State for Arms Control Stephen G. Rademaker said on a trip to New Delhi June 16 it would be "a mistake" to build the pipeline.

"We think such a pipeline would provide oil revenue to the Iranian weapons of mass destruction program and to its support of terrorism," Mr. Rademaker told Indian reporters.

Secretary of State Condoleezza Rice "expressed U.S. concern" about the Iran-Pakistan-India pipeline during a South Asia trip in March, but American officials said they would not comment on whether sanctions would be imposed until an actual pipeline deal is reached.

But Indian Petroleum Minister Mani Shankar Aiyar said his country hopes to proceed with the deal, undeterred by the election last week of hard-line Tehran mayor Mahmud Ahmadinezhad as Iran's new president.

"We do not see the change in regime having a negative impact," said Mr. Airar, whose government signed a $22 billion agreement this month to import 5 million tons of Iranian liquefied natural gas over 25 years.

Pakistan argues it would not be violating U.S. sanctions because it would only finance those parts of the $4 billion pipeline on its own territory, and thus would not be "investing in" Iran's energy infrastructure.

Georgia, has also expressed an interest in buying Iranian natural gas, saying it could be transported through Azerbaijan.

Iran also is pursuing plans to let Russia export its Caspian Sea oil through a Persian Gulf swap scheme, under which Russia's oil would be piped into Iran.

The scheme is a direct challenge to the recently completed Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which, built with U.S. backing, was designed to get Caspian Sea oil to market through Turkey while bypassing both Russia and Iran.

Staff writer David R. Sands contributed to this report.