Oil groups shun Iran over fears of embargo

Thomas Catan and Roula Khalaf in London, Financial Times:

International oil companies are putting multibillion-dollar projects in Iran on hold, concerned about the diplomatic standoff over the country’s nuclear programme.

Talks by several European companies on oil and gas projects have largely ground to a standstill amid fears that the nuclear dispute, now before the UN Security Council, could lead to fresh sanctions against Iran. READ MORE

US companies are already barred from investing in Iran. But fears of fresh sanctions now threaten Iran’s access to vital oil and gas technology from non-US sources.

BG, the UK-based gas company, held preliminary talks last year with Iran over participation in a liquefied natural gas project, but has since abandoned the effort. South Africa’s Sasol, which was talking to Iran about building a gas-to-liquids plant, has also dropped its plans.

European companies such as Royal Dutch Shell, the Anglo-Dutch energy group, and Total of France, are still ostensibly in discussions with Iran over large LNG investments. But the companies are unlikely to commit the huge sums needed as long as the political tension continues.

An official from a company that has decided to put its plans on hold said: “Obviously, regarding political considerations, geopolitical concerns, it hasn’t been taken forward because you can’t make a firm commercial decision on things.”

Iran badly needs foreign technology and expertise to maintain oil production and develop its natural gas reserves, the second-largest in the world. The country has ambitious plans to build four LNG projects with partners including Total, Shell, Repsol of Spain and perhaps Gaz de France.

However, the two main liquefaction technologies are from US companies, forcing Iran to rely on European alternatives.

US and European diplomats say they envisage gradual diplomatic pressure on Iran to force it to suspend all its uranium enrichment activities, and consider any talk of UN-backed sanctions to be some way off.

But building international consensus at the UN for any punitive measures against Iran will be extremely difficult. US officials are apparently hoping that if no agreement is reached at the UN, the European Union would impose its own sanctions, such as restrictions on investments. But this option too will face resistance from some European governments.

Jack Straw, the British foreign secretary, speaking on Monday at London’s International Institute for Strategic Studies, said political uncertainty was affecting business confidence in Iran, as foreign investors “are already beginning to think twice about Iran or look elsewhere”.

“Now, if the Iranian regime chooses not to heed the concerns of the international community, it will damage the interests of the Iranian people,” he said.

A British official said separately: “We’re in regular contact with oil companies. They realise that curbs on investments could be one of the issues considered at a later stage and they take it into account.”

Iran has repeatedly said escalation of the nuclear dispute would produce a “lose-lose situation” and damage Western interests as much as Tehran’s.