Italy Oil Deal Renews Defiance of U.S. Iran Sanctions
After a dry spell on the investment front, Iran on Saturday sealed a $550-million deal with the Italian energy company to develop its onshore Darkhovin oil field.
"The United States will seek a face-saving solution to this deal, otherwise it will backfire," Reuters quoted Mehdi Varzi, senior consultant at Dresdner Kleinwort Wasserstein as saying. "The ILSA regulations on Iran are a non-starter."
Indeed, oil executives do not expect the Iran Libya Sanctions Act (ILSA) -- which threatens sanctions against any firm investing over $20 million in the oil and gas sectors of Iran and Libya -- to start biting under Bush.
The legislation looks likely to be renewed for five years when it expires in August.
Under the Clinton administration, ENI and fellow Europeans Totalfinaelf and Royal Dutch/Shell eluded punishment under ILSA.
And Clinton in 1998 waived sanctions on a $2 billion deal involving France's Total and two other firms.
To go after ENI at this stage would be likely to provoke nothing short of outrage -- not only in the company's headquarters but within the European Union.
"How can they suddenly slap sanctions on ENI -- another European company?" said Varzi.
More than a year-and-a-half has elapsed since Iran secured its last oil deal with a foreign company -- Royal Dutch/Shell for the Soroush and Norouz fields.
Next in the queue is Spain's Cepsa, front-runner for the Cheshmeh Kosh oil field.
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And the already-high standing of European companies may be elevated later this summer should the multibillion dollar deal for the onshore Bangestan development be sealed.
Three European companies, ENI, Shell and Total are in the running for Bangestan -- and the trio could yet find themselves in a consortium, Reuters quoted industry sources as saying.
BP too is in the hunt.
"These discussions (for several projects) are not completed. If they were successfully completed, quite naturally we would start work in Iran," BP's Chief Executive John Browne said.
"This we can do. We believe there is a clear precedent for non-American companies to work in Iran."
From Iran's perspective the more companies lined up for work the better.
"The greater the critical mass of foreign companies involved in Iranian oil and gas, the greater the risk for the United States that ILSA will break down," said Varzi.
For its part, the European Union is prepared to flex its muscles on behalf of its members.
"The European Union for once is united on this," a Western oil executive said. "The United States cannot rule the world."
Any attempt by Washington to pursue a company under ILSA could harm relations with Europe.
"If Washington tries to slap sanctions on ENI it will create a crisis between the European Union and the United States," Varzi said.
And the strengthened commercial-political axis between Iran and Europe may cause anxiety for U.S. oil firms, locked out of Iran's energy race since 1995 by presidential order.
"Despite U.S. oil executives' strenuous lobbying against sanctions, Europe is clearly better positioned in Iran," said another Western industry official.
ENI's signing is significant also as it is the first so-called buyback deal under revised Iranian investment terms.
The National Iranian Oil Company (NIOC) had come under internal criticism over buyback terms, which pay foreign investors with oil production, with some parliamentarians suggesting the deals were not in Iran's interest and favored foreign investors.
NIOC modified the deals by offering foreign companies a risk-reward element based on production guarantees.
No stranger to Iran's oil patch, ENI already has secured buyback deals at Iran's Balal and Doroud oil fields and is also involved in gas via South Pars phases.