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Europe Gets Increasingly On Board With Iran Sanctions

  • Charles Recknagel

In the international showdown over Iran's nuclear program, Europe is the player with the greatest economic leverage in Tehran. But Europe has been reluctant to use trade ties to press Iran to give up uranium enrichment. Not anymore.

Less than a decade ago, the United States stood very much alone whenever the conversation turned to economic sanctions on Iran.

The landmark U.S. effort to isolate Iran -- the Iran-Libya Sanctions Act passed in 1996 and renewed in 2001 -- was notable in Europe for being ignored.

Major energy firms like France's Total seemed only to welcome the act's threat to sanction companies investing more than $40 million a year in Iran's energy sector. The threats kept U.S.companies out of Iran as it opened to foreign investment, while non-American consortia went in.

So, it is no surprise that Total's announcement on July 10 that the company currently considers it "too politically risky" to invest in Iran made world headlines.

As Total's head Christophe De Margerie put it in an interview with the "Financial Times": "Today we would be taking too much political risk to invest in Iran because people will say, 'Total will do anything for money.'"

Not Leaving Yet

Does this mean that after decades of seeing Iran as a U.S. problem, Europe's corporate leaders now view the problem as their own?

David Knott, an energy industry expert and editor of the Nicosia-based Middle East Economic Survey (MEES), says Total's statement does not mean that the company is leaving Iran today.

He notes that the announcement comes as the company is studying the feasibility of producing liquefied natural gas (LNG) from Iran's South Pars field, and the study's timeline for making decisions is still some time away.

"Both Total and Shell have proposed LNG projects to the Iranians and they are working on very preliminary studies into both the engineering and commercial viability of these," Knott says.

"And what they are saying is that they can't go to an investment decision at the moment. But they have not actually come out and said they are pulling out of Iran, they are saying that in the long term they still see Iran as an important area for seeking investment."

Royal Dutch Shell announced last month it would not sign a $10 billion contract to join in developing South Pars. Chief Executive Joeroen van der Veer said that "due to American sanctions, we can't apply American technology or equipment. We will need longer for the preparation of the project."

Under Pressure

The European energy companies' reluctance to contemplate investing billions of dollars in Iran reflects pressure from a number of directions.

For one, there is a new drive in the U.S. Congress to lower the threshold for levying sanctions on foreign companies investing in Iran's energy sector to just $20 million. Passed by the House of Representatives last year, the measure is particularly worrisome for smaller energy companies that, unlike the energy giants, cannot afford to be isolated from the U.S. market.

Take Norway's Statoil, which is constructing three offshore platforms as part of the South Pars project. The company says it is careful to assure it does not violate U.S. guidelines even as it works in Iran.

Statoil's public affairs manager, Kai Nielsen, says: "We have kept the U.S. authorities informed all the way through the project, it started way back in 2002. And, of course if the U.S. authorities want to have further discussions or more information about what we are doing down there, then we are very open to doing that."

Additionally, and increasingly importantly, European energy companies are feeling negative pressure over their work in Iran from their own national governments.

Since Angela Merkel took office in Germany and Nicolas Sarkozy in France, both have taken a tougher stand regarding Iran's nuclear program than did their predecessors.

Merkel said after a meeting with Sarkozy in November that "we have discussed with each other, and with other European countries, that we each want to reduce to some extent our trade with Iran." That position is also backed by British Prime Minister Gordon Brown.

Hard To Finance

And finally, European energy companies are beginning to feel pressure from a U.S. drive to persuade major international banks to cut ties with Iran. That pressure makes it increasingly difficult for energy giants to get the financing they need for multibillion-dollar investments in Iran.

UBS, the world's biggest bank measured by total assets, closed its accounts held by Iranian-based clients last year, as did Germany's three major commercial banks.

Muhammad Shakeel, an Iran analyst at the London-based Economic Intelligence Unit, says it is now becoming conceivable that even the most recalcitrant European energy companies will have to freeze their involvement in Iran until the political crisis with the West is resolved.

That would have a huge impact on Iran's economy, which largely depends on its energy sector for hard currency. In a sign that the Iranian government takes the danger seriously, Shakeel says Tehran appears already to be looking to Asia for ways to offset Western pressure.

"The Iranians are beginning to realize that their trade needs to move away from the Europeans and now a lot of focus is shifting over to Asia and to China itself and, even over the last few months according to reports from Iranian officials, Iran has actually started withdrawing its own assets from Europe and shipping them over to banks in Asia which are less susceptible to American pressure, for now anyway," Shakeel says.

How fast European leaders will press ahead with encouraging their companies to reduce trade with Iran will be one of the key elements to watch in the Iran nuclear crisis during the coming months.

The leaders know they face considerable domestic political risk if they try to whittle down their countries' sizeable current investments in Iran too quickly.

According to the Washington-based American Enterprise Institute, German investment in Iran from 2000 to 2007 totaled at least $25.4 billion. The same study estimates French investment at some $30 billion or more.

But, the Total announcement this week could provide additional momentum as it shows that in parts of Europe, at least, public opinion is turning against a business-as -usual attitude toward Iran. Enough anyway, that Total now wants to position itself as a hero rather than a villain in the story, no matter how profitable business as usual might be.

(RFE/RL correspondent Jeremy Bransten contributed to this report)
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