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Major European Energy Firms Cutting Iran Ties

The U.S. says France's Total, Norway's Statoil, Italy's ENI and Royal Dutch Shell have agreed to curtail their business with Iran.

The U.S. says France's Total, Norway's Statoil, Italy's ENI and Royal Dutch Shell have agreed to curtail their business with Iran.

Washington says four major European oil companies have agreed to abandon their business ties with Iran to avoid being hit with U.S. sanctions.

The companies are some of the biggest names in the energy business: Total, Shell, Statoil, and Eni.

U.S. Deputy Secretary of State James Steinberg made the announcement late on September 30.

The companies' decision marks a major victory for Washington in its drive to apply new economic pressure on Tehran to cooperate with UN demands it give up nuclear activities that could be used for making nuclear weapons as well as nuclear energy.

Steinberg underlined that goal again on September 30 as he hailed the four oil companies' step and warned other energy businesses to do the same or face U.S. investigations into their activities:

"A nuclear-armed Iran would severely threaten the security and stability of a part of the world crucial to our interests and the health of the global economy," Steinberg said.

"As a consequence, we believe the international community should collectively abandon a business-as-usual approach towards Iran. However, some international oil companies have not yet committed to ending their activities in Iran's petroleum sector, and for this reason the State Department is launching investigations into those companies."

Steinberg said the U.S. State Department has decided to impose sanctions on Naftiran Intertrade Company (NICO), a Swiss-based subsidiary of Iran's national oil company, for its involvement in Iran's energy sector. He did not name other companies that could be targeted or investigated.

The stepped-up pressure on foreign energy companies marks the first implementation of a new U.S. law signed in July by President Barack Obama to tighten American sanctions upon Iran. The law is meant to add teeth to the latest round of UN sanctions against Tehran approved one month earlier.

Obama's Comprehensive Iran Sanctions, Accountability and Divestment Act particularly targets companies which help Iran to refine is own gasoline and diesel fuel. Iran currently is unable to refine enough fuel for its domestic needs and must import a reported 40 percent of its gasoline and 11 percent of its diesel fuel.

U.S. Warning

Washington wants to force Iran to continue its high level of imports because they impose a considerable drain on Iran's treasury and limit the amount of money Iran has available to support its nuclear program.

International companies which defy the U.S. drive risk losing access to the U.S. market in a variety of ways. Under the new law, which expands upon the pre-existing Iran Sanctions Act of 1996, the companies can be prohibited from transferring money through banks in the United States, banned from receiving U.S. government contracts, and subject to other restrictions. Because many of the world's major oil companies have U.S. subsidiaries, such sanctions can seriously damage their business operations.

The U.S. daily "The Washington Post" reports today that the four European oil companies are not the only ones committing to ending investment in Iran.

The newspaper quotes Japanese officials as saying this week that the Japanese oil giant Inpex is readying an announcement that it, too, will halt its investments in Iran's largest onshore energy project, the Azadegan oil fields. Japan obtains one-fourth of its oil from Iran.

Among the other moves announced on September 30, the State Department said Russia's Lukoil, India's Reliance and Turkey's Turpras have stopped or promised to stop selling gasoline and other refined products to Iran.

The United States is not alone in imposing new sanctions on transactions with Iran. On July 26, 2010, the European Union and Canada also announced new sanctions against Iran, targeting the country’s foreign trade, banking, energy, and transportation sectors.

Western powers hope that their sanctions, combined with those of the UN, will help force Tehran back to the negotiating table over its nuclear program. The UN Security Council's five permanent members, the United States, Britain, France, Russia and China, are working with Germany to draw Iran back into negotiations that collapsed last year.

Steinberg repeated on September 30 that the sanctions are a means to an end and not simply intended to punish Iran for its nuclear activities.

"What we are focused on is to make clear to Iran that the consequences are linked to their behavior on the nuclear program and that there is a way forward for them to avoid those consequences," he said.

Iran maintains that its nuclear activities are entirely energy-related and peaceful. But the UN's nuclear watchdog, the International Atomic Energy Agency has repeatedly faulted Tehran for failing to make its activities fully transparent and for its ongoing defiance of UN demands to stop activities like uranium enrichment that could be used to build nuclear bombs.