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Central Asia: Iran Invites Funding For Major Caspian Oil Pipeline

London, 1 June 1998 (RFE/RL) -- Teheran will lay down a challenge to the United States this week when it invites international tenders for the construction of a major pipeline to transfer oil from the Caspian region to refineries in Iran.

The $400 million tender will be issued on a visit to London by Iran's Deputy Oil Minister Ali Majedi, who says the new pipeline would transport oil from Kazakhstan, Azerbaijan and Turkmenistan.

The project is controversial because of U.S. opposition to foreign investment in the Iranian oil and gas sector, and to Iranian transit routes for energy exports from Central Asia and the Caucasus.

The U.S., saying it wants to deter Iran from acquiring weapons of mass destruction and supporting international terrorism, is pressing for alternative pipelines to bypass Iran. In particular, it favors a route running over Azerbaijan and Georgia to southern Turkey.

But Iran says it is the most logical, as well as the cheapest transit corridor, and that U.S. Congressional sanctions aimed at deterring foreign investment in Iran are illegal under international law and threaten the sovereignty of other countries.

Western energy companies are excited by the oil and gas fields of the Caspian basin because they are thought to be the largest outside the Gulf region and Russia, and can play a key role in meeting world energy demand into the 21st century.

But there is a logistical problem: the energy fields are located in landlocked countries thousands of kilometers from the open seas, meaning that transit pipelines across one or more countries are essential. The first phase of the new Iranian project would involve the construction of a 400 km pipeline from Iran's Caspian Sea port of Neka to Teheran, as well as the upgrading of two Iranian refineries. This would enable Iran to refine crude oil from over the Caspian, from Azerbaijan, Turkmenistan and Kazakhstan, and, in return, to supply them with equal amounts of refined oil. However, an earlier Iran-Kazakhstan "swap" deal failed amid technical problems.

By inviting tenders for its new pipeline, Iran is clearly hoping that European energy firms will be the first to invest, encouraged by an easing of strains in a long-running transatlantic trade war.

The European Union and U.S. have been at loggerheads over Congressional legislation requiring President Bill Clinton to impose sanctions on foreign firms investing more than 20 million dollars a year in Iran's energy industries. The Europeans say the U.S. is wrong to seek to apply its law outside its own territory. After the E.U.-U.S. summit in London last month, British Prime Minister Tony Blair, speaking as current president of the EU, said both sides are now hopeful of a solution.

Blair said, "There have been for some years serious differences over what, for the U.S., is sanctions policy and, for the E.U., is extra-territoriality. And what we have established today is at least a basis for a lasting solution to these problems. We've avoided a showdown over sanctions with which we don't agree and we've done it in a way that at least promises the chance of a solution in future."

Clinton agreed to issue waivers to European companies doing business with Teheran. But the U.S. still insists that the waiver on U.S. sanctions against firms investing in Iran would not cover companies investing in pipeline projects. And Clinton said, while the U.S. and E.U. agreed to cooperate in developing Caspian energy resources, they both share an interest in combating terrorism.

Clinton stated, "Here in London the EU countries have committed themselves to enhancing their cooperation with us with regard to Iran. They will step up efforts to prevent the transfer of technology that could be used to develop weapons of mass destruction. They have agreed to work toward ratification of all 11 counter-terrorism conventions, and we agreed to cooperate in the development of Caspian energy resources."