Total seeks more pacts with Iran, despite threat of U.S. sanctions

By BHUSHAN BAHREE and THOMAS KAMM
The Wall Street Journal
March 17, 1998

PARIS -- Less than six months after signing a $2 billion oil deal with Iran, Total SA is back looking for more of the same in that country, despite the continuing threat of U.S. penalties.

"We don't intend to stay [in Iran] with just these two contracts," Thierry Desmarest, Total's chief executive, said Monday in an interview. "We look to [sign] additional contracts in Iran," he added, shrugging off the notion that the U.S. would act to penalize his company for ignoring its sanctions against Tehran, or succeed if it tried.

Besides signing a deal at the end of September to develop Iran's giant South Pars oil and gas field, Total has contracted to develop the country's Sirri field. The Sirri contract predated the August 1996 U.S.-sanctions law against oil investments in Iran. In Washington's eyes, Tehran promoted terrorism and sought to develop nuclear weapons and thus should be denied more oil revenue.

U.S. Undecided on Penalty

But the agreement to develop South Pars provoked the ire of the U.S., which is still trying to decide whether Total and its partners in the deal -- Russia's AO Gazprom and Malaysia's Petronas -- should be penalized for helping Iran.

That doesn't scare Mr. Desmarest, whose disregard for unilateral U.S. sanctions against investing in Iran's energy sector seems to have encouraged others.

Royal Dutch/Shell Group and the gas-rich central Asian state of Turkmenistan, for instance, want to build a 1,900-mile pipeline across Iran to transport gas into Turkey. Other foreign companies, such as France's Elf Aquitaine SA, are also known to be negotiating oil deals with Iran, which is the second-largest oil exporter in the Organization of Petroleum Exporting Countries and whose gas reserves are second only to Russia's.

The U.S. keeps saying it will decide "very soon" whether it intends to penalize Total, Mr. Desmarest said. He sought to explain the delay, saying: "They see the inconvenience of any decision... . The best is probably to do nothing."

In Washington, senior officials concede there aren't any good options. On the one hand, the administration doesn't want to alienate its major European trading partners, all of whom strongly oppose the U.S. law calling for sanctions against foreign companies that invest more than $20 million in Iran's energy sector. But they also want to maintain a tough stance against Iranian-sponsored terrorism, even while cautiously probing a possible political opening with Iran.

So far, the administration is holding congressional hardliners at bay; officials say a decision about sanctions on Total and other companies isn't imminent.

Matter Between Governments

In any case, Mr. Desmarest said, Total wouldn't be vulnerable to U.S. penalties. That is because Total has few operations in the U.S. and those few are joint ventures. The U.S. would find it hard to justify punishing other companies in those ventures.

Oil-industry experts have also pointed out that the U.S. would be loath to simultaneously take on Russia's Gazprom, which wields clout in Russia, and Petronas, a state-owned company in Malaysia whose leaders are averse to complying with extraterritorial U.S. legislation.

If the U.S. imposed penalties on Total, Mr. Desmarest said, it would be a matter between governments. Both France and the European Commission have championed Total's Iranian deal and cautioned the U.S. against retaliation.

Total's desire to expand in Iran is matched by that country's need to increase its oil-output capacity. The collapse of oil prices in today's glutted markets has shown Iran to be vulnerable to revenue swings: It can't increase oil production to offset price declines, as OPEC nations such as Venezuela and Saudi Arabia can. It lacks the means to even produce enough oil to meet its OPEC-assigned output quota, even though it has 9% of the world's proven reserves of about one trillion barrels.

Related links

* Iran News
* Complete list of Iranian online media
* Cover stories
* Who's who

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