Total halts Iran's South Pars gas project over USA sanctions risk

Paris: Total, the French energy company, will pull out of a multibillion-dollar gas project in Iran if it can not secure a waiver from USA sanctions, the company said on Wednesday.

The waiver that Total seeks would include protection from any secondary sanction per U.S. legislation, which would be crucial given the fact that Total relies on USA banks for almost 90% of its financing operations, and 30% of its shareholders are United States shareholders.

Background: Despite the US withdrawal, Iranian Foreign Minister Javad Zarif met with European Union leaders on May 15 to discuss how to circumvent USA sanctions in an effort to salvage the nuclear deal.

German insurer Allianz and Danish tanker operator Maersk are also winding down their business in Iran. Total signed a deal with Iran in July 2017 to develop phase 11 of the gas field with an initial investment of $1 billion.

Total says that it has spent about 40 million euros developing the project to this point.

EU leaders at a summit in the Bulgarian capital of Sofia late on May 16 reaffirmed their commitment to trying to keep the landmark 2015 agreement alive and protecting European companies doing business in Iran.

Withdrawing from the South Pars 11 project will also not affect Total's target to raise the company's production by 5% a year between 2016 and 2022, according to the statement.

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Total said the South Pars project puts at risk the company's large operations in the United States and reliance on US banks for financing of 90 percent of its operations.

French oil giant Total is preparing to pull out of Iran to avoid risking U.S. sanctions. Total does about 30 percent of its business through the United States banking system. "The EU can't compel or really protect the private sector", Sanam Vakil, associate fellow at Chatham House said of Total's announcement.

Despite the US' withdrawal, the European Union said it would remain committed to the deal and would ensure sanctions on Iran remain lifted, as long as Tehran meets its commitments. "We have a situation where there is a will to impose sanctions on Europeans and a resentment towards European companies who are now being accused of supporting a terrorist state".

Joe Kaeser, the CEO of Germany's Siemens, told CNN his company would not be able to do any new business with Tehran.

In an unintended twist, U.S. President Donald Trump's decision to threaten European companies that continue to invest in Iran may open the door to Chinese rivals.

Under the contract's term, CNPC will take Total's shares in the project if the French company pulls out of the contract, Zanganeh said, Iran's media outlets reported.

(Copyright © 2015. All Rights Reserved.)
 
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