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A Europe boycott of Iran oil would cap years of US effort

By Kevin G. Hall, McClatchy Newspapers –

WASHINGTON — The European Union appears on the verge of banning its member countries from buying Iranian oil, a move that would culminate a years-long behind-the-scenes campaign by two U.S. administrations to cripple that oil-rich nation’s lifeblood industry.

Over the years, the Bush and Obama administrations regularly pressured the CEOs of foreign oil companies and key politicians in Europe and even Malaysia to halt their investments in energy projects in Iran and to steer clear of new investment.

The oil companies and governments all tried to walk a fine line between meeting Washington’s demands and keeping a foot in the door in Iran, the second-largest exporter in the Organization of Petroleum Exporting Countries, the oil cartel. That would change with a decision to bar purchases of Iranian oil, a step that EU foreign ministers may take as soon as Jan. 30.

“I think that as countries have realized that other sanctions efforts … have not succeeded, the recognition has grown that it is necessary to target the energy sector of Iran. That’s what the Iranians really care about,” said Michael Singh, a Bush administration national security adviser who is now a researcher at the Washington Institute for Near East Policy.

Oil accounts for more than 60 percent of the Iranian government’s revenue, and starving Iran of that money has been the chief U.S. strategy in persuading the country to abandon a nuclear program that the U.S. fears is intended to produce nuclear weapons.

EU officials reached a tentative agreement Wednesday to begin barring Iranian oil purchases, though the details of that prohibition and how it might be phased in must be worked out ahead of the Jan. 30 foreign ministers’ meeting, which will formally consider the proposal. Such a ban would come on top of recent legislation signed by President Barack Obama that would bar any financial firm that deals with the Central Bank of Iran from access to the U.S. financial system.

Iran has responded to the squeeze by threatening this week to attack any U.S. naval vessel in the Strait of Hormuz, through which most Persian Gulf oil exports pass.

Those developments have sparked major news coverage in recent days. But the extent of the effort that the United States has gone to over the years to target the Iranian energy industry had been largely out of public view until the publication of classified State Department cables by the WikiLeaks website.

The cables, which WikiLeaks shared with McClatchy Newspapers and other news organizations and which now are available online, show that U.S. diplomats regularly asked oil company officials and politicians to stop investing in Iranian oil and natural gas fields.

A chief diplomatic goal, the cables show, was to thwart development of an area known as the South Pars field, which contains what geologists think is the largest concentration of natural gas in the world. South Pars covers 3,700 square miles in the Persian Gulf, about 38 percent in Iranian territorial waters and the rest in the waters off Qatar.

In a sign that the sanctions are worrying Iran, the English-language newspaper Tehran Times reported Wednesday that Oil Minister Rostam Qasemi had ordered all contractors of the South Pars gas field development projects to work around the clock “to complete development of all phases.”

Europe, dependent on an often-hostile Russia for its oil and natural gas imports, long has wanted to develop South Pars to gain an alternate supply source. While sympathetic to this, U.S. diplomats had a greater concern: Revenue from these projects could help the Iranian regime fund a quest for a nuclear weapon.

Iran maintains that it’s developing a peaceful nuclear power program.

A confidential memo sent by U.S. Ambassador to Austria Susan McCaw on April 25, 2007, details how U.S. diplomats pressured the Austrian oil company OMV and that nation’s Foreign Ministry to break ties with Iran, something that came to pass two years later. The embassy was angry that OMV had signed a deal with the National Iranian Oil Co. to develop a South Pars gas field.

In the memo, McCaw recounts how a Foreign Ministry official defended the investment as a means of loosening dependence on Russia, a view that OMV Chief Executive Wolfgang Ruttenstorfer shared.

“Ruttenstorfer opined that the only alternative to Iranian gas was ‘to get on a flight for Moscow,’ ” the confidential memo says.

U.S. diplomats maintained pressure, however, and on Dec. 3, 2009, another U.S. ambassador to Austria reported in a confidential memo to headquarters that OMV had allowed its South Pars development deal to lapse and wasn’t doing business in Iran.

“Ruttenstorfer agreed that ‘now is not the time’ for expanding commercial ties with Iran and said flatly that OMV has ‘no investments’ and ‘no real contracts’ in Iran’s energy sector,” Ambassador William Eacho III wrote. “The company does maintain an office in Tehran, and is keeping its ties there intact in the hopes of a diplomatic breakthrough, but OMV is not/not invested in Iran’s energy sector and is not engaged in exploration/production (E&P) nor gas infrastructure projects there.”

Similar diplomatic breakthroughs occurred with Spain and the Netherlands, involving Spanish oil company Repsol and the Dutch oil giant Shell.

In a March 24, 2008, confidential memo, the then-deputy chief of mission for the U.S. Embassy in Spain, Hugo Llorens, recounts a testy meeting with a high-level Spanish economic diplomat who was reluctant to support U.S. efforts.

“He indicated that Spanish companies needed a floor level of business with Iran in order to be competitive for the day when economic relations with Iran are normalized,” Llorens wrote. “(Alejandro) Alvargonzalez added that sanctions in the oil and gas sector were not acceptable to Spain. He said that Spain’s major economic/commercial interest in Iran is Repsol’s possible investment in the South Pars gas field.”

But Llorens later sent another confidential memo, dated May 5, noting news reports that Repsol and Shell were selling their joint 50 percent stake in one of the South Pars blocks. Llorens says Repsol CEO Antonio Brufau confided to the U.S. ambassador in late April that Repsol would indeed sell its stake in the South Pars field.

“Post has repeatedly emphasized to Repsol and to the GOS (government of Spain) the USG’s (U.S. government’s) concerns about this project, and the decision is a sign that the pressure has paid off,” says Llorens, who still offers a warning: “Nonetheless, with Repsol reported not willing to completely cut ties with GOI (government of Iran), we do not expect that this decision, however welcome, will lead to a major change in GOS views on hydrocarbons investment in Iran.”

Late last year, Spain’s conservative People’s Party was returned to power after seven years on the outside, and it’s more supportive of oil sanctions on Iran.

It took arm-twisting to convince Royal Dutch Shell to back off. In a secret memo dated May 16, 2007, the U.S. Embassy’s economic section chief in the Netherlands, Karen Enstrom, tells of a meeting May 3 with John Crocker, Shell’s head of international government relations and a senior adviser on the Middle East, during which Crocker said he expected the Bush administration to grant Shell a waiver from sanctions, as the Clinton administration had done in 1998.

“With expected declines in European gas and oil production, decreased reliability of Russian supplies, few viable alternatives, increasing reliance on natural gas and long development cycles for energy projects (up to 10 years), Crocker said Shell had concluded that stable future energy prices were dependent on outside investment in Iran and the pursuit of ‘big projects,’ ” Enstrom wrote.

Citing a theme echoed by many oil executives, Enstrom says the Shell executive insisted that current “investments thus would serve the Iranian people and the world of tomorrow, and not the Iran of today.” Iran wouldn’t receive revenue from the oil field until 2015, Crocker reportedly said.

But Enstrom’s successor, Shawn Gray, confirmed in a Dec. 2, 2009, confidential memo that Shell largely had handed off most of its activities in Iran, though the company was unhappy about it.

“Crocker reiterated Shell’s longstanding position on Iran sanctions. The firm is not opposed to a broad set of sanctions imposed on all energy sector participants including Chinese and Russian firms. But if only western energy companies adhere to them, Chinese firms will enthusiastically fill the void,” Gray wrote.

That concern is still alive today. With the threat of sanctions looming, the Russian oil firm OAO Tatneft signed a $1 billion deal in December to develop Iran’s Zagheh oil field, and Treasury Secretary Timothy Geithner will travel to China next week for broad talks that are expected to include Iran. He’s expected to push China to support the EU and U.S. sanctions efforts.

China, however, cut Iranian oil imports in January and is expected to do so in February as well, the Reuters news agency reported Thursday from Iran. Reuters said Japan also was considering cutting its purchases of Iranian oil.

Norway’s state-owned StatoilHydro also bowed to U.S. pressure. An Aug. 1, 2008, memo from the U.S. Embassy in Oslo basks in success, with Kevin Johnson, the deputy chief of mission, passing the news of a press conference in which StatoilHydro CEO Helge Lund announced that there’d be no new investment in Iran.

“Lund denied that USG discussions determined the (decision), and said ultimately the commercial decision to halt new Iranian projects rested with the company,” Johnson wrote.

Still, Johnson suggested to headquarters that pressure on StatoilHydro be maintained.

“With expansion ambitions in its sizable Gulf of Mexico and Chukchi Sea projects, the company does not want those projects jeopardized” by running afoul of sanctions, he wrote.

It wasn’t just large oil firms that were squeezed by U.S. diplomacy. Malaysia’s state oil company Petronas was the subject of numerous confidential memos as U.S. Embassy officials worried about the Asian nation’s publicly announced plans to invest in Iranian energy projects. Prime Minister Abdullah Badawi had even traveled to Tehran, where he publicly promised to “consolidate” Petronas operations in Iran.

But a confidential memo on Jan. 19, 2010, from Matt Matthews, economic counselor at the U.S. Embassy in Malaysia’s, suggests that pressure had paid off.

“Petronas officials noted that Petronas is concerned about investing in Iran due to current political uncertainties there,” Matthews wrote, noting that Malaysian Foreign Ministry officials had met with Petronas and two private energy firms “and told them to cooperate with embassy inquiries on Iran investments.”

The memo goes on to note that a Petronas subsidiary had hidden its investment in a South Pars gas field from the parent company’s board of directors and that Petronas was increasingly more interested in developing Iraqi oil fields and steering clear of Iran, where a widening range of sanctions were beginning to bite.


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