By , RFE/RL
In the international showdown over Iran's nuclear
program, Europe is the player with the greatest economic leverage in Tehran. But
Europe has been reluctant to use trade ties to press Iran to give up uranium
enrichment. Not anymore.
Less than a decade ago, the United States stood very much alone whenever the
conversation turned to economic sanctions on Iran.
The landmark U.S. effort to isolate Iran -- the Iran-Libya Sanctions Act passed
in 1996 and renewed in 2001 -- was notable in Europe for being ignored.
Major energy firms like France's Total seemed only to welcome the act's threat
to sanction companies investing more than $40 million a year in Iran's energy
sector. The threats kept U.S.companies out of Iran as it opened to foreign
investment, while non-American consortia went in.
So, it is no surprise that Total's announcement on July 10 that the company
currently considers it "too politically risky" to invest in Iran made world
As Total's head Christophe De Margerie put it in an interview with the
"Financial Times": "Today we would be taking too much political risk to invest
in Iran because people will say, 'Total will do anything for money.'"
Not Leaving Yet
Does this mean that after decades of seeing Iran as a U.S. problem, Europe's
corporate leaders now view the problem as their own?
David Knott, an energy industry expert and editor of the Nicosia-based Middle
East Economic Survey (MEES), says Total's statement does not mean that the
company is leaving Iran today.
He notes that the announcement comes as the company is studying the feasibility
of producing liquefied natural gas (LNG) from Iran's South Pars field, and the
study's timeline for making decisions is still some time away.
"Both Total and Shell have proposed LNG projects to the Iranians and they are
working on very preliminary studies into both the engineering and commercial
viability of these," Knott says.
"And what they are saying is that they can't go to an investment decision at the
moment. But they have not actually come out and said they are pulling out of
Iran, they are saying that in the long term they still see Iran as an important
area for seeking investment."
Royal Dutch Shell announced last month it would not sign a $10 billion contract
to join in developing South Pars. Chief Executive Joeroen van der Veer said that
"due to American sanctions, we can't apply American technology or equipment. We
will need longer for the preparation of the project."
The European energy companies' reluctance to contemplate investing billions of
dollars in Iran reflects pressure from a number of directions.
For one, there is a new drive in the U.S. Congress to lower the threshold for
levying sanctions on foreign companies investing in Iran's energy sector to just
$20 million. Passed by the House of Representatives last year, the measure is
particularly worrisome for smaller energy companies that, unlike the energy
giants, cannot afford to be isolated from the U.S. market.
Take Norway's Statoil, which is constructing three offshore platforms as part of
the South Pars project. The company says it is careful to assure it does not
violate U.S. guidelines even as it works in Iran.
Statoil's public affairs manager, Kai Nielsen, says: "We have kept the U.S.
authorities informed all the way through the project, it started way back in
2002. And, of course if the U.S. authorities want to have further discussions or
more information about what we are doing down there, then we are very open to
Additionally, and increasingly importantly, European energy companies are
feeling negative pressure over their work in Iran from their own national
Since Angela Merkel took office in Germany and Nicolas Sarkozy in France, both
have taken a tougher stand regarding Iran's nuclear program than did their
Merkel said after a meeting with Sarkozy in November that "we have discussed
with each other, and with other European countries, that we each want to reduce
to some extent our trade with Iran." That position is also backed by British
Prime Minister Gordon Brown.
Hard To Finance
And finally, European energy companies are beginning to feel pressure from a
U.S. drive to persuade major international banks to cut ties with Iran. That
pressure makes it increasingly difficult for energy giants to get the financing
they need for multibillion-dollar investments in Iran.
UBS, the world's biggest bank measured by total assets, closed its accounts held
by Iranian-based clients last year, as did Germany's three major commercial
Muhammad Shakeel, an Iran analyst at the London-based Economic Intelligence
Unit, says it is now becoming conceivable that even the most recalcitrant
European energy companies will have to freeze their involvement in Iran until
the political crisis with the West is resolved.
That would have a huge impact on Iran's economy, which largely depends on its
energy sector for hard currency. In a sign that the Iranian government takes the
danger seriously, Shakeel says Tehran appears already to be looking to Asia for
ways to offset Western pressure.
"The Iranians are beginning to realize that their trade needs to move away from
the Europeans and now a lot of focus is shifting over to Asia and to China
itself and, even over the last few months according to reports from Iranian
officials, Iran has actually started withdrawing its own assets from Europe and
shipping them over to banks in Asia which are less susceptible to American
pressure, for now anyway," Shakeel says.
How fast European leaders will press ahead with encouraging their companies to
reduce trade with Iran will be one of the key elements to watch in the Iran
nuclear crisis during the coming months.
The leaders know they face considerable domestic political risk if they try to
whittle down their countries' sizeable current investments in Iran too quickly.
According to the Washington-based American Enterprise Institute, German
investment in Iran from 2000 to 2007 totaled at least $25.4 billion. The same
study estimates French investment at some $30 billion or more.
But, the Total announcement this week could provide additional momentum as it
shows that in parts of Europe, at least, public opinion is turning against a
business-as -usual attitude toward Iran. Enough anyway, that Total now wants to
position itself as a hero rather than a villain in the story, no matter how
profitable business as usual might be.
(RFE/RL correspondent Jeremy Bransten contributed to this report)
Copyright (c) 2008 RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org
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