[NGW Magazine] US piles on the sanctions
This article is featured in NGW Magazine Volume 2, Issue 15
Sanctions need to be carefully targeted as they can boost the popularity of the target state's head of government and create new tensions and alliances.
US Congress is staying tough on sanctions, whatever the president, Donald Trump, would like – not least where Russia is concerned. NGW Vol 2/13 considered the prospects for the unhelpfully-titled Countering Iran’s Destabilizing Activities Act surviving scrutiny intact given the procedural hurdles it was facing; and also what impact it might have on US-Russia and US-EU relations given the earlier draft's plan to limit gas and oil export projects.
At the time, it had just overwhelmingly passed the Senate, but was stalled on a procedural glitch that requires bills affecting finances to originate in the House. Commentators noted that Trump’s White House was leaning on lawmakers to possibly weaken the bill, to avoid tying the administration’s hands in international relations.
In late July it became clear that the pressure failed, as a newly revised version passed the House almost unanimously: 419-3. The few weeks’ delay while dealing with inter-chamber red tape resulted not in weakening, but in the addition of more sanctions on North Korea and some tweaks to satisfy US and European business leaders. After the vote, House Speaker Paul Ryan stated:
“The bill we just passed with overwhelming bipartisan support is one of the most expansive sanctions packages in history. It tightens the screws on our most dangerous adversaries in order to keep Americans safe.”
The Act is still not law, as it now goes back to the Senate. But all the signs are that it should pass easily. It has become an amalgamation of various Congressional attempts to affect foreign policy, targeting Iran, Russia for interfering in the 2016 US election, and now North Korea for their recent missile development. Specifically, among other things, it mandates sanctions on individuals involved with Iran’s ballistic missile program, individuals violating a UN arms embargo, and places additional sanctions on Iran’s Islamic Revolutionary Guard Corps.
The bill highlights the confusing fact that sanctions can originate both from the US executive and legislative branches, with different procedures for relief. Congress passed the wide-ranging Iran and Libya Sanctions Act back in 1996, which was renamed the Iran Sanctions Act in 2006 and remains in effect.
Meanwhile, the executive can impose measures with executive order based on a 1977 law. This latest bill is a power grab that seeks to limit the executive’s authority, as it requires the Trump administration to send any sanctions relief plans to Congress for approval. White House officials have given mixed reaction messages in recent days, saying that the president still needs to look at the final bill. However, it is widely expected to be veto-proof.
European companies reappraise Iran
This bill comes at a time when Iran is flexing its muscle in the business/energy world. At the beginning of July, an important deal was announced between France’s Total, National Iranian Oil Co (NIOC), and China National Petroleum Corp. It is a 20-year agreement to develop Iran’s portion of the South Pars offshore gas field. Total will be the operator and have a 50.1% stake, with CNPC at 30% and Petropars, a NIOC subsidiary, at 19.9%. The first phase is estimated to cost about $2bn, with the total value of the project being about $5bn.
The deal is significant not just for the development of the world’s largest gas field, but also in that it is the first major western energy investment since sanctions were lifted last year. Total has a history in the region, as they were one of the largest investors in the field in the 1990s when it was first being significantly developed. They were forced to leave in 2012 as a result of sanctions, and were widely seen as the front-runner to secure a new arrangement.
Total's CEO Patrick Pouyanne, inked the agreement with Iranian oil minister Bijan Namadar Zanganeh, stating: "This is a major agreement for Total, which officially marks our return to Iran to open a new page in the history of our partnership with the country.... Total will develop the project in strict compliance with applicable national and international laws. This project is in line with the group’s strategy to expand its presence in the Middle East and grow its gas portfolio by adding low cost, long plateau assets.”
Total has been successful but only with extreme care: they have had to feel out the banking system, deal with currency conversion issues, pay close attention to things like not employing any Americans there, and avoid individual Iranians still under sanctions. The Islamic Revolutionary Guards Corps pose a particular problem, as they remain under sanctions yet have a web of economic interests and front companies, including in ports and shipping.
To navigate the maze of requirements, Total has taken the unusual step of assigning a compliance officer to focus exclusively on the country.
A preliminary version of this deal was signed last November, and it was meant to be concluded early this year. Total has stated that the delay came as a result of confusion about whether the White House would re-impose broad sanctions. Political watchers will remember Trump’s frequent rhetoric about the nuclear agreement, tweeting abuse such as “the highest level of incompetence,” “disastrous,” and more.
Despite this, he has kept to the terms, following the requirement to report and waive the relevant sanctions every few months.
Given Trump’s campaign statements and sometimes unpredictable actions, caution on the part of companies to reinvest in Iran is understandable. Iran was brought to the nuclear negotiating table by the previous sanctions regime in large part because of the EU being solidly aligned with the US, however, and that is no longer the case. Much has been made of Trump’s difficult relations with typically close EU allies such as France and Germany, and this publication has examined the resistance that the EU is giving the US regarding new Russian sanctions. There is likewise little appetite for broad new Iran sanctions, and Total’s deal is yet another sign of US-EU division that will perhaps inspire confidence and open the gates to a new wave of western investment.
US companies themselves will likely be left out: while some US-based multinationals like Boeing have jumped back into the country, energy companies are largely stymied. Amir Hossein Zamaninia, deputy oil minister for trade and international affairs, blames it on the US: "Iran has not imposed any restrictions on the US companies, but they cannot participate in our [oil and gas] tenders due to the US laws," he has said. “Based on the US Congress sanctions, the American oil companies cannot work in Iran," according to a report by Reuters.
Iran, understandably, sees the Total agreement as the first of many. President Hassan Rouhani has reportedly set a goal for the country to conclude ten new oil or gas deals by March 20, the end of the Iranian calendar year. In January, the oil ministry sent out a list of foreign companies ‘qualified’ to take part in tenders for exploration and production.
These are mostly Asian firms, but include important European players such as Italy’s Eni, Germany’s Wintershall, and the Anglo-Dutch major Shell. One possibly significant proposal has come from India’s ONGC Videsh, which is on the prequalified list. They have offered to invest up to $6bn in the Farzad-B gas field, possibly another $5bn in an LNG export facility, and purchase all the exported gas. The Indian consortium has been trying to secure rights in the field for years, and the idea has been given new impetus by sanctions relief.
The Qatar question
Natural gas and Iran cannot be discussed without mentioning Qatar and the diplomatic spat that recently erupted between it and Saudi Arabia. Started by a hack of Qatar’s state website, the rift quickly led to a blockade, closed embassies, and tension between Doha and many of its neighbours. With few other regional friends, many analysts predict that Doha will draw closer to Iran, though there remain important divisions: despite some questionable Trump statements, Qatar hosts a major US military base and remains a strong US ally.
Still, Qatar and Iran can fall back on years of co-operation in natural gas. The massive South Pars field (called the North Field in Qatar) straddles the border between the two, and the past decades have been a generally amicable mix of co-operation and competition. Qatar has undeniably surged ahead in development, securing a huge portion of the world LNG market and riding that to become one of the richest countries in the world (per capita).
Notably, they achieved this market penetration despite halting further development of the North Field in 2005, ostensibly in order to study conditions. Many say that this moratorium was on the request of Iran, which has fallen far behind and is concerned that projects are draining ‘their’ gas. Regardless of the true reason, this co-operation/competition may be tested in the years to come, as Iran aggressively develops their share and tries to become a major world LNG exporter. In an increasingly crowded LNG market, it will be interesting to see the interplay of geopolitical co-operation between Iran and Qatar versus LNG competition.