US-IRAN: Looming Sanctions Could Hit Major Oil Firms

  • by Sananda Sahoo (washington)
  • Sunday, February 28, 2010
  • Inter Press Service

Amb. Seyed Mehdi Nabizadeh's remark has put Indian and foreign companies' trade relations with Iran in a difficult spot as the U.S. administration looks to step up trade sanctions against Tehran over its nuclear programme.

Reliance quickly denied the ambassador's assertion. RIL spokesperson Tushar Pania told IPS from Mumbai that the company had ceased exporting refined petroleum products to Iran as of last May. He declined to comment on whether RIL petroleum products make their way to Iran after being re-exported from third countries.

In a statement released Feb. 9, RIL said its 'contract with the buyers explicitly prohibits Iran as a destination for any cargo loaded at Jamnagar.'

Last December, the House of Representatives passed the Iran Refined Petroleum Sanctions Act, which seeks to limit Iran's ability to import and produce refined petroleum products.

On Jan. 28, the Senate passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which incorporates most of the provisions in the Iran Refined Petroleum Sanctions Act. Representatives of the two chambers must now meet to agree on a compromise version that will be sent to the White House for President Barack Obama's signature.

Both the House and Senate versions seek to sanction persons or companies investing 20 million dollars or more in Iran's energy sector.

The Senate version also expands the previous sanctions against investment in Iran by proposing sanctions on any entity that provides or helps Iran import refined petroleum resources, or helps its domestic refining capacity. It would also authorise sanctions against companies if their subsidiaries invest in Iran's energy sector or provide Iran refined petroleum resources.

The U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers and the National Foreign Trade Council are all opposed to the sanctions.

'It would be like shooting yourself in the foot,' Richard Sawaya, director of USA*Engage at the National Foreign Trade Council, a lobby group that represents the interests of many of the world's biggest multinational corporations, told IPS.

In an interconnected global economy, it ends up imposing secondary sanctions — meaning that U.S. firms lose out on business with excluded foreign companies, he said. This scenario will be repeated not only in the energy sector but also in sectors such as construction, manufacturing and services, potentially inflicting a damaging blow to the U.S. economy, Sawaya warned.

If the Iranian ambassador's assertion of direct imports is true, Reliance Industries Ltd. (RIL), which owns the world's largest petroleum refinery complex, could be a primary target of those sanctions.

'From our point of view, Reliance stopping gasoline exports to Iran is not correct,' Press Trust of India (PTI) quoted Nabizadeh saying on Feb. 9.

When asked if Reliance was directly selling fuel to Iran or if petrol cargoes sold to traders were being redirected from ports such as Dubai after minor blending, Nabizadeh told PTI, 'You know that better than me... we continue to get [fuel from Reliance].'

The company said in January last year that it would cease new sales of refined gasoline to Iran after completing existing contracts that expired Dec. 31, 2008. But the United States had long doubted whether RIL completely stopped exports to Iran.

PTI reported that in May 2009, 'RIL won a state-owned National Iranian Oil Co tender to supply 95-octane gasoline to Iran and possibly shipped a couple of cargoes under the contract.'

Iran, which is the world's fourth largest oil exporter, is dependent on gasoline imports because of a lack of refinery capacity to meet domestic demands. Until several years ago, Tehran had to import about 40 percent of its refined gasoline from foreign suppliers, but, with conservation and other measures taken by the government, imports have been cut to about 30 percent, according to recent reports.

Gasoline sales to Iran are not banned by U.N. resolutions, although under the new U.S. Senate bill these will be subject to U.S. sanctions.

RIL is one of the many international companies, including Vitol, Trafigura and Glencore of Switzerland, Total of France, Petronas of Malaysia, Lukoil of Russia, Royal Dutch Shell of the Netherlands, and British Petroleum, which have in the past sold tens of millions of dollars in refined products to Iran.

Any new sanctions would also affect Petroleos de Venezuela and state-owned Chinese firms that are said to now provide Iran with up to one-third of its gasoline imports.

The Reliance decision to stop gasoline exports to Iran in 2009 came after several U.S. lawmakers urged the Export-Import Bank to suspend assistance to RIL, on the grounds that it was assisting Iran's economy with the gas sales.

As of August 2008, the bank had extended a total of 900 million dollars in financing guarantees to Reliance to help it expand. According to the bank, 500 million dollars went toward financing RIL's Jamnagar facility in Gujarat. That facility went on to become the world's largest refinery complex.

India's business relations with Iran are ambiguous. The current Congress-led government in New Delhi is a strong U.S. ally but it has also maintained relations with Iran and at times defied Washington's efforts to isolate Tehran. Iran is second biggest supplier of crude oil for India.

A seven-billion-dollar deal to construct a gas pipeline from Iran to India, through Pakistan, is pending after India failed to finalise the deal that was signed by Iran and Pakistan on Nov. 11, 2007.

India had repeatedly shown interest in reviving the deal. It re-entered discussions on the project following Iranian President Mahmoud Ahmadinejad's visit to India in April 2008. The visit also resulted in Indian firms' winning preliminary Iranian approval to take equity stakes in the Azadegan oil field project and South Pars gas field Phase 12. India did not attend further talks on the pipeline project in September 2008, however.

The 2008-2009 annual report of Ministry of Petroleum and National Gas says India is working on the project.

If Reliance is sanctioned, it remains to be seen whether it will have any impact on India's own exports of gasoline products to the U.S. or on bilateral trade relations more generally.

India doubled its exports of gasoline to the U.S. to 5.19 million barrels last year after RIL's Gujarat refinery started production, according to a recent Business Week magazine report. Most Indian oil exports come from RIL as public-sector companies cater to domestic demands.

It is hard for India to rein in private companies that contribute heavily to the country's gross domestic product (GDP). In 2006, two Indian chemical companies, Balaji Amines and Prachi Poly Products, were sanctioned under the Iran Non-Proliferation Act and other U.S. Proliferation laws. But none of the sanctioned companies were as big exporters as RIL.

The Federal Register in 2006 had said that both manufacturers will be stopped from doing business with the U.S. government.

Back in 2006, New Delhi had responded to the sanctions by saying that India has a rigorous system of export controls and that the sanctions were unjustified. It said India is working with the international community as a partner against proliferation.

But the Indian government also has a limited ability to constrain the practices of the private sector. According to Teresita Schaffer, director of the South Asia Programme at the Centre for Strategic and International Studies, 'the Indian government has imperfect knowledge and control over its private companies.'

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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