Reality strikes: Total oil cancels $2 billion Iran project

by WorldTribune Staff, May 18, 2018

A French energy giant is preparing to pull out of a $2 billion dollar gas project in Iran amid the return of U.S. sanctions on the Islamic Republic following President Donald Trump’s withdrawal from the nuclear deal.

Total SA said in a May 16 statement that it will not commit any more funds in Iran’s South Pars 11 project unless sanctions are waived, citing the risk to the company’s large operations in the United States.

“The risks of being on the wrong side of the U.S. government are not worth the benefits of trading with Iran once the sanctions are in place,” Fortune quoted London-based analyst Jason Gammel of Jefferies LLC as saying. “Oil companies are not going to be able to invest in the upstream sector, traders and purchasers of Iranian crude are going to have to find other sources, or seek an exemption from the U.S. government to be able to continue buying.”

Additionally, U.S. banks are involved in more than 90 percent of Total’s financing operations, American shareholders represent more than 30 percent of its investors and it has more than $10 billion of capital employed in the U.S., the company said.

“The issue is that Iranian transactions can’t be processed though any part of the banking system that needs access to the U.S. dollar,” Gammel said. “There will be niche players who will far more benefit from trading with Iran than risk from the U.S. system, but it’s going to be a very small set of players that are not going to be particularly well capitalized.”

The French firm took a controlling stake in the South Pars project last year, but said it has spent less than 40 million euros ($47 million) on the project so far.

Total was the first Western oil company to sign binding agreements to develop Iran’s oil and gas fields following the end of a previous round of sanctions in 2015.

The U.S. Treasury has given companies up to 180 days to end dealings with Iran.

Total said it “is engaging with the French and U.S. authorities to examine the possibility of a project waiver.”

Pulling out of the South Pars project could result in Total losing its stake to China National Petroleum Corp., National Iranian Oil Co. Managing Director Ali Kardor said.

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