US decision on Iran a puzzle for oil industry
Washington, 19 October (Argus) — US president Donald Trump's invitation for Congress to determine the future of the Iran nuclear deal is adding another element of uncertainty for foreign companies considering investing in Iran's upstream industry.
Trump's statement last week that the nuclear deal was no longer in the US' national interests "has re-injected a bit of a political risk premium into the oil market," RBC Capital Markets chief commodity strategist Helima Croft said yesterday.
But the US decision more immediately affects Iran's plans to attract up to $160bn of foreign investment for its oil and natural gas sector in the coming five years.
"European companies [interested in Iran] say privately that with this level of uncertainty there is a risk that they are not going to be able to raise capital in the US," Croft said at a discussion hosted by Columbia University's Center on Global Energy Policy.
Total will proceed with plans to develop phase 11 of Iran's giant South Pars natural gas field as long as "it is legally possible" under the US sanctions regime, chief executive Patrick Pouyanne said. "Let us see what Congress decides."
The easiest action for Congress, procedurally, is a vote to reimpose nuclear-related sanctions on Iran. But the White House advised against that course of action and even hawkish Republicans appear uninterested in pursuing it.
Republicans are instead considering bills to impose new sanctions on Iran's missile program or extend limitations on Iran's nuclear program beyond the current 10-year window set in the Joint Comprehensive Plan of Action (JCPOA).
But getting a new bill through Congress is not a sure thing. Congressional Democrats have said they will oppose legislation that would undermine the nuclear agreement. An Iran measure would also add to an already congested congressional agenda for the rest of 2017, with Republican leaders placing greater priority in passing their tax overhaul plan.
Regardless of what Congress will do, the administration has to decide in December-January whether to extend waivers from nuclear-related sanctions written into four different US laws.
The deadlines will reignite debates within the administration on whether the US should continue to implement its commitments under the JCPOA, even as it tries to force Tehran to discuss other issues of contention.
The administration says its bid to secure a stronger congressional sanctions mandate will force Tehran back to the negotiating table, with help from European allies.
But the administration's "leverage is more limited than what we sometimes like to think," former US State Department sanctions policy deputy coordinator Richard Nephew said at the Columbia University discussion.
Joint US-EU efforts in 2012-15 cut off 1.4mn b/d of Iran's exports through nuclear-related sanctions — "and the best we got was the Iran agreement, which critics, including the president, think is insufficient," Nephew said. The EU has said it would continue to adhere to the JCPOA so long as Tehran remains in it.
Iran's exports to Europe accounted for 37pc of total Iranian shipments so far this year, while Asia-Pacific still accounts for more than 60pc of Iran's exports. China was Iran's single largest export destination in August, at 785,000 b/d.
The US could apply enough pressure on some European buyers, as well as on the governments of Japan and South Korea, to reduce their purchases of Iranian crude through unilateral sanctions, Nephew said.
But the US administration also will have to persuade China, India, Turkey and Russia to follow suit. "Their tolerance for us coming up and saying 'you cannot buy from Iran' is going to be a lot less than we think it ought to be," Nephew said.