Tehran: French energy giant Total was set to defy US pressure on Monday, signing a multi-billion-dollar gas deal with Iran, the first by a European firm in more than a decade.
Total is to invest an initial $1 billion (€880 million) in the South Pars offshore gas field as part of a consortium with Chinese and Iranian firms. It is by far the biggest vote of confidence in the Islamic republic since sanctions were lifted under a 2015 nuclear deal with world powers. Total’s CEO Patrick Pouyanne and Iranian oil minister Bijan Namadar Zanganeh are set to sign the 20-year deal, which will eventually see the consortium pour $4.8 billion into the project. Pouyanne will later meet President Hassan Rouhani.
European firms have been hungrily eyeing opportunities in Iran, which has the world’s second-largest gas reserves and fourth-largest oil reserves. But they have been cautious about investing due to continuing US sanctions. Total has appointed a compliance officer with the sole task of ensuring it does not fall foul of US measures against Iran. In particular, it aims to prevent cash flowing to Iran’s elite Revolutionary Guards—a tall order given their extensive and shadowy presence across much of the Iranian economy.
Just a fortnight ago, the US Senate overwhelmingly passed a bill targeting the guards over their involvement in regional conflicts and the country’s ballistic missile programme. The White House is in the midst of a 90-day review on whether to abandon the nuclear deal entirely, which President Donald Trump threatened to do during his election campaign. The uncertainty has been enough to deter global firms such as BP from dipping their toes in Iranian waters, while Shell and Russia’s Gazprom have signed only preliminary deals to date.
Even without the threat of sanctions, investing in the Iranian economy is not for the faint-hearted. Foreign firms in Iran still face “pervasive corruption... High levels of red tape; potential for currency instability (and) reluctance to allow foreign involvement within the domestic economy", consultancy firm BMI Research wrote in a briefing note Monday. For all that, Iran’s large population of middle-class consumers presents an irresistible opportunity for many businesses in Europe and beyond.
Any attempt to scupper the nuclear deal will likely face major push-back from its other signatories: Britain, France, Germany, China and Russia. Foreign minister Mohammad Javad Zarif was warmly received by EU leaders last month and tweeted that they were committed to the nuclear deal “despite reckless US hostility".
Total has a history of involvement in Iran, having led development of phases two and three of South Pars in the 1990s. It will take a 50.1% stake in the South Pars phase 11 project, while China National Petroleum Corporation (CNPC) will own 30% and Iran’s Petropars 19.9%. The aim is to start pumping into Iran’s domestic grid in 2021, eventually reaching 50.9 million cubic metres of gas per day. The firm had signed up to develop phase 11 back in 2009 but was forced to abandon its projects in Iran in 2012 when France joined European Union partners in imposing sanctions, including an oil embargo.