Next Giant Out: Total Quits Investment in South Pars Phase 11
The conditions created by dispute over Iran’s nuclear program look more like a lose-lose situation
On Thursday, 10th of July, news of Total’s pullout of Iran’s oil and gas projects were reported. A political move indeed; as many analysts consider it as a reaction to Iran’s current international position.
Total’s CEO, Christophe de Margerie, told the Financial Times: "Today we would be taking too much political risk to invest in Iran because people will say: ’Total will do anything for money.’"
The energy giant denied, though, that it has come under political pressure from Sarkozy to withdraw entirely – a decision that would threaten the profits the French group is starting to make on its earlier investment. "The French government has not asked us to pull out," Total officials said.
Another oil giant, Royal-Dutch Shell, had also refused to participate in Iran’s projects in South Pars gas field. Shell CEO had dubbed political matters as the cause of this withdrawal and had stressed that the company cannot invest in Iran’s oil and gas industry as long as Iran’s problems aren’t resolved.
But it had also asked Iran to permit the company to participate in oil and gas contractions after its confrontation with West has ended.
Political or Economic?
It is hard to believe there is no political reason behind Total’s leave and its decision to quit investment in the huge South Pars Phase 11 project. Definitely Total takes the consent of world’s biggest economy into consideration and doesn’t want to jeopardize its relations with the United States. Pressure from Western countries, particularly France in this case, has been effective in Total’s decision.
Of course economic reasons can’t be totally disproved. Financial sanctions against Iran, especially the one enacted against Melli Bank, have turned economic transactions into a big problem and raised the cost of projects. But it is clear that the pullout is not mainly economically-driven.
After approval of the second sanction resolution, United States asked its European partners to call their companies back from Iran. Subsequently, many European firms decreased the level of their activities in Iran. Later, United States and Europe stepped further and stated that cooperation with Iran will carry away the opportunity of working with the United States. The threat was enough for many industrial companies to leave Iran.
At this time, only companies active in Iran’s oil and gas industry had remained, since the first and second sanctions had not prohibited investment in energy projects. However, the Americans -along with their European partners- put one step further and asked energy companies to leave Iran. Royal Dutch Shell, Repsol and finally Total withdraw from new bids, leaving Iran’s lucrative market one by one.
A Lose-Lose Game
No doubt that foreign companies’ leave and toughening sanctions are a big blow to Iran’s economy. This means oil extraction will be restricted to exhausted oil fields. Non-investment can have devastating consequences for Iran, but European energy companies will also suffer.
Iran provides ample opportunities for European countries. The economic potentials are mostly embedded in its oil and gas industry, tempting Western companies to get take part in the projects. Halting cooperation with Iran’s oil and gas industry deprives both Western corporations and Iran from a large profit. And the conditions created by dispute over Iran’s nuclear program look more like a lose-lose situation.
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