By Benoit Faucon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 18, 2019).
China's state-run energy giant is making a new approach to
clinch a $3 billion deal for more development of an Iranian oil
field, seeking to take advantage of waivers allowed under U.S.
sanctions as two European nations have ended crude purchases,
according to people familiar with the matter.
The moves highlight the divergent ways nations are reacting to
temporary exemptions from U.S. sanctions on Iran. China's decision
to pursue lucrative deals with Tehran and deepen its presence in
Iran contrasts with a retreat by Italy and Greece stemming from
fear that financial transactions and physical trade with Iran have
become too difficult.
China Petroleum & Chemical Corp., or Sinopec, told its
government-owned counterpart, the National Iranian Oil Co., it
wanted its share of the field's production to be granted under the
U.S. waiver allocated to China, one person said.
Sinopec is driving a hard bargain, making stringent demands, the
people said. The company asked to buy equipment of its choice --
made in China -- and requested reimbursement for costs as soon as
the new development undergoes testing, terms Iran normally
refuses.
While U.S. sanctions, which went into effect in November,
prevent companies from signing contracts to access new oil fields
in Iran, Washington granted exemptions allowing Iranian oil
purchases by China, India, Japan, South Korea, Turkey, Taiwan,
Italy and Greece to avoid a global oil-price spike.
The Chinese company has informed the U.S. State Department about
its Iran oil business, the people said. Sinopec believes it
wouldn't run afoul of a U.S. ban on signing new development deals,
as its proposal for further development is part of an existing
contract to operate the field, according to the people.
Late last year, after the U.S. allowed China to keep purchasing
as much as 360,000 barrels of Iranian oil a day, Sinopec proposed a
$3 billion investment plan in the Yadavaran oil field it operates
in western Iran, according to people familiar with the proposal.
The deal -- if agreed -- would double production at the field to
180,000 barrels a day within six months, the people said.
Iran's nationalist-minded oil officials have often imposed
stringent conditions, insisting on the use of domestic equipment
and companies. Cost reimbursements from oil projects can drag on
for years because they are subject to complicated bureaucratic
approvals.
A spokeswoman for Iran's oil ministry said she wasn't aware of
the new offer. Sinopec and the State Department didn't return
requests for comment.
The proposed Chinese deal comes as European oil giants such as
France's Total SA pulled out of the Islamic Republic ahead of the
U.S. sanctions, despite Iran holding the second-largest natural-gas
reserves in the world and the fourth-largest in oil reserves.
Despite receiving exemptions, three of the countries, Taiwan,
Italy and Greece, have stopped buying Iranian oil altogether almost
immediately, according to oil executives, because they failed to
find ways to comply with other U.S. sanctions -- including bans on
shipping, insuring and banking with Iran.
While Taiwan only imported 16,000 barrels a day before the
sanctions, Italy and Greece bought 300,000 barrels a day,
respectively. The ministries in charge of energy in the three
countries didn't respond to requests for comment.
Brian Hook, the U.S. State Department's special representative
on Iran, confirmed that three exempted countries have stopped
buying Iran oil but he declined to name them.
The U.S. decision to grant the waivers was made after buyers had
already taken steps to reduce Iranian oil imports from 2.7 million
barrels a day to below 1 million barrels a day, Mr. Hook said.
The European Union is trying to set up a special-purpose vehicle
that would insulate its companies -- such as oil refiners -- from
U.S. sanctions on Iran and create a safe avenue for financial
transactions with the country.
But Mr. Hook said such an initiative would fail because
companies working with Iran would have to stop doing business with
the U.S.
"We don't see any demand from corporations for a special-purpose
vehicle, " he said. "If you are the CEO of a major international
company, being given the choice between doing business in U.S. and
Iran, it will be the fastest decision you ever make as a CEO."
Current oil-supply conditions would encourage the U.S. to
maintain pressure on buyers to bring their Iran oil imports to
zero, Mr. Hook said. "There will be more reductions to come," he
added.
Write to Benoit Faucon at benoit.faucon@wsj.com
(END) Dow Jones Newswires
January 18, 2019 02:47 ET (07:47 GMT)
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