As Airbus and Peugeot finally
return to post-sanctions Iran, the trade-off is Iranian oil, with French
Total SA taking the plunge in an agreement to buy up to 200,000 barrels
per day of Iranian crude--but the catch is that sales will be in euros.
Deals signed
just over a week ago when Iranian President Hassan Rouhani met his
French counterpart, Francois Hollande, in Paris included some 20 agreements
and a $25-billion accord under which Iran will purchase 73 long-haul
and 45 medium-haul Airbus passenger planes to update its ageing fleet.
Carmaker Peugeot—which was forced to pull out of Iran in 2012--also
agreed to return to the Iranian market in a five-year deal worth $436
million.
In the reverse flow
of the new deal, Total has agreed to buy between 150,000 and 200,000
barrels of Iranian crude a day, with company officials also noting that
Total would be looking at other opportunities as well in oil, gas,
petrochemicals and marketing.
According to Iranian media, Total will start importing 160,000 barrels per day in line with a contract that takes effect already on 16 February.
Total never really left Iran, though. While it stopped
all oil exploration and production activities there in 2010, making it
one of the last to withdraw, it still maintained an office there.
Since
1990, Total has been a key investor in Iranian energy, playing a role
in the development of Iran's Sirri A&E oil and South Pars gas
projects. Sanctions also halted its planned involvement in the LNG
project linked to Iran’s South Pars Phase 11.
But Total’s work in Iran hasn’t been without its problems—even without sanctions.
In May 2013, Total agreed to pay $398.2 million to settle U.S. criminal and civil allegations that it paid bribes
to win oil and gas contracts in Iran. U.S. authorities claimed that
between 1995 and 2004, Total paid about $60 million in bribes to an
Iranian government official to win lucrative development rights in three
South Pars project oil and gas fields.
While French prosecutors had recommended that Total and its then-CEO, Christophe de Margerie, be tried on these charges, De Margerie’s premature death in a Moscow plane crash put paid to that and the case was discontinued.
At
stake here is Iran’s prized South Pars, which holds some 14 trillion
cubic meters of natural gas and 18 billion barrels of gas condensates.
Or in other words, 7.5 percent of the world’s natural gas and half of
Iran’s total reserves.
And Phase 11
of this project is what the supermajors are eyeing. Total was dismissed
from Phase 11 in 2009 and its portion of the project was awarded to
China National Petroleum Corporation (CNPC), which then pulled out in
2012 under the bite of sanctions. In September 2015, the National Iranian Oil Company (NIOC) transferred the uncompleted portions of Phase 11 to Iranian companies.
Total will likely want back in on this project, and buying Iranian oil surely helps.
And Iran, likewise, is eagerly
seeking out European markets, with the Iranian Oil Ministry now saying
that it’s crude oil sales to Europe have exceeded 300,000 barrels per day, counting the Total deal.
Iran has recently signed oil contracts not only with French Total, but also with Russian Lukoil’s trading arm, Litasco, and Spanish refiner Cepsa.
The Ministry says that Italian oil giant Eni is interested in buying 100,000 bpd from Iran, and that such a contract will be discussed soon in Tehran.
But there is a catch, as reported by Reuters.
Iran is seeking to bill its new crude oil sales in euros in order to
reduce dependence on the U.S. dollar, the news agency reported, citing
an anonymous NIOC source.
Washington is not going to appreciate this additional threat to the petro dollar. This would add Iran to the growing list of countries that, over the past few years, have begun to pose a challenge to the current system by forming pacts to transact oil in local currencies.
By: Charles Kennedy for Oilprice.com.
Review: Emerging Market Formulations &
Research Unit, Flagship Records.
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