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Sanctions? What Sanctions? Iran Remains a Desirable Partner for Caspian Upstream Operators

This is an abridged version. The full text is avaiable to subscribers to The Russian Energy weekly.

The EU has persuaded the U.S. administration that anti-Iranian sanctions should not harm the Shah-Deniz project in Azerbaijan even though an Iranian state-controlled company is one of the partners. Still, the sanctions may change the patterns of business in the Caspian area and make it harder for Russian players to cooperate with Iran.

Selective Punishment

The U.S. State Department announced in the middle of January that China’s Zhuhai Zhenrong, a major supplier of refined products to Iran, had been deprived of its license to operate in the United States and obtain loans from American banks. Singapore-based Kuo Oil Pte and Fal Oil Company from the UAE also made it to the black list for their business deals with the Islamic Republic.

It is easy to identify other targets for punishing. Naftiran Intertrade, a wholly-owned subsidiary of National Iran Oil Company (NIOC), holds 10% in the offshore Shah-Deniz project in Azerbaijan. The operator of the project, BP, says however that the partners in the project, which is expected to deliver natural gas to Europe in the future, are exempt from the sanctions. As the Wall Street Journal puts it, the sanctions must inflict the maximum economic damage on Iran but ‘not let East Europe become a hostage of Russian energy supply.’

Other companies can also become victims of the international sanctions against Iran, which receives about 3 mln tpy of crude oil under swap schemes with Caspian operators. Vitol, for example, signed a six-month contract in the summer of 2011 to deliver 30,000 to 35,000 t of oil to the Iranian port of Neka from fields of Turkmenneft in Turkmenistan, and in the fall started shopping unidentified amounts of oil from Kazakhstan to the same destination.

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