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Financial Times / Biz - Money

Total warns of Iran pullout over US sanctions threat

Total, the French group that became the largest foreign investor in Iran’s energy sector after sanctions were eased in 2016, says it will pull out of the country unless it can be protected from US penalties following American withdrawal from the nuclear dea l.

The decision by Total, which signed a multibillion-dollar deal last July to develop the giant South Pars gasfield, marks a significant setback for European efforts to keep the Iran pact alive without the US. The Total agreement was the Islamic republic’s first major energy contract with an international oil company in more than a decade.

Total said in a statement that it could only continue with the deal if “granted a specific project waiver” from Washington. Steven Mnuchin, the US Treasury secretary, has said that while waivers and licences could be applied for, the Trump administration objective was to put “maximum sanctions” on Iran.

The US Treasury did not immediately respond to a request for comment.

European leaders promised to stay in the agreement after Donald Trump announced the reimposition of US sanctions earlier this month. At a meeting with Iranian foreign minister Mohammad Javad Zarif in Brussels on Tuesday, France, Britain and Germany said they would work to ensure continued investment in the country’s oil sector.

Whatever the politicians in Europe are saying, the private companies are just pulling out and folding the cards

Bjarne Schieldrop, SEB

But a Total withdrawal would bring an abrupt halt to those efforts; analysts said Tehran would have little incentive to hold up its end of the nuclear deal without the prospect of foreign investment in the energy sector. Iran had targeted $200bn of investment over the next five years to modernise its ageing energy infrastructure.

“Looking at latest decisions of Donald Trump someone could even think: with friends like that who needs enemies,” said Donald Tusk, president of the European Council.

Although Total does not face a direct ban on Iranian operations like their US competitors, they face a threat from so-called secondary sanctions because they have substantial business in the US, which could be cut off by Washington. More than 90 per cent of Total’s financing operations also involve American banks, the company said.

Other big European companies that have invested in Iran, including Airbus, Siemens and Renault, face similar pressures.

Patrick Pouyanné;, Total chief executive, has previously touted the “huge potential” of Iran, which has the world’s second-largest gas reserves and fourth-largest oil reserves, according to the US Energy Information Administration

“Total’s action . . . backs up the idea that no one sees an easy solution here and that there is little expectation of US leniency,” said Bjarne Schieldrop, an oil analyst at SEB. “Whatever the politicians in Europe are saying, the private companies are just pulling out and folding the cards.”

Total owns just over half of the South Pars project with China’s state-owned CNPC taking another 30 per cent. The French company said it had so far invested less than €40m and according to people familiar with the situation, if Total could not secure the waiver and was forced to withdraw, CNPC could take over Total’s stake in the project

Total said it “is engaging with the French and US authorities” to examine the possibility of a waiver which “should include protection of the company from any secondary sanction”.

The Europeans are “caught in a three-way trap”, said Richard Mallinson at Energy Aspects in London. “They are worried about US sanctions and the divergence in Iran policy but they don't want to escalate a confrontation by trying to block secondary sanctions.”

Royal Dutch Shell, the largest European oil and gas group, also struck a provisional agreement with Iran in 2016 to carry out studies in three of the country’s biggest oil and gasfields