Conoco Inc. says although it regularly briefed U.S. officials on its negotiations to develop two Iranian oil fields, the Clinton administration objected to the deal only at the last minute.
The administration decided to forbid Conoco from using a Dutch subsidiary to develop two oil fields off Iran's Sirri Island in the Persian Gulf (OGJ, Mar. 20, p. 38).
Sen. Alfonse D'Amato (R-N.Y.), who explored the issue at a congressional hearing, has introduced a bill calling for an embargo on all U.S. oil trade with Iran. Subsidiaries of U.S. firms legally buy about $3.5 billion/year of Iranian oil but sell it overseas.
D'Amato called the present limited embargo "nothing more than propaganda."
He said, "All trade with Iran must stop so we don't provide terrorists with hard currency."
CONOCO'S STORY
J. Michael Stinson, Conoco vice-president of business development and resources, said his firm had negotiated with Iran since 1991 and tried to structure the field development deal to comply with U.S. law. Conoco had no other business dealings with Iran.
Sirri fields lie within sight of Persian Gulf fields a Conoco subsidiary operates in Dubai. Conoco planned to move Sirri gas to Dubai to support industry there or inject it to maintain production from Dubai's offshore oil fields.
Stinson said, "Our development operation would have been staged out of existing facilities in Dubai. Developing the fields would have required minimal activity on Iranian soil.
"Our experience with the comparable Dubai fields gave us a high degree of confidence that Conoco was the best choice to complete the Sirri project effectively"
Stinson said the agreement was totally consistent with applicable U.S. law.
"No Iranian origin crude oil was to be imported into the U.S., no credits were to be extended to the Iranian government or to National Iranian Oil Co. (NIOC), and Conoco certainly was not to export any sensitive technologies to Iran."
He said Conoco kept the administration briefed on the talks and fully outlined the project a year ago.
Stinson said, "In no instance did we get a policy statement that was clear.
"Until very recently, the typical response was 'the U.S. would prefer that you not do this deal. It is clearly legal. You should recognize you will be investing your own money and taking your own risks in Iran.'"
Conoco was surprised by the NIOC board's rapid approval of the deal and the reaction the deal got in Washington.
"We thought we had a contract that would be acceptable under current U.S. policy. We knew we were within the law. We thought we were within U.S. policy."
Peter Tarnoff, undersecretary of state for political affairs, said, "At every step of the way, representatives of the U.S. government made it clear that this kind of a deal was not consistent with U.S. policy toward Iran."
D'Amato replied, "If we had had a really strong policy, we should have said 'no.' Why should Conoco have known better? Did you tell them, 'Don't do it, it's against our policy'?"
The senator speculated Iran approved the Conoco deal to signal to the rest of the world the U.S. had decided "it was okay to do business with Iran."
EMBARGO BILL
D'Amato's embargo bill was soundly criticized at the hearing, but the senator vowed to push it anyway.
Tarnoff said because the bill would extend U.S. law to foreign subsidiaries of U.S. companies, it would invite a long diplomatic dispute and international lawsuits. It is "highly unlikely" other nations and foreign oil companies would cooperate in such an embargo.
He said the U.S. State Department is "looking at measures that are effective and measures that involve countries who are trading with Iran."
Arthur Downey, vice-president of Baker Hughes Inc., testified for the National Foreign Trade Council Inc. He said other nations would continue to buy Iranian oil.
"The economic/commercial impact on Iran of this embargo will last about 14 min. Over a great many years, the U.S. has tried unilateral embargos, and the evidence is overwhelming that they simply do not work.
"Indeed, most studies show that the costs are greater for the U.S. than for the target country. Remember the grain and pipeline embargos against the Soviet Union and many others over the last decades.
"One of the more recent studies of an analogous proposal is the General Accounting Office report which concluded that a unilateral U.S. embargo on Nigerian oil would have 'almost no impact.'" (OGJ, Dec. 19, 1994, p. 37).
Downey said other countries would object to the D'Amato bill and "getting into a fight with our foreign friends over sovereignty is not what we need and will be counterproductive to the larger U.S. interests in persuading them to join with us in pressuring Iran to change its behavior."
Downey also said, "A unilateral, extraterritorial embargo will make it absolutely certain in the minds of America's foreign customers that American companies are simply unreliable suppliers."
John Lichtblau, Petroleum Industry Research Foundation Inc. chairman, noted U.S. oil companies already are barred from doing business with Libya.
He said an embargo against Iran would further reduce U.S. companies' international logistical flexibility, at times prevent them from making optimal trading and transportation arrangements, and limit their ability to engage in crude price arbitrage transactions.
Lichtblau said, "All of this would put U.S. firms at some unquantifiable but, at times, significant disadvantage with respect to their non-U.S. competitors. In other words, U.S. companies are likely to be more affected by this bill than its intended target, the Iranian economy."
He observed the ban also would prohibit U.S. companies from taking part in projects in which Iran also is an investor.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
