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Tuesday, September 21, 2004

IRAN, EUROPE, AND THE 'S' WORD: IRANIAN NUKES AND THE SPECTER OF ECONOMIC SANCTIONS

Iran has quickly become the world's latest nuclear pariah, announcing today that it has begun the process of converting uranium into uranium hexafluoride gas, a key ingredient the production of nuclear weapons. On Saturday the IAEA had passed a resolution, co-sponsored by Britain, France, and Germany, calling on Tehran to cease all activities related to the enrichment of uranium until all questions about Iran's nuclear intentions have been fully addressed. The resolution also called on Iran to grant full and prompt access to inspectors and provide them with any further information needed before the next IAEA meeting on November 25.

How Iran's overt rejection today of Saturday's resolution will now play out is unclear. What is clear, however, is that Europe wants to avoid any route that involves sanctions. Despite Washington's best efforts, the resolution does not set a "triggering" mechanism for referral of the matter to the U.N. Security council if the terms of the resolution are not met, a move that could result in trade and economic sanctions against the Middle Eastern nation. The Europeans opted instead to offer Iran carrots. Speaking on the sidelines of the U.N. General Assembly today, Javier Solana, the EU's foreign policy chief, said that the EU remained committed to offering energy and other cooperation if Iran would cooperate on its nuclear program.


Indeed, European oil majors have been the most active in helping Iran develop its oil industry since the current Islamic regime came to power 1979. The Iran-Libya sanctions passed in 1995 and most recently renewed in 2004 (though the Libyan sanctions are in the process of being removed) have prohibited U.S. Oil majors from any large-scale participation. French super-major Total has been the most active in Iran, along with French company Elf Aquitaine and Italy's Eni/Agip. Britain's Shell Oil has also been heavily involved in both on-shore and off-shore developments, along with several smaller Canadian firms.

Besides these European super-majors, a smaller role has been played by Petronas of Malaysia and Brazil's Petrobas, and Japan and Russia have shown some interest. However, Europe clearly has the most invested in Iran's oil future. Smaller companies in general have found dealing with the cryptic, sometimes corrupt, and seldom speedy Iranian government and National Iranian Oil Company more than that care -or can afford- to put up with.

As Iran gears up to expand its oil production, claiming it will increase its production from its current level of 4.1 bbl/d to more than 5 million bbl/d by 2009 and 7 million bbl/d by 2024, Europe would prefer not to have its oil operations there complicated by the U.N. Security Council sanctions. As Solana put it, "I think we have to keep on doing the utmost in talking and dialogue ... If we fail in that direction, we may have to resort to other mechanisms (such as taking the issue to the U.N. Security Council) but we prefer not to have to."

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