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Financial Times: US warns foreign energy companies of sanctions if they opt to invest in Iran

By Guy Dinmore in Washington, Carola Hoyos in London, Daniel,Dombey in Brussels and Ivar Simensen in Frankfurt

Published: March 7 2007 02:00 | Last updated: March 7 2007 02:00

The Bush administration said yesterday it had warned foreign energy companies that they risked incurring US sanctions if they invested in Iran.

The warning came as Eon, Germany’s biggest importer of natural gas, confirmed it was pursuing its first natural gas supply contract with Iran in an effort to reduce its dependence on Russia.

Nicholas Burns, a senior State Department official, told a congressional hearing that in recent weeks the US had contacted governments and companies to warn them they would be in violation of the Iran Sanctions Act if they pursued their planned investments in Iran.

Mr Burns mentioned Malaysia, China, Spain’s Repsol and Royal Dutch Shell. He said he hoped the act would serve as a deterrent.

His remarks, to the House foreign affairs committee, represented a hardening of US policy and reflected mounting pressure from Congress on the Bush administration to take tougher action against Iran over its nuclear programme.

The act, passed last year, is a successor to the Iran-Libya Sanctions Act that was passed in 1996, threatening an array of sanctions against non-US groups that invested more than $40m in Iran’s energy sector. But neither the Clinton nor Bush administrations chose to apply the act out of concern that allies would be alienated and the US dragged into a trade dispute over extraterritorial legislation.

Mr Burns said the US would not seek to have oil and gas sanctions included in a UN Security Council resolution being discussed this week in response to Tehran’s refusal to suspend its uranium enrichment programme. However, he said the US wanted a reference to export credits in the resolution, noting that Germany, Italy and France had already started to reduce such credits.

Eon confirmed it was in talks with liquefied natural gas producers over a supply contract. “One of the producer countries is, of course, Iran,” said an official.

Centrica, the UK’s biggest residential energy supplier, is also looking at Iran.

“No one is discussing full-blown trade and economic sanctions at this stage,” said a British official. “All we can do is to suggest to them [the companies] that . . . they want to bear in mind that Iran is essentially in the international dock.”

That companies want to do long-term LNG deals with Iran despite the hostile political climate shows how difficult it is to secure long-term gas supplies, in particular for delivery dates from 2010-2011, by which time Eon hopes its Wilhelmshaven LNG facility will be ready.

Iran has attracted Royal Dutch Shell and Repsol as potential partners in its Gulf LNG project and Total of France and Malaysia’s Petronas for its Pars LNG project. For those two projects, and two others for which Iran has yet to attract foreign partners, the country will need to secure several 15-20 year supply agreements.

Additional reporting byHugh Williamson in Berlin

Copyright The Financial Times Limited 2007

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