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Financial Times: Europe warns US on Iran sanctions

By Daniel Dombey and Javier Blas in Londonand Francesco,Guerrerain Detroit
Published: August 3 2007 03:00 | Last updated: August 3 2007 03:00

European governments are warning Congress that US legislation aimed at Iran could hit European energy groups, undermine transatlantic unity on Tehran’s nuclear programme and provoke a dispute at the World Trade Organisation.

Diplomats from France, Germany and the UK, among other countries, have stepped up a lobbying campaign on Capitol Hill against moves that would mandate sanctions on energy companies that invested more than $20m (€14.6m, £9.9m) in Iran.

Among such companies – already marked out by a US campaign to disinvest in energy companies that trade with Iran – are Royal Dutch Shell, Total of France and Repsol of Spain.

Royal Dutch Shell and Repsol, which are both looking for oil in US territorial waters in the Gulf of Mexico, are involved in a project worth up to $10bn to produce Iran’s first liquefied natural gas. The companies are due to take a final decision about their investment in 2008.

“It’s paradoxical that the targets of this effort are companies from countries that are making an effort to strengthen sanctions against Iran,” said one European diplomat, referring to the European Union’s support for a new wave of United Nations sanctions on Iran.

“The House of Representatives will decide on this bill some time this autumn so you have to try to talk to everybody [in Congress],” said another EU diplomat. “We are telling them that if it became a law as it stands now, it would be a breach in WTO rules and we would not accept that.”

President George W. Bush has the power to waive sanctions on third parties doing business with Iran, but a bill introduced by Tom Lantos, chairman of the House foreign affairs committee, would remove his ability to do so. The bill has 322 co-sponsors, enough to overcome a presidential veto. In March Nicholas Burns, the undersecretary for state, indicated he was opposed to the Lantos bill but European governments would like a stronger signal from the Bush administration.

Diplomats stress that a parallel bill being considered by the Senate would leave Mr Bush’s waiver intact while seeking to introduce other measures against Iran.

But European officials say they are unsure what would emerge from efforts to hammer out a deal between the House of Representatives and the Senate and are worried that it could make some sanctions mandatory.

“Which do we fear more?” asked Jon Kyl, a Republican senator from Arizona, last week. “A trade dispute with Europe or China or what Tehran will do with the revenues of a fully reconstituted energy sector?”

In principle the Iran Sanctions Act, a successor to a 1990s measure, requires the president to impose at least two out of seven possible sanctions on foreign companies investing more than $20m in Iran, although both Mr Bush and former President Bill Clinton have always exercised the waiver.

These sanctions include denial of Export Import Bank loans, denial of US bank loans exceeding $10m, prohibition of US government procurement and restrictions on imports from the company concerned.

This week, the House of Representatives backed separate legislation that would oblige the federal government to keep a record of energy companies violating the $20m threshold and make it easier for state pension funds to disinvest in them.

Some states have passed or are considering legislation to move towards disinvestment in such companies.

Public-sector pension funds such as Calpers and Calstrs, the giant California pension plans, are opposed to any forced divestments.

Caution has been urged from unexpected quarters. “If we . . begin to sanction foreign companies through more stringent sanctions in the Iran Sanctions Act, I think there will be serious repercussions for our multilateral effort,” said Danielle Pletka of the American Enterprise Institute, the conservative Washington think-tank.

Copyright The Financial Times Limited 2007

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