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IranMania.com: France faces hard sell on Iran sanctions

EXTRACT: In the energy sector, three major European energy companies which have signed memorandums of understanding with Tehran – Total of France, Repsol of Spain and the Anglo-Dutch group Royal Dutch Shell – have repeatedly delayed final decisions on billion-dollar investments in the South Pars gas field.

THE ARTICLE

LONDON, October 9 (IranMania) – While President Nicolas Sarkozy would like to take the lead on preventing Iran from getting the nuclear bomb, some of France’s neighbors and many of its own companies are skeptical of his initiative to impose tougher European sanctions outside a United Nations mandate, The International Herald Tribune reported.

Sarkozy travels to Moscow on Tuesday to meet with President Vladimir Putin and France will present its sanctions proposals to EU colleagues next Monday. But neighbors and businesses warn that Asian, notably Chinese, companies will simply step in and pick up the slack, hurting European business interests rather than Iran.

They also argue that forgoing an early foothold in Iranian gas reserves, the world’s second-largest, could compromise European energy security by increasing dependence on Russia, which threatened again last week to turn off the gas spigot on the main pipeline to Western Europe.

The skeptical countries include those with old and new economic relations with Tehran, Italy, Germany and Austria, and French companies with current and future investment plans in Iran, like Total and Renault.

“Unilateral sanctions don’t make economic sense,” a senior German diplomat said last week. An executive at the French oil giant Total, which is seeking to build Iran’s first liquefied natural gas terminal, said: “Europe risks shooting itself in the foot.”

Threats by Washington to enforce the 1996 Iran Sanctions Act, which allows the US government to ban imports from any company that invests more than $20 million a year in Iran, have had some effect. Exports to Iran from Germany, Italy and France were down last year, and in the first months of 2007.

Several European banks have already wound down business. In July, Deutsche Bank became the last German bank to announce its departure from Iran. The British bank HSBC no longer accepts new clients there. The exposure of French banks to Iranian clients has more than halved over 18 months to under ?2 billion, or $2.8 billion, by mid-2007, officials say, and BNP Paribas, the second biggest French bank, will soon announce its departure, according to two senior executives.

The squeeze on Western finance is taking its toll on European investment and exports. The Sarkozy administration has further shifted the diplomatic arithmetic by supporting the United States on tougher economic sanctions irrespective of a UN accord.

“We think that combined French and American cooperation in this regard is effective,” Dan Sullivan, the US assistant secretary of state for economic, energy and business Affairs, said during a visit to Paris on Friday.

But the remaining dissent suggests that reaching agreement among 27 European countries with varying levels of economic interest and energy concerns may not be much easier than among the five permanent members of the UN Security Council. The EU is by far Iran’s biggest trading partner.

Sarkozy is calling on Russia and China to support the toughened sanctions agreed in two earlier Security Council resolutions.

At the same time, he has urged French business to refrain from any new investments. And Foreign Minister Bernard Kouchner wrote to his 26 EU counterparts last week, urging them to “start right now” to examine new European measures, according to a copy obtained by the International Herald Tribune.

French diplomats anticipate that even if a third UN resolution is agreed, it will be too weak and come too late to force Iran to suspend uranium enrichment.

“Our conviction is that the EU must go further and faster,” said one senior diplomat, who declined to be identified because Paris will only discuss its proposal next Monday. “The message to business is: This is not just a passing thunderstorm, the horizon is black.”

Diplomats say that France aims to starve Iran of the finance and technology needed to exploit its energy reserves. Measures under consideration include a proposal to freeze the assets of major Iranian banks and ban European companies from all financial transactions with them, and to cap export credits, insurance and new investment.

Two Iranian banks that may be targeted are Melli, the country’s largest according to its Web site, with branches in London and Hong Kong, and Saderat, according to two European officials with direct knowledge of the French plans. A number of individuals working in companies owned by the Revolutionary Guard may also see assets frozen and travel to Europe blocked, they said.

The EU already has some unilateral sanctions in place: The 27 countries agreed last spring to freeze the assets and impose travel bans on 23 Iranian individuals and companies that are believed to have links with the country’s nuclear program but are not listed in the UN resolutions. The EU also has a complete embargo on all sales of arms and military equipment to Tehran, again exceeding UN requirements.

There are still at least 1,700 German companies active in Iran, including flagship brands like Siemens and BASF. Although Berlin cut export credits from $3.3 billion in 2004 to $1.2 billion in 2006, German exports climbed from $5 billion to $5.7 billion over that period. Sullivan said Friday that Germany had “room to do more” on export credits, which “subsidize business with Iran.”

German officials noted that no German banks or energy companies were currently active in Iran. As for other, more replaceable industrial activities, they said, pulling out unilaterally would simply “cost German jobs without hurting Iran.”

A similar argument is made in Italy, Iran’s third-largest trading partner.

When Kouchner discussed European sanctions during a visit to Rome last week, his Italian counterpart, Massimo D’Alema, told him over dinner: “Economic sanctions that allow Tehran the possibility of substituting Russia and China for European industries would be sanctions that divide the international community without any real economic effect on Iran,” the newspaper La Repubblica reported.

In France itself, the two flagship carmakers have lucrative business in Iran. Renault began investing ?300 million in a joint venture with two car companies in 2004 to produce its low-cost Logan model, and the first cars began rolling out in June, a company executive said. Capacity is up to 300,000 cars per year, making it the second-largest Logan production site in the world after Romania. And the Logan accounts for more than half of Renault’s production growth, a company executive said.

“There is very strong potential in the Iranian market. The objective is to continue with the project,” the executive said. “A lot of Asian companies would be delighted to replace us. The Iranians know that.”

French officials say that at least in finance and energy, the risk of substitution is less. Asian banks big enough to underwrite the sort of investment needed in exploration projects tend to be global and therefore just as vulnerable to American pressure as European banks. Japanese banks have been refusing new business in Iran.

In the energy sector, three major European energy companies which have signed memorandums of understanding with Tehran – Total of France, Repsol of Spain and the Anglo-Dutch group Royal Dutch Shell – have repeatedly delayed final decisions on billion-dollar investments in the South Pars gas field.

US pressure has been less effective in energy-hungry Asian countries. According to a recent report by Kenneth Katzman of the Congressional Research Service, Chinese, Indian and Malaysian companies have invested more than $90 billion in Iran’s gas industry. But Leila Benali, associate director of the Middle East program at Cambridge Energy Research Associates in Paris, said Iran needs Western technology, and “we don’t really see Asian companies filling that vacuum.”

The trouble is that Europe also risks hurting itself.

“Europe is waiting for that gas to diversify supply from Russia,” Benali said. A pipeline from Iran that can bring Caspian and Central Asian gas to the EU, bypassing Russia, has long been considered part of Europe’s strategy to diversify gas supplies.

Whether or not France ends up convincing fellow European countries to sign on to tougher EU sanctions, there are signs that the tough talk in Washington and more recently Paris has already taken a toll.

Last month, Iran’s government sent a list of 14 fiscal and other incentives for banks to set up shop in Iran to France’s biggest business federation, the Medef. Any bank that opens on the southern Iranian island of Qechm, a duty-free zone, for example, will be offered 15 years of tax exemptions and guaranteed protection from nationalization.

Peter Kiefer in Rome and James Kanter in Paris contributed reporting.

http://www.iranmania.com/News/ArticleView/Default.asp?NewsCode=54818&NewsKind=Current%20Affairs

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