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Shell Exits Iran, For Now

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Forbes.com: Shell Exits Iran, For Now

Vidya Ram05.12.08, 12:04 PM E

LONDON –It was more a “see you later” than a farewell, as Royal Dutch Shelland Repsol announced plans to pull out of a $10 billion Iranian gas venture. 

On Monday Royal Dutch Shell announced that they would not be participating in the development of phase 13 of South Pars, the world’s largest gas field. 

A spokesman for Royal Dutch Shell(nyse: RDS – news – people ) told Forbes.com that they had agreed “in principle” to swap the development for “alternative suitable phases.” 

Repsol was unreachable for comment but an anonymous source who spoke to Agence France-Presse said that the two companies wanted to exchange their stakes in the development of phase 13, for that of phases 20 or 21. 

Speculation that they were looking for exit routes have been mounting in recent weeks. Royal Dutch Shell’s A shares were up 0.3%, at £20.54 ($40.27) in early afternoon trading in London, while Repsol(nyse: REP – news – people ) was up 0.6%, to 26.50 euros ($41.16) in Madrid. 

The energy companies signed a preliminary deal to develop the fields with the Iranian National Oil Company last year, since when political relations between the U.S. and Iran have deteriorated considerably. Though Iran has been putting pressure on the companies to fully commit to the project, setting a deadline of June, Shell and Repsol have been dragging their heals. The U.S. has passed legislation which makes it illegal for non-U.S. companies to invest more than $20 million a year in any projects in Iran. Any companies that break this rule face fines on their U.S. earnings. 

“There has been clearly stated political pressure from the U.S., which has indicated that it would look extremely unfavorably on the companies taking part in such deals,” said Samuel Ciszuk, Middle East energy analyst at Global Insight in London. “The reputational risk is also very strong,” he added. 

The announcement is a significant blow to Iran, which has been struggling to get its LNG projects up and running. A number of companies such as Russia’s Gazprom have been named as possible replacements, though according to Ciszuk they lack the necessary experience in LNG projects possessed by multinationals such as Shell. 

Thomson Financial contributed to this report. 

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