Iranian sanctions supports Chinese cause for the Petro-Yuan

Iran is not short of heavyweight supporters following the decision to re-impose strong sanctions on the country by the US. Although Europe works to salvage what it can of the JCPOA, most likely going down the ex-US route, President Trump’s decision on 12 May will still likely cause a retrenchment of European investment into Iran given the far reaching implications for any company (US or not) with a connection to the country.

The Chinese and Indians see the sanctions as a massive opportunity to strengthen ties with Iran. Both countries had negotiated waivers under previous sanctions under a US diplomatic push. However, with trade tensions now in the mix, especially between the US and China, the latter could use this opportunity to secure additional oil supplies from Iran at improved pricing – an economic decision, but also to send a message to the US. Indian refiners have also agreed to double imports to 500,000 bopd under improved terms.

In April, China (re)launched its long awaited Petro-Yuan – Yuan priced oil futures. An experiment which China tried before and abysmally failed when retail punters had so much sway on volumes and caused such volatility in pricing, that the government had to step in and close it down. The story is different this time as the Petro-Yuan hopes to attract serious institutional traders. Iran should also be on board, having stated a desire to settle its trade in currencies outside of the US Dollar.

As a result, the sanctions may not have the full intended effect of fully taking Iranian crude off the market, especially if it can find willing buyers in the likes of India and China for its oil. The current oil price highs, hitting USD80/bbl on 17^th May, may be short lived as the markets have priced in foamy speculation and geopolitical risk, and not looked beyond alternative buyers for Iranian oil or the ability of the other OPEC members to step up and compensate for any lost Iranian barrels.

Iran currently exports c.2mmbopd. The members to the JCPOA, the P5 + 1, comprises China, France, UK, USA, Russia plus Germany

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Total to pull out of Iranian mega gas project if sanction waivers not granted

Total has warned that it will pull out of the giant South Pars development offshore Iran if it is unable to secure sanction waivers. The imposition of sanctions would be crippling for Total as it would completely lock it out of any US related activity including the ability to access the capital markets.

Should Total pull out, partner CNPC will take over Total’s 50.1% stake and operatorship of the project under a previous agreement which was entered with the foresight that Iranian sanctions may be re-imposed.

Source: Al Jazeera

Full press release from Total:

Paris - On 4 July 2017, Total, together with the other partner Petrochina, executed the contract related to the South Pars 11 (SP11) project, in full compliance with UN resolutions and US, EU and French legislation applicable at the time. SP11 is a gas development project dedicated to the supply of domestic gas to the domestic Iranian market and for which Total has voluntarily implemented an IRGC-free policy (Islamic Revolutionary Guard Corps) for all contractors participating in the project, thereby contributing to the international policy to restrain the field of influence of the IRGC. 

On 8 May 2018, President Donald Trump announced the United States’ decision to withdraw from the JCPOA and to reinstate the US sanctions that were in force before the JCPOA’s implementation, subject to certain wind down periods. 

As a consequence and as already explained before, Total will not be in a position to continue the SP11 project and will have to unwind all related operations before 4 November 2018 unless Total is granted a specific project waiver by the US authorities with the support of the French and European authorities. This project waiver should include protection of the Company from any secondary sanction as per US legislation.

Total has always been clear that it cannot afford to be exposed to any secondary sanction, which might include the loss of financing in dollars by US banks for its worldwide operations (US banks are involved in more than 90% of Total’s financing operations), the loss of its US shareholders (US shareholders represent more than 30% of Total’s shareholding) or the inability to continue its US operations (US assets represent more than 10 billion dollars of capital employed).

In these circumstances, Total will not take any further commitment related to the SP11 project and, in accordance with its contractual commitments vis à vis the Iranian authorities, is engaging with the French and US authorities to examine the possibility of a project waiver.

Total confirms that its actual spending to date with respect to the SP11 contract is less than 40 million euros in Group share. Furthermore, considering the various growth opportunities which have been captured by Total in recent months, Total confirms that a withdrawal from SP11 would not impact its production growth target of 5% CAGR between 2016 and 2022.

Original link: https://www.total.com/en/media/news/press-releases/us-withdrawal-jcpoa-totals-position-related-south-pars-11-project-iran

South Pars development scheme

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Obama Administration to bypass Congress on deal with Iran?

Obama Administration reported plan to bypass Congress on a deal with Iran

• Administration’s plan to suspend economic sanctions against Iran without a vote in Congress
• …Administration says Congress will have final say in whether to permanently lift sanctions

Permanent sanctions would only be lifted if Tehran demonstrates compliance with restrictions on its nuclear programme

• …and Iran must make sufficient progress in conceding its programme

At the same time, consider whether US requires Iranian support in the battle against the Islamic State?

According to Saudi intelligence, the P5+1 have conceded that Iran can maintain a civilian nuclear infrastructure

• Saudi wants the GCC to influence Congress to not approve retention of any nuclear facility

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