China entangles Iran gas field investment in US trade war talks

China entangles Iran gas field investment in US trade war talks
The Twittersphere was surprised to receive a tweet from Iranian oil minister Bijan Namdar Zanganeh
By bne IntelliNews December 12, 2018

China’s investment in developing part of Iran’s share of the giant South Pars natural gas field appears to have become a bargaining chip in Beijing’s trade war negotiations with the US.

On December 12, Iranian Oil Minister Bijan Namdar Zanganeh responded to a report that China National Petroleum Corp (CNPC) was suspending its South Pars investment by warning that the company would be held to account if it breached the contract framing the project. Demonstrating how concerned he was by the CNPC move, Zanganeh even joined Twitter to tweet his standpoint—Twitter is banned in Iran.

Zanganeh was reacting to a Reuters report that three state oil executives had said CNPC had frozen its investment in the Phase 11 development of the Persian Gulf field—shared with Qatar—in response to US pressure and to minimise tensions amid trade talks between Beijing and Washington. The Chinese corporation in late November replaced France’s Total as the operator of the project to tap part of what is the world’s largest natural gas field after the French energy major ended its participation rather than expose itself to US secondary sanctions.

‘Politically sensible’
It was not clear if the Chinese government at the behest of Washington gave direct orders for the halt in the investment, but the sources were reported as saying it was politically sensible amid the trade negotiations between China and the US.

“China sees the relationship with the US as paramount over anything else. As a state-owned entity CNPC will stay clear of bringing any unwanted trouble into this relationship as the US China trade talks are under way,” the news agency quoted one source familiar with CNPC’s global strategy as saying.

Zanganeh said in a television interview that “if the Chinese firm suspends its investment [beyond what is permitted in the contract] in South Pars, it has breached the contract and we will hold them accountable”.

Reuters reported one source as saying that contractually Iran has 120 days to review CNPC’s role in South Pars in order to decide whether to keep the Chinese firm as a dormant investor or cancel the deal.

Heavy sanctions
The US introduced heavy sanctions against Iran’s oil, gas, petrochemical, shipping and banking industries on November 5 as it stepped up its campaign to strangle the Islamic Republic’s economy to force Tehran to the table to make concessions on Iranian activities and policies in relation to the Middle East.

When Total in July last year signed a long-awaited deal to develop Phase 11 of the gas field the agreement was celebrated as a big breakthrough for Iran in foreign investment following the January 2016 activation of the nuclear deal. The US unilaterally walked out of that deal in May this year.

Total’s CEO Patrick Pouyanne was quoted in July as saying: “There is no other way than to leave the lucrative Iranian project. You cannot operate in 130 countries around the world without accessing the US financial system [and thus coming into contact with potential secondary sanctions aimed at foreign companies who stay in business with Iran]. Therefore, we are enforcing and complying with US laws and have to leave Iran’s profitable market.”

Yantai Jereh agrees Iran case settlement
Separately, China-based Yantai Jereh Oilfield Services Group Co agreed to pay more than $2.7mn to settle allegations it did business with Iran that violated US sanctions, the US Treasury Department said on December 13.

The company was cited by the Treasury for 11 “apparent” instances of moving oilfield-related items such as spare parts, coiled tubing strings and pump sets. The Treasury described the case as “egregious” because the Yantai Jereh Group did not voluntarily disclose the violations. “The apparent violations involved the exportation or re-exportation, and attempted exportation or re-exportation of U.S.-origin goods ultimately intended for end-users in Iran by way of China,” it said in a notice on its website.

“The Jereh Group also exported certain U.S.-origin items with knowledge or reason to know that the items were intended for production of, for commingling with, or for incorporation into goods made in China to be supplied, transshipped, or re-exported to end-users in Iran,” the department added.