Last week, major news outlets reported that China National Petroleum Corporation had acquired French oil and gas company Total’s share in the development of Iran’s South Pars gas field, citing an elusive article published by Iranian state news agency IRNA. Neither the National Iranian Oil Company (NIOC) nor CNPC immediately confirmed the news, while France’s Total, the first western company to return to Iran following the signing of the 2015 Iran nuclear deal, was quick to welcome the alleged CNPC buyout despite not having officially checked out of the project. Indeed, Iran’s petroleum ministry did not confirm until several days later that Total was officially out of the project.
Unsurprisingly, the EU's last-minute reactivation of face-saving blocking statutes, which attempt to shield companies from foreign laws, could not dissuade the French energy giant from reconsidering its "Iran exit." A replica of measures originally adopted but never implemented to block the U.S. sanctions against Cuba in 1996, the measure did not impact the decision of other European majors to continue their operations in Iran. In 1996, Total was also subject to sanctions against non-U.S. companies doing business in Iran and Libya, currently known as the Iran Sanctions Act. In 1998, Total succeeded in obtaining waivers from the Clinton administration to participate in the South Pars project for phases two and three. Given that the current sanctions are of a more comprehensive and expanded scope it seems unlikely that the French company will try to stay in Iran.
This is not the first time the Iranians have seen CNPC or Total depart from their upstream projects, either voluntarily or under duress. In 2010, NIOC excluded Total from the development of phase 11 of the South Pars project and awarded the contract to CNPC. Although NIOC officially accused Total of stalling the work, newly imposed U.S. sanctions were the real impetus for the French energy giant’s sidelining. In 2013, CNPC faced the same fate for dragging its feet: NIOC had to expel the Chinese company from the project after it failed to implement even the basic preparatory work for the project.
This time is no different. By choosing a defiant stance against the U.S. sanctions and by agreeing to stay in the game, CNPC and other Chinese companies enjoy a competition-free environment in a very lucrative Iranian upstream market. Although Russian companies have also stayed in Iran, they lack the necessary financial aptitude to implement such expensive oil and gas projects.
Nevertheless, CNPC has its own challenges to fully exploit Iran’s potential, and these challenges are both technical and administrative in nature. First, CNPC lacks the necessary experience and technology to develop complicated deep-water projects. For instance, if allowed to develop the project, Total had planned to install several 20,000-ton compressor platforms, the biggest platforms ever installed in the Persian Gulf. CNPC is mainly experienced in onshore and shallow-water fields. Moreover, such projects require highly sophisticated operator skills, which Chinese companies also lack.
Second, as Chinese companies are trying to take advantage of the current state of affairs in order to squeeze out the best outcomes from negotiations with their Iranian counterparts, INOC is fighting back. The Iranians are caught between a rock and a hard place—they are trying to start the final phases of the long-delayed project as quickly as possible without eschewing favorable terms and conditions. Given the previous experiences between these two parties, odds are that the situation will not be resolved anytime soon.
The Iranian leadership’s attempt to translate the sympathetic stances of important stakeholders into a preservation of the Iran nuclear deal continues to prove futile. Amid a crumbling economy and social unrest, Tehran is finding it harder to keep companies in the country, while those who have stayed either lack the financial or technical capability to implement important projects like that of South Pars.
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