As Airbus and Peugeot finally return to post-sanctions Iran, the trade-off is Iranian oil, with French Total SA taking the plunge in an agreement to buy up to 200,000 barrels per day of Iranian crude--but the catch is that sales will be in euros.
Deals signed just over a week ago when Iranian President Hassan Rouhani met his French counterpart, Francois Hollande, in Paris included some 20 agreements and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet. Carmaker Peugeot—which was forced to pull out of Iran in 2012--also agreed to return to the Iranian market in a five-year deal worth $436 million.
In the reverse flow of the new deal, Total has agreed to buy between 150,000 and 200,000 barrels of Iranian crude a day, with company officials also noting that Total would be looking at other opportunities as well in oil, gas, petrochemicals and marketing.
According to Iranian media, Total will start importing 160,000 barrels per day in line with a contract that takes effect already on 16 February. Related: Despite Bold Predictions, T. Boone Pickens Sells All Oil Holdings
Total never really left Iran, though. While it stopped all oil exploration and production activities there in 2010, making it one of the last to withdraw, it still maintained an office there.
Since 1990, Total has been a key investor in Iranian energy, playing a role in the development of Iran's Sirri A&E oil and South Pars gas projects. Sanctions also halted its planned involvement in the LNG project linked to Iran’s South Pars Phase 11.
But Total’s work in Iran hasn’t been without its problems—even without sanctions.
In May 2013, Total agreed to pay $398.2 million to settle U.S. criminal and civil allegations that it paid bribes to win oil and gas contracts in Iran. U.S. authorities claimed that between 1995 and 2004, Total paid about $60 million in bribes to an Iranian government official to win lucrative development rights in three South Pars project oil and gas fields. Related: Despite Huge Losses Oil Companies Reluctant To Shut In Production
While French prosecutors had recommended that Total and its then-CEO, Christophe de Margerie, be tried on these charges, De Margerie’s premature death in a Moscow plane crash put paid to that and the case was discontinued.
At stake here is Iran’s prized South Pars, which holds some 14 trillion cubic meters of natural gas and 18 billion barrels of gas condensates. Or in other words, 7.5 percent of the world’s natural gas and half of Iran’s total reserves.
And Phase 11 of this project is what the supermajors are eyeing. Total was dismissed from Phase 11 in 2009 and its portion of the project was awarded to China National Petroleum Corporation (CNPC), which then pulled out in 2012 under the bite of sanctions. In September 2015, the National Iranian Oil Company (NIOC) transferred the uncompleted portions of Phase 11 to Iranian companies.
Total will likely want back in on this project, and buying Iranian oil surely helps. Related: Tesla Falling Out Of Favor With Investors
And Iran, likewise, is eagerly seeking out European markets, with the Iranian Oil Ministry now saying that it’s crude oil sales to Europe have exceeded 300,000 barrels per day, counting the Total deal.
Iran has recently signed oil contracts not only with French Total, but also with Russian Lukoil’s trading arm, Litasco, and Spanish refiner Cepsa.
The Ministry says that Italian oil giant Eni is interested in buying 100,000 bpd from Iran, and that such a contract will be discussed soon in Tehran.
But there is a catch, as reported by Reuters. Iran is seeking to bill its new crude oil sales in euros in order to reduce dependence on the U.S. dollar, the news agency reported, citing an anonymous NIOC source.
Washington is not going to appreciate this additional threat to the petro dollar. This would add Iran to the growing list of countries that, over the past few years, have begun to pose a challenge to the current system by forming pacts to transact oil in local currencies.
By Charles Kennedy for Oilprice.com
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This means that the dollars foreigners were using for trade will begin to come home to roost. The exported inflation will be returned to sender.