In the biggest blow yet to Iran’s hopes of holding on to European investments despite the US walking out of the nuclear deal, French energy major Total on May 16 said it would abandon the multi-billion dollar South Pars Phase 11 gas field development project in the Persian Gulf unless it can secure a waiver from Washington sanctions.

In July last year, Total became the first big Western oil and gas company to return to Iran since the lifting of crippling sanctions under the multilateral nuclear accord in January 2016. Not only did it pledge an initial $1bn investment in developing the giant South Pars field, it let it be known that it was drawing up plans for substantial gas-based petrochemical production investments in Iran.

Although Europe, together with nuclear deal signatories Russia and China, are working on practical ways to shield foreign companies continuing to do business in Iran from the fresh US sanctions, companies such as Total—which has substantial assets in the US and American shareholders—cannot be too confident that the efforts will work out given that the Trump administration is partly aiming to bring Iran to heel by denying its economy vital foreign trade and investment. Sanctions levied against foreign companies that remain in trading or investment relationships with Iran beyond three to six months from now are thus an essential part of the White House strategy to force Iran to negotiate matters such as the projection of its political and military strength across parts of the conflict-torn Middle East and its ballistic missile development programme.

The announcement from Total came after German insurer Allianz and Danish oil product tanker operator Maersk Tankers said they were winding down their businesses in Iran, while Joe Kaeser, the CEO of Germany’s Siemens, told CNN his company would not be able to do any new business with Tehran.

In a press release, Total, said: “On 8 May 2018, President Donald Trump announced the United States’ decision to withdraw from the JCPOA [the Joint Comprehensive Plan of Action, more usually referred to as the nuclear deal] 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 [South Pars Phase 11] 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.”

The energy major also said that it has always been clear that it cannot afford to be exposed to any secondary sanctions “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)”.

Total said it would not accept any further commitments related to the SP11 project in the present context and, “in accordance with its contractual commitments vis à vis the Iranian authorities, was engaging with the French and US authorities to examine the possibility of a project waiver”.

The company added that its actual spending to date with respect to the SP11 contract was less than €40m in relation to the size of the three-member investment group’s respective shareholdings.

Project execution “Revolutionary Guard-free”
Total pointed out that together with Chinese project partner China National Petroleum Corporation (CNPC) it had executed the contract related to SP11 in full compliance with UN resolutions and applicable US, EU and French legislation.

“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 [Islamic Revolutionary Guard Corps]-free policy for all contractors participating in the project, thereby contributing to the international policy to restrain the field of influence of the IRGC,” it said.

Total holds a 50.1% stake in SP11 with China’s state-owned CNPC owning 30% and Iran's Petropars 19.9%. According to the contract mechanisms it is envisaged that if Total cannot operate in Phase 11 for any reason then its stake will be transferred to the Chinese company CNPC. CNPC has shown a willingness to acquire Total’s stake. If CNPC were to withdraw from the contract, Iran’s Petropars would continue to develop Phase 11.

After the signing of the Phase 11 deal, Total CEO Patrick Pouyanne said: “It is worth taking the risk at $1bn because it opens a huge market. We are perfectly conscious of some risks. We have taken into account [sanctions] snapbacks, we have to take into account regulation changes.”

Iran has the second-largest gas reserves and fourth-largest oil reserves in the world. It has estimated it requires around $200bn to invest in its rundown oil, gas and petrochemicals sector over the next five years.