The Iran-Libya Sanctions Act (ILSA) was passed unanimously by the U.S. Congress and signed into law by President Clinton in August 1996.
ILSA imposes mandatory and discretionary sanctions on non-U.S. companies which invest more than $20 million annually (lowered in August 1997 from $40 million) in the Iranian oil and gas sectors.
The United States has maintained various sanctions against Iran since 1979, following seizure of the US embassy in Tehran.
In early 1995, President Clinton signed two Executive Orders which prohibited U.S. companies and their foreign subsidiaries from conducting business with Iran.
The Orders also banned any "contract for the financing of the development of petroleum resources located in Iran.
"ILSA's initial five-year term expires in August 2001, and many U.S. energy firms are hoping that it is not renewed.
In March 2000, the United States lifted sanctions on imports of Iranian carpets, caviar, pistachios, and dried fruit. For now, at least, oil sanctions remain in place, however.
As a result of the Executive Orders (but prior to the enactment of ILSA), U.S.-based Conoco was obligated to abrogate a $550-million contract to develop Iran's offshore Sirri A and E oil and gas fields.
On August 19, 1997, President Clinton signed Executive Order 13059 reaffirming that virtually all trade and investment activities by U.S. citizens in Iran are prohibited.
The threat of secondary U.S. sanctions has also deterred some multinationals from investing in Iran. In August 1996, Australia's BHP withdrew from a proposed $3-billion pipeline project to transport Iranian natural gas to Pakistan and India under the threat of U.S sanctions.
In addition, U.S. Secretary of State Madeleine K. Albright noted that U.S. efforts to discourage the Indonesian firm Bakrie from proceeding with the development of the Balal oilfield contributed to Bakrie's apparent decision to withdraw, although the impact of the Asian financial crisis was also important.
However, attempts by the United States to implement ILSA have run into opposition from a number of foreign governments.
The European Union (EU) opposes the enforcement of ILSA sanctions on its members, and on November 22, 1996 passed resolution 2271 directing EU members to not comply with ILSA.
On May 18, 1998, the EU and the U.S. reached an agreement on a package of measures to resolve the ILSA dispute at the EU/US Summit in London, but the Summit deal is contingent upon acceptance by the U.S. Congress before full implementation may take place.
A consortium led by Total (France), Gazprom (Russia), and Petronas (Malaysia), which is working on phases two and three of Iran's South Pars gas field, was granted a waiver under Section 9(c) of ILSA by the United States in May 1998.
U.S. Secretary of State Madeleine K. Albright noted that the United States had concluded that sanctions would not prevent this project from proceeding, and stated that the waiver was also granted because of the cooperation achieved between the United States, the EU, and Russia in accomplishing ILSA's primary objective of inhibiting Iran's ability to develop weapons of mass destruction and support of terrorism.
U.S. companies reportedly have been considered for the South Pars project, pending a possible lifting of sanctions.
Meanwhile, in July 2000, the US State Department announced that it would consider sanctions against Italy's ENI, after that company signed a $3.8-billion deal for the South Pars fourth and fifth development phases.
Total and Malaysia's Petronas are proceeding with development of the same Sirri A and E oil and gas fields that Conoco had been developing. Total did not violate ILSA sanctions for the Sirri project despite the $600 million size of this investment because the deal was signed prior to ILSA's August 1996 enactment.
Petronas, which acquired a 30 percent stake in the Sirri deal in 1996, stated in early March 1998 that it would not withdraw from the project despite U.S. objections.
On November 1, 2000, Iran granted Japan first negotiating rights over the enormous Azadegan oil field (the largest oil discovery in Iran in many years).
In September 2000, the U.S. Treasury Department announced that it was investigating Conoco to determine whether or not the company had violated U.S. sanctions in helping to analyze information on the field collected by NIOC regarding Azadegan. Conoco has denied that it circumvented sanctions.
Source: United States Energy Information Administration
© 2000 Mena Report (www.menareport.com)
