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New US stance on Iran raises alarm for big firms

Written by OIAC-US

Benoit Faucon, Sarah Kent
Friday, October 13, 2017

The Wall Street Journal – Western firms have piled into Iran in the two years since world powers agreed to lift sanctions. Now, as President Donald Trump deals a blow to that deal, executives must decide whether to stay the course.

Mr. Trump said Friday he won’t recertify the 2015 international deal struck with Tehran, which lifted sanctions in exchange for promises by Iran to curtail its nuclear program. He also vowed to cancel the deal himself if Congress and U.S. allies don’t act to address his concerns about the accord.

The moves stopped short of pulling the U.S. out of the deal. But they send the clearest signal yet that the Trump administration is serious about considering reimposing sanctions, raising the risk for companies doing business in Iran of falling foul of such restrictions. U.S. Secretary of State Rex Tillerson said the steps announced Friday shouldn’t affect American firms that have applied for special licenses to do business authorized under the nuclear deal.

Boeing Co. has such a license, after agreeing last year to sell dozens of commercial planes to Tehran.

Many other companies, particularly European ones, have rushed to take advantage of Iran’s large market since the deal was struck under the Obama administration. Since the election of Mr. Trump, a longtime critic of the deal, and amid recent rhetoric in Washington that the deal could be re-evaluated, some of these companies have already had second thoughts.

In recent months, after Mr. Trump said he was considering pulling out of the deal, France’s Orange SA put on hold preliminary efforts to buy a piece of Iran’s largest cellular operator, Mobile Telecommunications Co. of Iran, according to people familiar with the matter. Orange had accelerated its attempts to expand into Iran in 2016.

An Orange spokesman declined to comment Friday.

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Renault SA has built up capacity to make 200,000 vehicles a year in Iran. It said in August it would invest in a factory that would produce an additional 150,000 vehicles a year within 18 months, in a joint venture with state-owned Iranian conglomerate Industrial Development & Renovation Organization and Parto Negin Naseh, an importer of Renault products in Iran.

Speaking to reporters in Paris earlier this month, Carlos Ghosn, head of the Renault-Nissan Alliance, said he would wait to see exactly what Mr. Trump would say before making any decisions, but that reimposing the sanctions may “put off some investments that we firmly intend to do.”

Still, he said any investment halt would be temporary. “If we cannot get to work immediately, we will work in one, two or three years,” he said. “I do not think that this situation can last forever.”

The Trump administration has set upon a complicated path requiring negotiations with Congress and European allies. That all adds to uncertainty for companies eager for clear signals about which way Washington is headed, and whether new sanctions are really possible.

Amid the uncertainty, Western companies already working in Iran are likely to sit tight amid all the uncertainty. Firms long tempted by Iran but waiting for clearer direction from the new Trump administration are likely to take further pause.

“There was a glimmer of hope, but it’s like blowing out a small candle,” said Nigel Kushner, chief executive of London sanctions expert W Legal. “Those who were sitting on the fence will now come off the fence.”

Big energy companies like Royal Dutch Shell PLC, Eni SpA of Italy and Norway’s Statoil ASA have told advisers they are unlikely to strike deals in Iran if Mr. Trump’s actions suggest an eventual move toward reimposing sanctions, people familiar with the matter said.

“If there is a chance of sanctions coming back, they are unlikely to touch it,” said Helima Croft, the chief commodity strategist at RBC Capital Markets. “The U.S. holds a pretty big stick.”

Mr. Trump’s move is unlikely to affect energy deals already in place in Iran, such as French oil giant Total SA’s $1 billion agreement to develop an Iranian gas field in July. The deal gave it access to South Pars—a gas field under the Persian Gulf that is one of the world’s largest. The company will operate the field in partnership with China National Petroleum Corp. and Iran’s Petropars.

Total is using Chinese banks to finance the deal, without any ties to the U.S. and its sanctions on the use of dollars to finance Iranian transactions, according to people in contact with the company. Total declined to comment.

BP PLC, which built Iran’s oil industry, has said it has priorities beyond that country.

Shell signed a preliminary deal to explore opportunities in Iranian oil fields late in 2016, but the company has yet to sanction any real investment.

“We continue to explore the role Shell can play in developing Iran’s energy potential within the boundaries of the law,” a Shell spokesman said.

Boeing and Airbus SE have been among the highest-profile deal makers in Iran. Boeing has committed to supplying 80 commercial jets, at a list price of about $17 billion, to Iran Air, the state-owned airline. The first is set to arrive in 2018.

Airbus agreed to sell 100 planes to the airline for a list price of $20 billion. It has delivered one of those, while two other new Airbus jets have arrived in Tehran from an aviation leasing company.

European turboprop maker ATR began delivering aircraft to Iran under a separate deal.

The Obama administration issued export licenses to Boeing and Airbus in 2016, allowing them to deliver aircraft. Those licenses would have to be specifically revoked to get in the way of future deliveries, executives believe. Both Boeing and Airbus had no immediate comment on the matter.

Write to Benoit Faucon at benoit.faucon@wsj.com and Sarah Kent at sarah.kent@wsj.com 

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