The Cable

Congress Warns Oil Companies: Don’t Get So Cozy With Iran

Congressional leaders are warning international oil companies looking to invest in Iran that severe financial penalties await them if they move too soon.

The ink is barely dry on world powers' interim deal with Iran to ease sanctions in exchange for a slowdown of Tehran's nuclear program. The primary sanctions on Iran's oil business remain in place. That hasn't stopped petro-giants like Royal Dutch Shell, Italian company Eni, and Austrian oil and gas company OMV from exploring the possibility of renewing their operations in Iran. And those moves have both Democratic and Republican lawmakers livid.

"Companies examining their options for resuming business relationships with the Iranian regime are acting prematurely at best," Rep. Michael McCaul, chairman of the House Homeland Security Committee, told Foreign Policy.

The European oil companies have been meeting with Iranian officials this week, on the sidelines of an OPEC meeting in Vienna, to discuss business opportunities that could open up if sanctions are lifted. An interim agreement between the U.S. and Iran reached two weeks ago in Geneva has raised hopes in the oil industry that Iranian oil could be coming back, after being virtually shut out over the global market because of strict U.S. sanctions.

The meetings come at a sensitive time for politicians in Washington, who are still wary of the deal and weighing the possibility of passing further restrictions on trade with Iran. On Friday, top Senate Democrats requested routine briefings from the administration on the consequences of passing additional sanctions and the Senate Banking committee is holding a hearing on the interim deal next week.

The oil companies' interest in returning to Iran could play into arguments by Iran hawks in Washington that the U.S. needs to pass new sanctions legislation now -- something the White House says would torpedo the delicate nuclear talks in Geneva.

"This is exactly why the Senate should move quickly to pass legislation that would impose new sanctions if Iran violates the interim agreement and prevent endless negotiations," Sen. Mark Kirk (R-IL) told FP. "Foreign firms must be on notice that sanctions are coming back stronger than ever if this process doesn't lead to the dismantlement of Iran's nuclear program."

The interim deal includes the easing of some parts of the sanctions over the next six months if Iran curtails its nuclear program. If U.S. and Iranian negotiators can work out a long-term deal in the next six months, there is the possibility that oil sanctions could be lifted then.

The Wall Street Journal reported that Shell, Eni, and OMV all met with the Iranian oil minister this week in Vienna.

"We discussed specific projects that we had been looking at for many years before sanctions were imposed," Eni Chief Executive Paolo Scaroni told the Financial Times. He said he would be looking for opportunities over the next six months while Iran and the U.S. try to negotiate a final deal and he hopes sanctions will be lifted soon.

"It's not surprising that we're seeing this from the companies that have some experience in Iran like Eni and Total," said Suzanne Maloney, a former State Department official who is now a senior fellow with the Saban Center at the Brookings Institution.

While U.S. companies have been barred for decades from doing business with Iran, European firms have only recently been forced out of Iran, as the U.S. has tightened sanctions. Eni still has a foothold in Iran, with limited operations that have been exempted by the U.S. and EU.

Maloney said the talks raise anxieties in Washington about the possibility of European and U.S. views diverging as negotiations with Iran continue.

"As the political situation improves, there is the possibility of additional distance between Washington and Europe and I think that would be deeply problematic," Maloney added.

Eni has a history of raising the ire of U.S. officials with its business dealings in Iran. In early 2010, House Foreign Affairs staffers warned Eni that its business with Iran could put its U.S. investments at risk, according to diplomatic cable released by Wikileaks.

Critics of the Obama administration's negotiations with Iran were quick to see the talks as proof that continued vigilance is necessary. A GOP aide said the renewed interest in Iran's oil industry by foreign businesses is the type of secondary effect that Republicans warned could happen with the loosening of sanctions.

A spokesman for House Majority Leader Eric Cantor said that he "thinks loosening sanctions and recognizing Iran's enrichment program was a mistake, and it will not stop Iran's march toward nuclear capability." 

Anxieties over renewed business interest in Iran comes amid liberal fears that Democratic leaders in the House may join with GOP counterparts to undercut the Obama administration's negotiations with Tehran. Congressional aides tell The Cable that Rep. Steny Hoyer, the no. 2 Democrat in the House, is considering legislation authored by House Majority Leader Eric Cantor that would insist any final deal on Iran prohibit all enrichment of uranium on Iranian soil.

Since Tehran is unlikely to accept such a demand, some fear that the legislation is designed to undermine the international talks. "Everyone knows that the Iranians will not tolerate a deal without some enriching of uranium," said one Congressional aide. "It's an effort to torpedo the talks." Additionally, if Cantor's bill receives bipartisan support in the House, it would place pressure on the Senate to pass corresponding legislation.

But Hoyer spokeswoman Stephanie Young rejected allegations that her boss would do anything to hurt the White House's negotiating position. "Mr. Cantor has a resolution, it's being reviewed and absolutely no decisions have been made," she said. "It's preposterous to think that Mr. Hoyer would sign onto any resolution he believes would undermine the White House or negotiations."

One thing Congress does agree on: swift punishment for any international firm looking to enter the Iranian oil market in the next six months. "It is far too premature for any international energy company to contemplate re-entering the Iranian market," a spokesman for Rep. Eliot Engel, the top Democrat on the House Foreign Affairs Committee, told FP.

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