Sinopec's Caspian oil trade plan may trigger US trade sanctions

Jan 17, 2001 01:00 AM

Sinopec's plan to expand Iranian trade in Caspian oil may trigger US trade sanctions that have yet to be enforced since their enactment more than four years ago. Touching several raw nerves in US foreign policy, Sinopec's $ 150-mm-plus investment in Iranian oil infrastructure may reinvigorate unilateral sanctions that US allies have deemed at best symbolic and at worst extra-territoriality.
Since 1996, the US has threatened unilateral sanctions against non-US companies investing more than $ 20 mm in Iran's petroleum sector. The sanctions, under the Iran-Libya Sanctions Act, or ILSA, were meant to address concerns Tehran was supporting terrorism, obstructing Arab-Israeli peace and developing weapons of mass destruction.
ILSA immediately drew cries of extra-territoriality from US allies in Europe. But the criticisms were muted by the fact the sanctions were never enforced, with waivers to European and Asian companies such as TotalFinaElf, Gazprom and Petronas. While US companies are strictly barred from investing in Iran, the sanctions on non-US companies have appeared mainly symbolic.
The ILSA sanctions require renewal in August, and some industry observers have hoped President-elect George W. Bush would let them expire quietly. But Sinopec's investment is throwing the president-elect a foreign policy curve ball even before he takes office, and observers say many assumptions about ILSA sanctions could go out the window.

Officials at the State Department, which enforces ILSA, couldn't be reached for comment. The decision whether to enforce sanctions on Sinopec will likely fall to the Bush administration. Bush officials have declined comment on foreign policy during the transition. But Secretary of State-designate Colin Powell testifies tomorrow before the Senate Foreign Relations Committee, where Iranian sanctions policy may be discussed.
The committee's chairman, Jesse Helms, R-NC, says ILSA sanctions should be enforced against Sinopec and the law should be renewed this August. "The Chinese communist government is aiding and abetting an Iranian terrorist state; that's not something for which sanctions should be waived," said Helms spokesman Marc Thiessen.
The Clinton administration's failure to enforce ILSA penalties on numerous non-US investors in Iranian oil and gas has eroded the potency of the law, Thiessen said. "If you have a sanctions on the books that you never impose, no one takes you seriously," he said. If President Bill Clinton had concerns about possible extra-territorial aspects of the law, he should have never signed it, Thiessen said.

ILSA supporters say the Sinopec deal will spotlight the need for renewing the sanctions. "This investment could conceivably complicate allowing ILSA to lapse this summer," says Roger W. Robinson, Jr., a National Security Council official under President Ronald Reagan. Robinson is chairman of the William J. Casey Institute, which advocates closer scrutiny of the geopolitical and human rights records of companies that seek financing in US capital markets.
Robinson says Sinopec, which was listed on the New York Stock Exchange last October, and its chief US underwriter Morgan Stanley Dean Witter & Co., should have told potential investors of any plans to invest in Iran. The listing had already created controversy because of revelations Sinopec had invested in Sudan, where the US has trade sanctions. The company disposed of its $ 30 mm investment in Sudan ahead of the NYSE listing.

Formerly a wholly state-owned refining monopoly, Sinopec sold equity last year to investors including Exxon Mobil, Shell Group and BP Amoco. Policy analysts say the indirect role of these companies in the Iranian deal could complicate the issue for Bush, whose administration is widely associated with Big Oil.
Another twist in the Sinopec deal is that it would compete with the US-backed plan to export Caspian crude through Azerbaijan and Georgia to Turkey's Mediterranean port of Ceyhan. The US government has been the chief supporter for the Ceyhan line andhas blocked US companies from take Caspian crude into Iran.
Sinopec finished deals for exploration rights in Iran as well as a contract to upgrade and expand Iran's Tehran and Tabriz refineries and its Caspian port facilities at Neka. The infrastructure upgrades, financed by European oil trading company Vitol and Hong Kong's Federal Asia, would expand Iran's capacity to swap Caspian crude.
Under swaps, Iran can use crude from Kazakhstan, Turkmenistan, Azerbaijan and Russia for its northern refineries in exchange for Iranian crude in the Persian Gulf.

Source: Dow Jones
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