The lifting of nuclear-related sanctions in Iran earlier this month marks a cause célèbre for a nation long shunned by the U.S.-led Western business community. At the same time, European companies continue to tread carefully due to remaining legal uncertainties that could take some time to clarify.
Specifically, many would-be European business partners are wary of running afoul of other sanctions imposed by the United States that have not been lifted. Indeed, according to a Reuters news report, “a lack of dollar clearing, the absence of an established mechanism for non-dollar sales, insufficient clarity on ship insurance and the reluctance of banks to provide letters of credit to facilitate trade are all giving cause for caution.”
Once a seller of 800,000 barrels per day to European refiners, Iran’s prominence has been eclipsed by oil from Arab states and Russia.
Russian Lukoil’s chief executive, Vagit Alekperov and chief executive of Swiss trading house Mercuria, Marco Dunand, are just two of the many concerned voices among executives. Dunand indicated that European governments need to be considerably more forthcoming with advisories on how, for example, ship insurance and banking would operate before resumption of imports to Europe. “As a European citizen,” Dunand told Reuters, “I can probably trade it again provided I don’t use U.S. dollars. But then if you use a euro-dollar conversion, does it become a grey zone?” he said.
It is widely anticipated that companies such as Total and Royal Dutch/Shell that purchased Iranian crude before the sanctions would resume purchases shortly. In anticipation of this boost and despite the glut of global supply, Iran has expressed an eagerness to recapture old customers and raise output.
Still, with aged equipment and a dearth of new legislation, industry experts foresee tight competition for investment with other producers. Total and Eni have indicated they would invest only if Tehran offered attractive terms materially different from its previous buy-back schemes.
