Going a little easy on Iran — as long as Russia is nicked

U.S. and European lawmakers may give Iran the right to earn some cash from natural gas sales — as long as Russia might get it in the gizzard as a consequence.

The European Union yesterday voted to ban Iranian oil imports to all member states as of July 1, and to freeze the assets of Iran’s Central Bank, reports the Wall Street Journal’s Farnaz Fassihi and John Biers. U.S. and Europe also stopped transactions with Bank Tejarat, the last Iranian bank handling large purchases and sales of the nation’s oil; the move means that any institution anywhere in the world doing business with the bank could be subject to sanctions of its own, reports Bloomberg’s Indira Lakshmanan. The moves are part of a significant financial tightening of Iran’s capacity for earning any money that could assist its presumed efforts to build a nuclear weapon (above, Tehran’s money bazaar, which had a run on the rial yesterday).

But EU and British officials, along with the London-based oil company BP, think that a gigantic natural gas project in the Caucasus country of Azerbaijan ought to be exempted from the noose. The BP-led Caspian Sea project, known as Shah Deniz, contains the oil equivalent of about 6 billion barrels of natural gas and gas liquids. By 2019, BP plans to hit peak annual exports of about 25 billion cubic meters of gas from Shah Deniz.

The catch is that Iran’s state-owned Naftiran Intertrade possesses a 10 percent ownership stake, so stands to earn quite a bit alongside BP and other shareholders. Iran obtained the share in the 1990s, when the local politics favored including as many big neighboring and international players as possible to encourage the stability of the project. But now BP – along with the British government, for whom BP is the country’s largest publicly traded company — fears a serious stumbling block should the international wrangling with Iran drag on through the decade.

The EU is equally concerned, but for geopolitical reasons. It has coveted the Shah Deniz gas as a way to reduce its reliance on Russia, which currently supplies a whopping 25 percent of the continent’s natural gas. Europe is the obvious market for the Shah Deniz gas, but for the last several years, the West and Russia have engaged in a tense contest over how it reaches the continent: Moscow would like to transport the Shah Deniz gas by pipeline across Russian territory; the EU and the U.S. have advocated a pipeline route avoiding Russian soil entirely, and instead heading straight west through Turkey, then north into Europe’s belly. So far, Russia appears to have the slight edge.

So the EU wants to ensure that its pipeline plans are not confounded. That aim has brought EU, U.K. and BP officials to Washington to lobby U.S. congressmen to exempt Shah Deniz from any U.S. sanctions, according to the WSJ’s Benoit Faucon, Alessandro Torello and Alexis Flynn. And they appear to have made substantial progress, if you look at the main legislation intended to ban any company working on U.S. soil from doing business with Iran.

According to the WSJ piece, language inserted into legislation authored by Rep. Ileana Ros-Lehtinen currently states that the ban

won’t affect efforts ‘to bring gas from Azerbaijan to Europe and Turkey,’ or to achieve ‘energy security and independence from Russia.’

If the bill clears the House, it must then go through the Senate. There is a history of petro-geopolitics trumping many other priorities. But one wonders whether even the traditional popularity of anti-Russian rhetoric will top today’s Iran hysteria in Washington.