Iran faces Total withdrawal, signs new oil contract with Pergas

French oil major Total has halted plans to help develop Iran's giant South Pars gas field as it seeks to clarify whether the investment can avoid falling foul of returning United States sanctions on Tehran, the oil company said Wednesday.

Total underscored it would be highly vulnerable to possible U.S. sanctions given that the company has a whopping 10 billion dollars of capital employed in its USA assets, while American banks are involved in 90 percent of Total's financing operations.

Total was the first major European company to resume business in Iran after sanctions were lifted in 2016 in exchange for curbs on Iran's nuclear activities.

Total's announcement comes after German insurer Allianz and Danish oil product tanker operator Maersk Tankers said they were winding down their businesses in Iran.

In a massive blow to Iran's economy, French oil giant Total confirmed that it has not accepted any gas exploration commitments in the southern Pars field.

"It would be suicide to do any new business or funding for Iran or Iran-related companies without explicit guarantees from the US government".

Sunk costs for Total as relates to its 50.1 percent stake in the project amount to roughly 40 million euros, according to its press release, but previous reports are that Total has sunk about $90 million into South Pars.

The move follows President Donald Trump's decision to withdraw the U.S. from the global nuclear deal with Iran (JCPOA) and to reinstate the United States sanctions that were in force before the deal's implementation.

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Total said it would not be making any further commitments towards the Iranian South Pars project for now, and added it was engaged with French and U.S. authorities over the possibility of a waiver to the project.

French oil giant Total is preparing to pull out of Iran to avoid risking United States sanctions. "They have us by the throat because so much business is conducted and cleared in dollars", one European investment banker said.

Despite the US' withdrawal, the European Union said it would remain committed to the deal and would ensure sanctions on Iran remain lifted, as long as Tehran meets its commitments.

Joe Kaeser, the CEO of Germany's Siemens, told CNN his company would not be able to do any new business with Tehran.

"The fines are in the multibillions these days so it's just not worth the risk for a small piece of business and maybe pleasing a (European) government". However, officials with the company state that they will have to walk away from the project if they are not exempted from the new USA sanctions. "With that in mind it's a logical decision".

In an unintended twist, U.S. President Donald Trump's decision to threaten European companies that continue to invest in Iran may open the door to Chinese rivals.

The total project, which also involves China 's CNPC and Iranian company Petropars, is estimated to be around $2 billion for the first phase.

  • Rita Burton