The sanctions regime against Iran is affecting two of Europe’s oil and gas majors in ways policymakers may not have anticipated.
Shell and Eni both have payment problems with Iran’s national oil company. Shell owes the NIOC around $1 billion in back payments for oil shipments, while Italy’s Eni is owed between $1 – $1.4 billion for oil deals stretching back decades, according to CEO Paolo Scaroni.
Both companies have assiduously nurtured good long-term relations with the Iranian national oil company, and while committed to complying with international sanctions, do not want to lose their interests or status in the country’s oil industry.
The situation demonstrates the extent to which sanctions are making life difficult for Iran’s oil sector, even in advance of the official 1 July deadline on which the sanctions regime comes into force. While Shell and other EU oil companies have been banned from striking new oil import deals with Iran since 3 January, they officially have until 1 July to run off existing contracts.
Shell is one of Tehran’s biggest customers, lifting 100,000 barrels of oil a day, according to a Reuters report. CEO Peter Voser says the company with lift its last shipment in a few week, ahead of the latest EU sanctions taking effect on 1 July.
Total – also a long-standing player in Iran – cancelled its oil shipments soon after the sanctions were announced, partly over concern regarding payment mechanisms.
The Iran’s Oil Ministry has grown impatient with foreign upstream companies during oil minister Rostam Qasemi’s tenure, ejecting oil companies from fields to manage the under the NIOC directly.
One solution may be for NIOC to assign the benefit of its right to payment from Eni to Shell, with the effect that Shell pays Eni on Iran’s behalf. The deal would avoid financial dealings with the Iranian central bank or NIOC which are proscribed under EU sanctions.
Shell and Eni were not available for comment at the time of writing.
