Total SA, a French oil giant, said Wednesday it had halted work on an Iranian natural-gas project and warned it may have to pull out altogether from its plan to invest $1 billion in the field.
Continuing to do business in Iran would be too great a risk as the company has large operations in the USA and depends on the country's banks for financing its operations, Total (tot) said in a statement Wednesday.
They also want to persuade Tehran the 2015 deal - which lifted earlier sanctions on the Islamic Republic in exchange for it curbing its nuclear ambitions - is worth sticking to.
But Total's announcement and similar ones by German insurance giant Allianz and Danish tanker giant Maersk earlier this week illustrate the major obstacles they face trying to overcome renewed US sanctions on Iran. Total entered into a three-way agreement to develop the South Pars area in Iran for oil and gas exploration. The French company said it has spent less than 40 million euros ($47 million) on the project so far.
"The risks of being on the wrong side of the USA government are not worth the benefits of trading with Iran once the sanctions are in place", said Jason Gammel, a London-based analyst at Jefferies LLC.
In a deal first signed in late 2016, Total agreed to operate the South Pars project with a stake of 50.1%.
Total's announcement is in line with previous claims that it may be unable to conduct business in Iran should the USA bow out of the Iran nuclear deal and levy sanctions against Iran. The company has a few options if they leave.
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"Total will not be in a position to continue the SP11 project and will have to unwind all related operations before November 4, 2018 unless Total is granted a specific project waiver by the U.S. authorities with the support of the French and European authorities", the statement said.
"The issue is that Iranian transactions can't be processed though any part of the banking system that needs access to the USA dollar", Gammel said.
Some shippers of Iranian oil have said they are ceasing to facilitate such trades because of the new sanctions.
"This project waiver should include protection of the company from any secondary sanction as per U.S. legislation". Joe Kaeser, the CEO of Germany's Siemens (SIEGn.DE), told CNN his company would not be able to do any new business with Tehran. "With that in mind it's a logical decision".
These renewed sanctions imposed by President Trump have left some major European companies in a quandary as to what to do with their business operations.
Pulling out of the South Pars project could result in Total losing its stake to China National Petroleum Corp., National Iranian Oil Co.