BP to Washington: Time's Up over Iran

It seems unwilling to wait any longer for a deal

It's one of the great prizes of the oil industry: the vast oil and natural gas wealth of Iran. John Browne, one of the most competitive petrobosses going, wants his piece of the action. Browne's company, BP (BP ), is sending clear signals that it wants a deal soon with Tehran, whatever the state of relations between Washington and the Islamic regime. Indeed, sources say Brown is considering projects that could add up to $10 billion.

Browne has had to sit enviously on the sidelines as his European rivals TotalFinaElf and, more recently, Royal/Dutch Shell Group (RD ), signed major Iranian deals. TotalFinaElf currently has four projects worth more than $3 billion, while Royal/Dutch Shell has launched a project worth $800 million. Browne focused his efforts on North America--buying Amoco in 1998 and Arco in 1999. Before these mergers were wrapped up, he dared not roil Washington by dealing with Iran, one of the nations long targeted for sanctions under the Iran Libya Sanctions Act (ILSA) for its alleged involvement in terrorist activities.

But with the two American companies safely in the bag, Browne no longer feels such restraint. Sources close to BP say Browne recently told Vice-President Dick Cheney, who was reviewing U.S. energy policy, that BP had been more than generous in waiting for the situation between the U.S. and Iran to improve. According to sources, Browne said that it was unacceptable for Shell and Total to have access to Iran while BP was held back by its American interests. And were BP to invest in Iran, Browne implied that it would be unfair for the company to be hit with penalties while Shell and Total continue to operate in the Islamic Republic without sanctions. Under ILSA, the British-based company could be sanctioned. But so could TotalFinaElf and Shell--and the U.S. has not moved to slap sanctions on those companies.

BP will likely enter Iran if it finds the right deal. It is now eyeing several Iranian projects, the most important of which is probably an oil field at Ahvaz-Bangestan. The Iranians may choose foreign partners soon. BP is mulling a petrochemical project and is sinking money into a joint-venture lubrication oil plant, which is not sanctionable under ILSA. BP will build a mixing plant; the Iranians will supply the oil; and the lubricants will be marketed under the Castrol label.

If BP lands a major Iranian deal, it could put pressure on the Bush Administration to rethink its sanctions against the Iranian state. For now, analysts expect ILSA to be renewed before it expires this summer and that the Presidential order against investment in Iran will remain in force. But a BP presence in Iran would drive the likes of Exxon Mobil Corp. (XOM ) and Chevron Corp. (CHV ) crazy. BP, after all, is in essence a half-American company. The oil lobby may thus intensify its push to get sanctions lifted.

Browne, in any case, will not lose sight of his goal. Iran is sure to be a key hydrocarbon region in the 21st century, and he's looking hard for a way in.

By Stanley Reed in Tehran

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