Watching Government Extraterritoriality in oil

Aug. 12, 1996
With Patrick Crow from Washington, D.C. [email protected] There was never much doubt the U.S. Congress would pass a bill imposing sanctions against foreign companies that are investing in future Iranian and Libyan petroleum projects. But now that President Clinton has signed it, the question becomes whether the law will prompt foreign firms to reconsider investing in those nations. Judging by the angry protests of the U.S. major trading partners, the odds seem against it.

There was never much doubt the U.S. Congress would pass a bill imposing sanctions against foreign companies that are investing in future Iranian and Libyan petroleum projects.

But now that President Clinton has signed it, the question becomes whether the law will prompt foreign firms to reconsider investing in those nations.

Judging by the angry protests of the U.S. major trading partners, the odds seem against it.

The Iran and Libya Sanctions Act mandates that the U.S. take action against foreign firms that invest more than $40 million/year in oil and gas projects in either country.

Clinton explained, "Iran and Libya are two of the most dangerous sponsors of terrorism in the world." The government has banned U.S. firms from trading with the two nations.

Bill denounced

Iran and Libya supply a fourth of European Union oil supplies. The European Commission complained the bill "establishes the unwelcome principle that one country can dictate the foreign policy of others." It is considering ways to prevent EC members from complying with the law.

Germany, Iran's largest trading partner, said, "Threatening to impose extra-territorial sanctions against European companies investing in these countries...is the wrong path." It argued western nations must have commerce and communications with Iran if they are to influence it.

The French Foreign Ministry affirmed its determination "to ensure that French interests are not affected and that any damage does not go without retaliation."

Total is active in both Iran and Libya and says it will not be deterred by the U.S. law.

Canadian Foreign Minister Lloyd Axworthy said, "While we share the concerns of the U.S. and other countries on international terrorism and place a high priority on finding ways to combat it, this is not the way to proceed."

Canada already is fuming over a recent U.S. law penalizing foreign firms that invest in property the Cuban government confiscated from persons who are now U.S. citizens.

Great Britain, Australia, China, and Japan also protested.

Clinton conceded U.S. allies might retaliate. "Of course, that's their decision to make. But every advanced country is going to have to make up its mind whether it can do business with people by day, who turn around and fuel attacks on their innocent civilians by night."

Iran targeted

The law was aimed principally at Iran. It is the world's third largest oil exporter and is seeking international funding for $7 billion in oil projects.

Oil Minister Gholamreza Aghazadeh predicted international courts would quickly condemn the U.S. legislation.

More practically, some European investors said the law could be circumvented by holding contracts under $40 million or spreading them among partners and affiliates.

But even if it proves a long term failure, the bill is a short term success. It is forcing countries to reconsider their policies regarding other nations that harbor terrorists.

And gives Clinton and Congress the chance to be tough on terrorism in an election year. That's important, since little else can be done in response to a recent terrorist attack on U.S. servicemen in Saudi Arabia and the suspected bombing of a Trans World Airlines jumbo jet off Long Island.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.