China’s state-run energy giant is making a new approach to strike a $3 billion Iranian oil field deal, seeking to take advantage of waivers allowed under US sanctions even as two European nations have ended crude purchases, according to people familiar with the matter.
The moves highlight the divergent ways nations are reacting to temporary exemptions from US sanctions on Iran. China’s decision to pursue lucrative deals with Tehran and deepen its presence there contrasts with a retreat by Italy and Greece stemming from the fear that financial transactions and physical trade with Iran have become too difficult, The Wall Street Journal reported.
China Petroleum & Chemical Corp., or Sinopec, told its government-owned counterpart, the National Iranian Oil Co., it wanted its share of the field’s production to be granted under the US waiver allocated to China, one person said.
Sinopec is driving a hard bargain, making stringent demands, the people said. The company asked to buy equipment of its choice—made in China—and requested reimbursement for costs as soon as the new development undergoes testing, terms Iran normally refuses.
While US sanctions, which went into effect in November, prevent companies from signing contracts to access new oil fields in Iran, Washington had granted exemptions allowing the purchase of Iranian oil to China, India, Japan, South Korea, Turkey, Taiwan, Italy and Greece to avoid a global oil-price spike.
The Chinese company has informed the US State Department about its Iran oil business, the people said. But Sinopec believes it wouldn’t run afoul of a US ban on signing a new development deal, as its proposal for further development is part of an existing contract to operate the field, according to people familiar with the matter.
Late last year, after the US allowed China to keep purchasing as much as 360,000 barrels of Iranian oil a day, Sinopec proposed a $3 billion investment plan in the Yadavaran oil field it operates in Western Iran, according to people familiar with the proposal. The deal—if agreed—would double production at the field to 180,000 barrels a day within six months, the people said.
A spokeswoman for Iran’s oil ministry said she wasn’t aware of the new offer. Sinopec and the State Department didn’t return requests for comment.
The proposed Chinese deal comes as European oil giants such as France’s Total SA pulled out of the Islamic Republic ahead of the US sanctions, despite Iran holding the second-largest natural-gas reserves in the world and the fourth-largest in oil reserves.
Despite receiving exemptions, three of the countries, Taiwan, Italy and Greece, have stopped buying Iranian oil altogether almost immediately, according to oil executives, because they failed to find ways to comply with other US sanctions—including bans on shipping, insuring and banking with Iran.
While Taiwan only imported 16,000 barrels a day before the sanctions, Italy and Greece bought 300,000 barrels a day, respectively. The ministries in charge of energy in the three countries didn’t return a request for comment.