BP Free from Sanctions

By BENOIT FAUCON, ALESSANDRO TORELLO and ALEXIS FLYNN

British and European Union officials have convinced some U.S. lawmakers to ensure that any new sanctions against Iran exempt a BP PLC-led natural-gas project, as Western governments try to isolate Tehran without harming their own energy security.

The $20 billion project in the Caspian Sea off Azerbaijan is seen as key to alleviating Europe's dependence on Russia as its largest supplier of natural gas.

"There is broad-based consensus in the House and Senate that our sanctions policy should impose maximum economic pain on the Iranians without allowing Russia to hold Eastern Europe hostage for energy supplies," said a congressional aide familiar with the European lobbying effort.

Officials from the British Foreign Office, the EU and BP say they asked Capitol Hill lawmakers in December to ensure that new sanctions don't block the project, known as Shah Deniz II, because Iranian state-owned oil company Naftiran Intertrade Co. holds a 10% stake.

Naftiran is a Swiss-based subsidiary of state-owned National Iranian Oil Co. A Naftiran official declined to comment.

BP is operating the project. BP and Norway's Statoil ASA each hold a 25.5% stake, while the State Oil Co. of Azerbaijan, France's Total SA and Russia's Lukoil Holdings hold 10% stakes and Turkish Petroleum owns the remaining 9%.

The lobbying underscores a dilemma at the heart of the Western push to sanction Iran over its nuclear program: how to pressure with maximum efficiency without putting Europe's economy at risk.

The Shah Deniz II project could have been hit by a bill by Rep. Ileana Ros-Lehtinen (R., Fla.) that would ban any company doing business with Iran's oil and gas sector from operating in the U.S. But the current version of the legislation includes language that says it won't affect efforts "to bring gas from Azerbaijan to Europe and Turkey," or to achieve "energy security and independence from Russia."

The Ros-Lehtinen bill is now with the Senate's committee on foreign affairs. Ms. Ros-Lehtinen's foreign-affairs spokesman didn't respond to requests for comment.

EU and U.K. officials say they are closely monitoring other congressional proposals that could hit Shah Deniz II in 2012, a U.S. election year in which targeting Iran could score political points.

"It's a continuous story," said an EU official. The fact that there is now a proposed exemption "doesn't mean that [the issue] won't come back further down," he explained. "You never know—it's not a short-term matter."

Payment disputes in recent years between Moscow and Ukraine—a transit country for energy supplies to Western Europe—have highlighted the EU's exposure to Russia.

Shah Deniz II is intended to become the main supplier for a proposed pipeline to bring Central Asian natural gas to Europe, as the EU seeks alternatives to its dependence on Russia.

The EU and the U.S. are adopting new measures to isolate Iran and starve it of oil revenue, including a proposed European oil embargo and U.S. sanctions on Iran's central bank, which manages oil revenue.

The U.K. supports a policy that "balances the desire to put pressure on Iran over its nuclear program and makes sure it does not have an adverse impact on European economies," said a British Foreign Office spokesman, who confirmed the lobbying on behalf of BP.

The spokesman said it wasn't a contradiction to want an exemption for Shah Deniz II and seek stringent sanctions at the same time.

A BP spokesman said recent discussions on Shah Deniz II were part of the U.K.-based company's "routine engagement" with U.S. lawmakers. The company is in full compliance with applicable sanctions, including EU regulations and U.S. law, the spokesman said.

The U.K. lobbying push to protect Shah Deniz II came as Britain in November became the first major nation to cut all ties with Iranian banks.

The EU, while agreeing in principle to a ban on Iranian oil, is still debating how much time to give refiners to switch to other oil suppliers. Some countries fear higher prices could result from the embargo, putting additional pressure on their economies.

"It is very important that the European Union take into account the impact of the sanctions on various European economies," said Gregory Delavekouras, a spokesman for the Greek Foreign Ministry, which has been the most vocal advocate for a slower time frame to implement the embargo.