Shell backs off effort to repay Iran's $1.4 billion oil debt

Business Materials 4 December 2012 15:57 (UTC +04:00)

Azerbaijan, Baku, Dec. 4 /Trend S.Isayev, A. Badalova/

Royal Dutch Shell has abandoned efforts to pay back a $1.4 billion debt to National Iranian Oil Co. (NIOC) for past Iranian crude purchases, after the state giant was blacklisted first by the US, in September, and then by the European Union the following month, the International Oil Daily reported.

Sources close to the matter tell International Oil Daily that Shell plans to put the money aside in escrow, so that NIOC can access the funds when sanctions are lifted or eased, but only if there is a "firewall" sturdy enough to prevent the Iranians from making a claim on the money through the courts.

Shell's debt to NIOC, which was originally around $1.2 billion but has grown with interest, is largely for Iranian crude supplied during the first half of this year - before an EU embargo came into force on Jul. 1.

Over the past few months, Shell had explored several options to settle the money to NIOC, consulting at every stage with the UK and US Treasuries to make sure no sanctions would be broken.

The reason why Shell was so keen to pay the debt was to preserve its relationship with NIOC, which has prospered for well over 30 years on several levels.

Shell had initially hoped to pay NIOC the conventional way: via a bank transfer. But the Anglo-Dutch giant could not find a a European bank that was willing to process the payment and was also unable to get clearance from London and Washington, sources say.

Shell then examined a second, more innovative scheme that had been proposed by the Iranians: paying the money to US commodities giant Cargill, which was owed a similar amount of money by Iran for wheat that it had supplied under humanitarian auspices.

But this planned debt swap, which would not have involved any direct payment to NIOC, became untenable after the US Congress designated NIOC in September as an entity of Iran's Revolutionary Guard and, by extension, a supporter of nuclear proliferation.

Marvin Odum, president of Shell Oil Co., last week denied plans of repayments via Cargill. "That's just something the media was saying," he told IOD on Thursday on the sidelines of the Platts Global Energy Outlook Forum in New York. "We are 100 percent compliant with those sanctions. That's really the end of the story. There aren't any new developments that I am aware of today."

Before the EU embargo, Shell was one of NIOC's largest term customers, buying crude not just for its European refineries but also to service its operations in the Far East. Shell also had a large upstream presence in Iran, having operated the Nowruz and Soroosh "buyback" projects in the early 2000s, after which it set up the Persian LNG joint venture with NIOC and Repsol, to pursue the production of LNG fueled by gas from the giant South Pars field.

But after the EU passed a law in 2007 banning member state companies from investing in Iran's energy sector, Shell had no choice but to withdraw.