ILSA legislation Coming in from the cold,
US Congressional moves to extend sacntions against Iran seem pointless after Eni's recently-signed Darkhovin deal exposed the futility of the ILSA legislation
Coming in from the cold
19.07.2001
Upstream
Italy's Eni did itself a good turn earlier this month by signing a $1 billion deal with Iran for the Darkhovin oilfield, but it may also have performed a valuable international service. The announcement of the contract and the subsequent US failure to threaten punishment may be hastening the end of the much-criticised Iran Libya Sanctions Act (ILSA).
ILSA, which purports to prevent non-US companies from investing in the Iranian and Libyan oil and gas sector was never enforced after being enacted five years ago.Initial efforts to apply ILSA had to be abandoned because of the international uproar -- with the Europeans threatening to take the US before the World Trade Organisation.
What the US Congress had hoped to accomplish in recent weeks by pushing for a rollover of ILSA for another five years as of 5 August has been puzzling, but its supporters had created a seemingly unstoppable momentum. Eni's latest direct challenge to ILSA and the State Department's predictable reaction exposed the apocryphal emperor in all his nakedness.
Congressional supporters of ILSA could hardly push for a rollover of a piece of legislation that had just been shown up as irrelevant. If Congress is not to make itself look too ridiculous, it will either have to drop ILSA or toughen its provisions to make a rollover meaningful.
President George W. Bush's administration, which would prefer that ILSA disappear, had been hoping for a compromise two-year rollover. Last Thursday, the House Ways and Means Committee introduced a last-minute proposal for a five-year extension with an 18-month review period. This contrasted with proposals by other committees to simply roll over the Bill. Committee chairman Bill Thomas said ILSA had so far been ineffective in changing Iranian and Libyan behaviour. The amendment would require a report on the cost and effectiveness of the sanctions within 18 months, said Thomas, enabling Congress "to re-evaluate the legislation" and to decide whether to continue sanctions.
The full House was to take a vote on ILSA on Tuesday, but a compromise between the various committees could not be reached and the legislation may not come up for a vote until next Monday or Tuesday. The Senate was also to have taken a vote on Wednesday as Upstream went to press, but this may also be postponed. The 18-month review amendment is better than anything the Bush administration had hoped for in recent weeks and could signal a death knell for ILSA. Most relevantly, US oil companies -- which have had to watch from the sidelines while their European and Far Eastern rivals took some of the plum jobs in Iran -- would be able to start making concrete plans for a return to Tehran.
One US executive said on Tuesday that a pared-down ILSA would allow the companies "to begin to have serious discussions here (in Washington) about executive orders". This was a reference to the executive orders that are keeping US companies out of Iran in particular and, unlike Libya, where sanctions are based on UN strictures. ILSA was designed to level the playing field once US companies were banned from Iran by executive order in 1995. If ILSA goes, the pressure for restrictions on US companies to be lifted is likely to become irresistible.
US companies such as Conoco and Chevron have maintained contacts with Iran throughout the past five years. Halliburton, whose boss until recently was Vice President Dick Cheney, has opened an office in Tehran through a subsidiary. Certainly, the message of the ILSA amendment proposed by the Ways and Means Committee would not be lost on Tehran. The Iranians have made it clear they want an end to hostilities with the US and would more than welcome back US oil companies. Last Monday, a senior Oil Ministry official even suggested that, despite Japan's head start, Conoco and ExxonMobil might still be able to play a role in developing the giant Azadegan oilfield if they did not waste any more time. At the very least, Iran wants access to the best available technology and greater competition in a field now dominated by three or four European companies.
After all, the first post-revolution buy-back contract in 1995 was awarded to Conoco and it was the US government that intervened belatedly, forcing the independent out and opening the way for TotalFinaElf of France to take over the Sirri oilfield project. On the day that the House was first scheduled to vote on ILSA, Iranian Foreign Minister Kamal Kharrazi made the most clear-cut Iranian offer of rapprochement yet, saying Tehran would respond if the US dropped sanctions.
On the eve of the scheduled House vote, the European Union's foreign ministers appealed to the US not to extend ILSA. Their attitude is, however, ambiguous: given the futility of ILSA, no sensible European oil company will look forward to competing with US rivals in two of the world's most promising oil markets. |
