U.S. government Iran sanctions working

Introduction

The number of energy companies doing business in Iran has dropped 60 percent in the last year, according to a survey by the Government Accountability Office.

In 2010, the agency said 41 foreign firms had conducted commercial activities in Iranian oil, gas and petrochemical sectors from 2005-2009. That number has since dropped to 16.

Of the original 41 firms, seven had contracts with the U.S. totaling over $880 million. As of May 2011, five of these seven firms had withdrawn from their Iran activities. Two firms continue, representing $4 million in U.S. contracts. The 99 percent drop in contract value among companies active in Iran appears not to be an accident.

More companies are worried about potentially falling afoul of the U.S. Comprehensive Iran Sanctions, Accountability and Divestment Act, or CISADA, which amended the original Iran Sanctions Act last year. New triggers include any corporate investment in the Iranian energy sector over $20 million dollars.

Under CISDA, any domestic or foreign company found in violation of sanctions will be denied export-import bank financing, export licenses, and U.S. loans over $10 million. There is also a ban on U.S. government contracts with firms that are found in violation of sanctions.

In the report, Royal Dutch Shell and South Korea’s GS Engineering and Construction Company said they had stopped activities in Iran to “avoid sanctions under CISADA” and because of “mounting pressures from Western powers.”

The sanctions were issued to keep Iran from using funds garnered through foreign investments in energy to support terrorism and the development of nuclear weapons. In 2009, 66 percent of Iran’s government revenue came from the oil sector and if foreign investment were to continue to increase, the country’s daily output could rise to 5.8 million barrels by 2015, says the GAO.

Sixteen foreign companies have continued to invest in the Iranian energy sector – everything from helping to increase refining capacity to aiding in the production of petrochemicals — including two South Korean companies with contracts with the U.S.: Daelim Industrial Co and Hyundai Heavy Industries.

Daelim Industrial Co., a construction company, has a $4.2 million contract with the Department of Defense to build houses at a military base in South Korea and Hyundai Heavy Industries provides vehicles and construction equipment, such as forklifts, to the DOD.

In Iran, Hyundai Heavy Industries provides equipment to the Arak refinery, one of nine oil refineries in Iran which currently produce about 1.5 million barrels a day. In the report, the Department of Energy said, “Iran does not currently have sufficient refining capacity to meet its domestic demand for gasoline, although Iran intends to increase its refining capacity to potentially eliminate the need for imported petroleum.”

With investments from Hyundai and other foreign companies, mainly based out of China and India, they hope to increase production to 3 million barrels a day by 2013.

Since the passage of CISADA, the U.S. government has already imposed sanctions against Swiss-based NaftIran Intertrade Company, and a Belarusian company, Belarusneft, for investments in the Iranian oil sector. The GAO did not investigate whether or not the actions of the 16 companies currently investing in Iran meet “sanctionable criteria.”