BP's Iranian Ties Could Haunt Oil Giant, Too

BP’s troubles in the United States might be just beginning.

Potentially more damaging to the beleaguered British oil giant than its problems in the Gulf of Mexico are BP’s ongoing ties to the Islamic Republic of Iran, which include multibillion-dollar joint ventures in Britain and Azerbaijan and the Iranian government’s own massive direct investment in BP stock.

BP won applause from public-interest groups in the United States in 2008 when it announced it was halting shipments of refined petroleum products to Iran.

“British Petroleum stopped its shipments to Iran after deciding that the company’s extensive North American business interests were more valuable than access to the Iranian market,” a news release from the Foundation for the Defense of Democracies trumpeted at the time.

The conservative foundation, which has made getting refined petroleum sanctions passed its key legislative agenda, understandably considered BP’s very public pullback as a supplier to Iran of refined gasoline and fuel oil as a success for its lobbying activities.

But it turns out that BP has continued to maintain extensive ties with Iran that are less visible that those gasoline sales, including joint ventures in British North Sea natural gas fields.

Iran’s joint ventures with BP and a host of other international oil firms now should be included in new Iran sanctions legislation, says Mark Dubowitz, executive director of the foundation.

“If Washington doesn’t close this loophole, Iran could soon be a partner in energy projects off our own shores,” he was quoted as saying in Time magazine last week.

But the legislation that finally cleared a House-Senate conference committee on Monday said nothing about joint ventures.

BP doesn’t trumpet its ongoing business with Iran in its statutory reporting to the U.S. Securities and Exchange Commission.

In a note to the U.S. version of its 2009 Annual Report, submitted as form 20-F to the SEC, BP glossed over its extensive ties to the Iranian regime.

“BP has interests in, and is the operator of, two fields and a pipeline located outside Iran in which the National Iranian Oil Company and an affiliated entity have interest,” the company stated.

In addition, the company “buys crude oil, refinery and petrochemicals feedstocks, blending components and LPG of Iranian origin or from Iranian counterparties.”

The legalese disguises a business relationship that goes back to BP’s origins 100 years ago as the Anglo-Persian Oil Co. Ltd.

“We’ve had a long experience with BP,” Iranian activist Roozbeh Farahanipour tells Newsmax. “They’ve acted against our national interest [in Iran] even before the nationalization of oil in Iran in 1953. Just after I arrived in the United States in 2000, my organization, Marze por Gohar, called for a boycott against BP and Shell because of their ongoing involvement with the Iranian regime.”

The “interests” BP alluded to in its 2009 annual report include a 50-50 joint venture with Iran to develop a North Sea natural gas field, Hood block 15/13A, that today is extracting around 4 million cubic meters a day of natural gas worth around $1 million a day at current prices.

They also include a joint BP-Iranian government effort in Azerbaijan that produces 8 billion cubic meters of gas a year, worth up an estimated $2.4 billion a year.

“BP remains one of the most active major western oil companies engaged in joint venture energy projects with the Iranian Ministry of Petroleum outside of Iran,” Time magazine reported last week.

BP’s partner in these ventures is Naftiran Intertrade Co., a wholly-owned subsidiary of the National Iranian Oil Co., with offices in Switzerland and the Jersey Channel islands.

Iran’s joint ventures with BP have paid off. At the time that Naftiran’s deals with BP were coming online, the Iranian group’s revenues jumped by 50 percent, from $14.7 billion to $21.9 billion, Time reported.

Naftiran Intertrade isn’t BP’s only Iranian partner. In the Rhum gas field in the North Sea, BP has teamed up in a 50-50 joint venture with the Iranian Oil Co. (IOC UK Ltd.) that now produces about 4 million cubic meters of natural gas a day.

The Treasury Department designated IOC UK Ltd. on June 16 in the latest round of United Nations Security Council sanctions on Iran’s nuclear weapons programs.

The designation of IOC UK Ltd, and a series of Naftiran subsidiaries and affiliates, is intended to “highlight for the international community Iran's use of its financial sector, shipping industry and Islamic Revolutionary Guards Corps to carry out and mask its proliferation activities,” said a Treasury Department statement.

In 2008, Treasury had identified Naftiran Intertrade as a “specially designated national” that was owned and controlled by the government of Iran, and warned U.S. companies that transactions with the company “are severely restricted” under several executive orders involving terrorism and weapons of mass destruction.

But that didn’t stop BP.

In fact, the Pentagon was doing nearly $900 million worth of business with companies doing business in the Iranian energy sector, including BP, according to a Government Accountability Office report released last month.

But the amount of business the Pentagon has done with BP is much higher, according to CNBC talk host Larry Kudlow.

“The Pentagon has supplied more than $8 billion to BP. Why aren’t people talking about this? It’s even worse than what they’re doing in the Gulf of Mexico,” Kudlow said on his evening talk show on May 26.

The Pentagon’s relationship with BP and other companies doing business in Iran so angered House Armed Services committee chairman Rep. Ike Skelton, D-Mo., and his Republican co-chair, Howard McKeon of California, that they jointly introduced an amendment to the defense spending bill that would bar the Pentagon from buying fuel from companies with ties to Iran.

“The Secretary of Defense may not enter into any contract with an entity that engages in commercial activity in the energy sector of Iran," says Section 805 of the House-approved fiscal 2011 Defense Authorization Act.

President Obama has threatened to veto the defense bill if includes funding for the C-17 military transport and other defense projects he considers “wasteful.”

The Iranian government has returned BP’s many favors by buying 24,683,858 shares in the company through the National Iranian Oil Co. Even with the sharp reduction in BP’s share price, Iran’s holding is worth around $775 million and represents. 0.8 percent of the company’s outstanding common stock, according to Bloomberg.

The Obama White House could sanction BP for its investments in Iran’s oil and gas sector today under existing legislation, if it decided to do so.

The law allows the president to ban companies that have invested more than $20 million in Iranian energy projects from doing business with the U.S. government or buying U.S. technology. But so far, no president has applied those sanctions.

BP clearly is watching to see what Congress will do.

In its SEC filings, BP revealed that it “restructured” its interest in the joint ventures with Iran and is maintaining its involvement in these projects “through certain contractual arrangements, which it keeps under review in light of pending legislative developments in the US.”

That language may strike many U.S. legislators as cynical and could backfire as badly as BP Chairman Carl-Henric Svanberg’s comment last week that the company cared about the “small people” the Gulf of Mexico oil spill hurt.