Introduction
Iran is among the largest oil-producing nations in the world. The oil industry has therefore been the country’s main economic driver. However, Iran’s nuclear program has caused jitters in America and other western nations because Washington believes that Iran develops its nuclear program for military purposes (Ebel 2). Therefore, there is a common belief among some western nations that Iran’s nuclear program threatens global peace and stability. However, Iran has maintained that its nuclear program is mainly for civilian purposes. For example, Iran has maintained that its nuclear program aims to boost its energy supply (Global Policy Forum 3).
In 2003, Iranian officials invited the United Nations (UN) nuclear monitoring agency to evaluate its nuclear program (Global Policy Forum 3). Tehran (Iran’s capital) also invited the International Atomic Energy Agency (IAEA) to confirm that the country was using its nuclear plants for peaceful purposes. The IAEA later gave Iran a clean “bill of health” after the oil-producing nation signed a peace agreement with some western nations to stop its uranium enrichment programs. However, this move was unflattering to the US. Consequently, America later referred the issue to the US Security Council (Global Policy Forum 3).
Through the influence of the US, the UN Security Council imposed restrictions on the trade of nuclear materials that Iran could use to enrich its nuclear program. The UN Security Council imposed the sanctions after it was satisfied that Iran did not stop its uranium enriching projects. Concerns regarding Iran’s uranium enrichment program escalated in 2009 when the US and some of its allies revealed that Iran was constructing a nuclear power plant in Qom Mountains (Global Policy Forum 5). The continued enrichment of Iran’s nuclear program and the refusal by Tehran to abide by international resolutions to stop its nuclear program later forced many nations to support further sanctions against Iran.
From the above developments, America and the European Union (EU) have prevented many international companies from doing business with Iran. The underlying messages of these sanctions outline a choice that multinational companies have to make regarding if to do business with Iran or with the US and its allies. These economic restrictions have mainly affected international oil companies that do business with Iran (Ebel 2). Some of the main oil companies that had a regional presence in Iran included Shell, Statoil, ENI, and Total. This paper takes a keen interest in understanding the reactions of Total Oil Company to the economic restrictions on Iran.
Contextual Understanding of Total Oil Company’s Business with Iran
The Total Oil Company has had a longstanding business relationship with Iran, since 1990. The business relationship has its roots in Iran’s lucrative oil industry. Despite being the fourth largest crude oil producer, Iran does not have a refinery capacity. The French oil giant, therefore, buys crude oil from Iran and sells refined oil products to Iran. The Total Oil Company has also engaged other multinational oil firms in gas exploration activities in Iran. For example, in 1997, the French oil giant signed a $2 billion agreement with other oil companies to explore natural gas in Iran (at the South Pars Natural Gas Field) (JFED 1).
In addition, Total has also invested heavily in other oil exploration activities, such as its $1 billion investment with the ENI Oil Company (to explore Iran’s Daroud Oil field), where it controls about 55% of the business (JFED 1). Total Company has also invested more money in the development of other Iranian gas and oil fields, such as the development of the offshore Balal Gas Field. Before the introduction of the economic restrictions against Iran, Total intended to invest more than $20 million every year in Iran’s oil industry (JFED 1). However, the introduction of economic restrictions changed the dynamics of the relationship between the two partners.
Total’s Response to Economic Restrictions
The response of Total Oil Company to the ongoing economic restrictions against Iran has not differed greatly from the response of other international oil firms in the region. Most international oil firms withdrew or withheld their business dealings with Iran to support the economic restrictions against Tehran. Albeit delayed, Total’s response was no different. Indeed, Faure (1) says the French oil giant stopped its planned investments in Iran once Washington started imposing economic restrictions on Iran.
Total’s reaction to the sanction was however slow because it only bowed to immense pressure from Washington to stop its business relations with Tehran. Other oil companies had already stopped their business relationships with Tehran. The European Union’s resolve to support economic restrictions against Tehran fueled the decision by Total Company to withdraw from Iran. Therefore, major oil companies in Europe also had to follow the steps of their American partners in enforcing the embargoes (supported by the UN) (Global Policy Forum 1).
Through the withdrawal, Total Oil Company had to stop several planned business projects in Iran, including a huge gas investment project in the South Pars gas field.
Faure (1) however says that even though Total withdrew from Iran, its business interest in the Middle East nation has not ended yet. Certainly, Total views its business relationship with Iran to have strategic importance in the future of the company. According to the company’s spokesperson, the French oil giant only decided to withdraw from Tehran because there were too many political risks of doing business with Iran. Moreover, the company was averting the growing perception that it would “do anything for money” (Jolly 5).
Amiel (2) says that Total had to substitute its crude oil supply shortfall by buying Saudi Arabia’s oil. However, this decision was widely condemned by Iran, which cautioned its oil-producing neighbors that they should not exploit the market gap created by its withdrawal from the oil market (Amiel 2). Comprehensively, the stalemate between Iran and the US prevents most oil companies from doing business with Iran.
Impact of the Economic Restrictions on the Global Oil Industry
The global oil supply shortfall created by the withdrawal of foreign firms from the Iranian oil industry caused an artificial surge in oil prices. Experts feared that the geopolitical uncertainty in the Gulf region would maintain oil prices at an all-time high, thereby affecting most world economies (including America) (Ebel 34). However, the possibility that Iran could be enriching its uranium deposit erodes such concerns. Moreover, a different school of thought says that oil prices would rise higher if the world allows Iran to continue its uranium enrichment projects (Ebel 34). Furthermore, there are even stronger fears that global oil prices would double if Iran developed a deadly nuclear weapon.
Conclusion
After weighing the findings of this paper, it is safe to say that the economic restrictions imposed by the US and some of its allies have forced many international oil companies to re-evaluate their business relationships with Iran. Indeed, these economic restrictions have forced Total to stall its business interactions with Iran, despite having massive investments in the country. As the geopolitical uncertainties surrounding the relationship between Iran and its neighbors persist, there is still going to be a lot of fear and hesitation by western oil companies, like Total, to pursue further business engagements with Tehran. This uncertainty will also continue to have a negative impact on the global oil industry.
Works Cited
Amiel, Geraldine 2012, Total Looks to Saudis. Web.
Ebel, Robert. Geopolitics of the Iranian Nuclear Energy Program: But Oil and Gas Still Matter: a Report of the CSIS Energy and National Security Program, Washington: CSIS, 2010. Print.
Faure, Gaëlle 2010, French Oil Giant Total Halts Sale of Oil Products to Iran. Web.
Global Policy Forum 2013, UN Economic restrictions Against Iran. Web.
JFED 2012, Companies Investing in Iran’s Oil and Natural Gas Sector. Web.
Jolly, David 2008, Amid Political Uncertainty, Total Cancels Investments in Iran. Web.