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Viewing cable 07THEHAGUE935, ISA (FORMERLY ILSA): DUTCH AND SHELL ON

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Reference ID Created Released Classification Origin
07THEHAGUE935 2007-05-16 13:01 2011-01-20 07:07 CONFIDENTIAL Embassy The Hague
VZCZCXRO7101
OO RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV
DE RUEHTC #0935/01 1361346
ZNY CCCCC ZZH
O 161346Z MAY 07
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9186
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0086
RUEHBK/AMEMBASSY BANGKOK PRIORITY 2731
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1996
RUEHSW/AMEMBASSY BERN PRIORITY 4080
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0427
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2653
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 1007
RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 0159
RUEHMO/AMEMBASSY MOSCOW PRIORITY 1719
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0581
RUEHNY/AMEMBASSY OSLO PRIORITY 4967
RUEHOT/AMEMBASSY OTTAWA PRIORITY 5143
RUEHKO/AMEMBASSY TOKYO PRIORITY 1758
RUEHBAD/AMCONSUL PERTH PRIORITY 0003
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 0003
C O N F I D E N T I A L SECTION 01 OF 02 THE HAGUE 000935 

SIPDIS 

SIPDIS 

STATE FOR EUR DAS BRYZA, EUR/UBI (RREITER) 
STATE ALSO FOR EB/ESC (JEIGHMIE), NEA/IR (HWOOSTER) 

E.O. 12958: DECL: 05/14/2017 
TAGS: ETTC PREL ENRG EPET NL IR
SUBJECT: ISA (FORMERLY ILSA): DUTCH AND SHELL ON 
INVESTMENTS IN IRAN 

REF: STATE 47688 

Classified By: Economic Section Chief Karen Enstrom, 
reasons 1.4 (b and d). 

1. (C) SUMMARY. A Shell official confirmed the company 
does not expect to make any final investment decisions before 
mid-2008 or early 2009 on the Persian LNG and Yadavaran gas 
and oil investment projects in Iran. Dutch Foreign Ministry 
officials noted surprise with the Iranian announcement of a 
faster timetable for a deal with the Chinese oil firm Sinopec 
on Yadavaran. These officials reiterated that Shell 
regularly briefs them on its activities in Iran. END SUMMARY. 

2. (C) Econoff discussed on April 17 reftel points 
regarding USG concerns and opposition to oil and gas 
investments in Iran with Dutch Ministry of Foreign Affairs 
(MFA) officials Daphne Bergsma, Acting Head of the Gulf 
States Division in the North Africa and Middle East 
Department, and Loek ten Hagen, Senior Policy Officer and 
Desk Officer for Iran in the same department. On May 3, 
Econoffs also raised reftel points with John Crocker, Head of 
Royal Dutch Shell's International Government Relations and 
Senior Advisor for North Africa, Middle East, Central Asia, 
Ukraine, and Russia, and Lynn Azar, Shell's Regional Advisor 
for the Middle East and North Africa. 

--------------------------------------- 
MFA Surprised By Iranian Announcement 
--------------------------------------- 

3. (C) Bergsma said recent press statements from Iranian 
Oil Minister Vaziri Hamaneh on an impending final investment 
deal with Chinese oil firm Sinopec on developing the 
Yadavaran field had taken the GONL by surprise. Recent 
information from officials from Shell, which has an interest 
in developing Yadavaran with Sinopec, had indicated a final 
decision would not occur until 2008 or later, she added. 
Officially, she said, the GONL did not interfere in Shell's 
decision-making process. Nonetheless, Shell officials had 
assured the MFA that the company would consider all factors 
-- including political -- prior to any final investment 
decision. Ten Hagen confirmed the MFA was in regular contact 
with Crocker on Shells' Iran activities. 

--------------------- 
Shell's Iran Strategy 
--------------------- 

4. (C) With expected declines in European gas and oil 
production, decreased reliability of Russian supplies, few 
viable alternatives, increasing reliance on natural gas, and 
long development cycles for energy projects (up to ten 
years), Crocker said Shell had concluded that stable future 
energy prices were dependent on outside investment in Iran 
and the pursuit of big projects. While Shell had no plans 
at present to increase its involvement beyond the Persian LNG 
(South Pars), Yadavaran, and other projects aimed at helping 
Gulf countries overcome supply challenges, Crocker said the 
company still needed to think strategically now in 
preparation for any future investments. He said a May 1998 
decision by the USG to waive Iran-Libya Sanction Act (ILSA) 
sanctions for France's Total, Russia's Gazprom, and 
Malaysia's Petronas had led Shell to believe future Iran 
energy projects would also receive similar waivers. 

5. (C) Crocker reiterated that Shell was fully aware of USG 
concerns about investments in Iran's oil and gas sector and 
the potential harm caused by public announcements at this 
sensitive time. He emphasized the importance of delivering 
similar messages to the Chinese regarding Sinopec. He said 

THE HAGUE 00000935 002 OF 002 


Shell was also following closely all pending Congressional 
legislation that might tighten Iran Sanction Act (ISA) 
implementation. 

6. (C) Crocker stressed that Shell regularly briefs 
relevant governments and the EU, including Commission 
President Jose Barroso. According to Crocker, Barroso and 
other EU governments were less concerned about Shell's 
exploratory activities in Iran. There was a need to balance 
political concerns with the freedom of business to operate, 
he added. 
--------------------------------------------- - 
Persian LNG: No Final Decision Before Mid-2008 
--------------------------------------------- - 

7. (C) Under the initial September 2004 framework agreement 
between Shell and Iran, a final Persian LNG investment 
decision was expected by 2006, Crocker explained. He said 
Shell now anticipated that a final decision was not likely 
before mid-2008, although the Iranians still hoped for a 
decision by the end of 2007. Some elements of the agreement 
continued to move forward, Crocker acknowledged, as the 
parties tried to develop a shared timeline. 

8. (C) Any final Shell investment decision would be based 
on such economic factors as the projected market, customers, 
financial aspects, and potential risks, Crocker said. Given 
changes in these factors since 2004, he indicated that the 
chances of concluding an investment decision based on the 
2004 framework agreement were slim. Moreover, the 2004 
agreement was negotiated at lower energy price levels, which 
Crocker suggested even Iran would have problems accepting at 
this stage. A renegotiation of the framework agreement would 
add another six months to any projected timetable, he added. 

---------------------------------------- 
Yadavaran: Final Decision In Early 2009? 
---------------------------------------- 

9. (C) Crocker said it was hard to predict whether Shell 
would succeed in securing favorable terms from Iran for 
investing in Yadavaran. Shell had not yet agreed on a 
Yadavaran strategy, he added. If Shell did move forward on 
the project, he indicated that a framework agreement might be 
possible in late 2007, followed by a final investment 
decision in early 2009. He said he had noticed more urgency 
recently on the part of Iran in determining whether to pursue 
development of Yadavaran alone. Iran was also considering an 
option for 100 percent foreign ownership during development 
with a full transition back to the Iranian state following 
implementation, he noted. 

10. (C) Crocker argued that Iran would develop Yadavaran 
with or without foreign involvement in order to maintain 
current oil production levels. With a six-year 
implementation and investment pay-back cycle, however, he 
said Iran would only begin to receive revenues from the 
project starting in 2015. Current investments thus would 
serve the Iranian people and the world of tomorrow, and not 
the Iran of today, he stressed. Western expertise could 
also serve to increase the extraction rate for Yadavaran by 
40 or 50 percent over ten years, rather than only 20 percent 
if Iran pursued Yadavaran alone, he added. 
ARNALL