Exclusive: Shell scrambles to pay huge bill for Iran oil

LONDON Sun Mar 25, 2012 2:48pm EDT

A Shell oil and gas sign. REUTERS/Morteza Nikoubazl

A Shell oil and gas sign.

Credit: Reuters/Morteza Nikoubazl

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LONDON (Reuters) - Royal Dutch Shell is struggling to pay off $1 billion that it owes Iran for crude oil because European Union and U.S. financial sanctions now make it almost impossible to process payments, industry sources said.

Four sources said the oil major owes a large sum to the National Iranian Oil Co (NIOC) for deliveries of crude, with one putting the figure at close to $1 billion. A debt of that size would equate to roughly four large tanker loads of Iranian crude or about 8 million barrels.

"Shell is working hard to figure out a way to pay NIOC," said an industry source, who requested anonymity. "It's very sensitive and very difficult. They want to stay on good terms with Iran, while abiding by sanctions."

A Shell spokesman declined to comment.

The European Union toughened financial sanctions and placed a ban on Iranian oil imports on January 23, but gave companies until July 1 to wind down their existing business.

With daily contract volumes of 100,000 barrels, Shell ranked as Iran's second biggest corporate client - along with France's Total - behind Turkey's Tupras.

Shell CEO Peter Voser said on March 7 the company would take its final deliveries of Iranian crude "within a matter of weeks".

Rigorous U.S. and European financial measures, aimed at punishing Iran for its nuclear program have already come into force, making it increasingly difficult to pay for and ship crude from Iran, say oil executives.

"There are big frustrations with the payment route - the U.S. pressure is really working," said a senior oil source. "It's now nearly impossible to use the banking system."

Such financial restrictions were in part behind Total's decision to stop purchasing Iranian crude at the end of last year, industry sources say. Total also bought about 100,000 barrels per day from Tehran.

Industry sources say some of Iran's big customers may have been using the Dubai-based Noor Islamic Bank to channel payments to Iran. It is not known whether Shell was processing payments via Noor Islamic Bank.

Diplomats say the bank bowed to pressure from Washington and cut ties with Iranian banks in the United Arab Emirates at the end of last year.

Given the outstanding amount owed in the face of sanctions, senior oil executives say the only way forward is for Shell to ask the British government to help settle the account with Iran.

An approach was made by Shell, sources say, but the company was rebuffed.

A small portion of the Shell debt could be written off through an outstanding payment NIOC owes the company for development of the offshore Soroush/Nowrooz oilfields, say industry sources.

Shell and European rivals such as Total and Italy's Eni have built longstanding relationships with Iran, OPEC's second largest exporter, through their work at the country's oilfields and years of crude oil purchases.

But while they are loath to burn bridges with Tehran, they also cannot afford to put business in the United States and elsewhere in the West at risk.

(Reporting by Peg Mackey; Editing by Giles Elgood)

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Comments (15)
oberst wrote:
escrow account ? Is that new to your accountant ?

Mar 25, 2012 7:27am EDT  --  Report as abuse
PseudoTurtle wrote:
Has anyone considered that an oil embargo on Iran is essentially the same as in the good old days of sailing ships when naval vessels had to physically blockade an enemy’s ports, instead of simply doing it electronically, to achieve the same results.

Back then, it was universally considered an act of war.

I don’t see how what the US is doing is any different, since the net effect is the same.

I think what we are doing is completely counter-productive and this will blow up in our face — literally.

Mar 25, 2012 9:14am EDT  --  Report as abuse
Stanley7746 wrote:
Are there not factions in many nations that would welcome a war with Iran, seeing this as a way to eliminate problems and settle scores with Tehran?

Mar 25, 2012 2:03pm EDT  --  Report as abuse
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