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### Viewing cable 09THEHAGUE2, NETHERLANDS: SHELL DISCUSSES BUSINESS IN IRAN

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09THEHAGUE2 | 2009-01-02 09:09 | 2011-01-20 07:07 | CONFIDENTIAL//NOFORN | Embassy The Hague

`

    VZCZCXRO8572
    RR RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV RUEHSR
    DE RUEHTC #0002/01 0020903
    ZNY CCCCC ZZH
    R 020903Z JAN 09
    FM AMEMBASSY THE HAGUE
    TO RUEHC/SECSTATE WASHDC 2377
    INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
    RUCNIRA/IRAN COLLECTIVE
    RUEHTC/AMCONSUL AMSTERDAM 4074

` `

    C O N F I D E N T I A L SECTION 01 OF 03 THE HAGUE 000002

    NOFORN
    SIPDIS

    E.O. 12958: DECL: 01/01/2019
    TAGS: ENRG EPET ETTC PREL NL IR
    SUBJECT: NETHERLANDS: SHELL DISCUSSES BUSINESS IN IRAN

    REF: A. STATE 125579
    ¶B. THE HAGUE 276
    ¶C. 07 THE HAGUE 935

    Classified By: Pol/Econ Counselor Andrew Mann, reasons 1.4 (b),(d)

    ¶1. (C/NF) SUMMARY: The Dutch government agrees that doing
    business with Iran poses risks for Dutch companies, and it
    will continue to discourage new investments there. Shell has
    again pushed back its investment decision on the Persian LNG
    project, this time until late 2010. However, Shell's go-slow
    approach in Iran belies seething frustration at the perceived
    ineffectiveness of sanctions against Iran. The company sees
    Iran's nuclear activities continuing while Chinese and other
    firms seal long-term energy deals in Iran at the expense of
    Western energy security interests. END SUMMARY.

    --------------------------------------------- -------
    GONL WARNING DUTCH FIRMS ON RISKY BUSINESS WITH IRAN
    --------------------------------------------- -------

    ¶2. (C) EconOffs delivered ref A points during a December 8
    meeting with Simon Smits, Director of Economic Cooperation at
    the Foreign Ministry. (Note: In summer 2008, Smits, a career
    diplomat, completed a two-year secondment at Shell where he
    focused on government relations in the company's hot zones.
    The secondment was part of an ongoing program in which a
    Dutch diplomat works at Shell's headquarters in The Hague and
    a UK diplomat works at Shell's London offices. End note.)
    Smits reiterated what he had told us before: although Shell
    maintains a footprint in Iran, the company cares immensely
    about its reputation and has therefore backed off its
    Iranian ventures. He added that Shell would never want to
    jeopardize its huge investments in the U.S. by violating
    the Iran Sanctions Act, which factors into all its decisions
    on Iran. As for Philips, Smits was not as familiar with its
    business interests in Iran but he would be surprised if they
    were active there. He said the Dutch government repeats
    over and over to Dutch companies that they must stick to the
    international regime on Iran. Smits assured us that in
    light of our demarche and national measures efforts,the
    Dutch government would continue to exert pressure on the
    private sector to abstain from clinching new deals with Iran.
    EconOffs also shared ref A points with Philips and with
    trade and export control officials at the Ministry of
    Economic Affairs; reporting on Philips' reaction will follow
    septel.

    ------------------------------
    SHELL OFFERS DETAILED RESPONSE
    ------------------------------

    ¶3. (C/NF) EconfOff met December 15 with John Crocker
    (protect), Shell's Head of International Government
    Relations, and his colleague Roelof van Ees to discuss ref A
    points. Crocker, who briefs the Department regularly,
    stressed Shell's commitment to its international obligations
    and its opposition to Iran's nuclear activities. He also
    described Shell's frustration with the current approach to
    Iran sanctions, which it sees as both ineffective in stopping
    Iran's nuclear ambitions and detrimental to Western energy
    interests.

    --------------------------------------------- -------
    SHELL: WITHDRAWAL FROM IRAN WILL REDUCE TOTAL OUTPUT
    --------------------------------------------- -------

    ¶4. (C/NF) From Shell's perspective, shutting down completely
    international oil companies' (IOCs) engagement with Iran's
    energy sector is counterproductive. Crocker attributed this
    to the Iranian regime's absolute focus on the short-term,
    they pay attention to consequences that will hit tomorrow at
    the latest. Drawing on Shell's experience, he described
    Qthe latest. Drawing on Shell's experience, he described
    opposing methods to develop Iran's gas fields. For IOCs,
    developing a new field today would require a $10-25 billion
    investment using advanced technology. This would maximize
    the field's long-term recovery rate and profitability, but
    output would be lower in the first decade as a result and the
    field might not generate positive cash flows until 2025. On
    the other hand, if the Iranians develop a new field on their
    own or with a Chinese partner, they will use poorer
    technology. This would accelerate near-term recovery -- the
    overriding concern of Iran's leadership -- but limit the
    field's total output to only 20 percent of recoverable gas
    reserves.

    --------------------------------------
    STATUS OF SHELL'S LNG INTEREST IN IRAN
    --------------------------------------

    THE HAGUE 00000002 002 OF 003

    ¶5. (C/NF) Crocker provided an update on the Persian LNG
    (PLNG) project in Iran. (Note: Shell has a 25 percent stake
    in the project, Repsol 25 percent, and National Iranian Oil
    Company (NIOC) owns 50 percent. End note.) Shell and the
    other parties signed an initial agreement in 2004. A final
    investment decision (FID) had been expected at the end of
    2006, which then slipped to mid-2008. According to Crocker,
    Shell's FID is now delayed until late 2010. He said Iran
    blames the delay on Shell's backtracking for political
    reasons. Crocker agreed Shell had dragged its feet on
    purpose but added that Iran bore responsibility for its
    operational incompetence and its attempts to change the
    agreement's terms. He said the additional two-year delay
    from 2008 to 2010 stems largely from changes in how the
    project's construction will be contracted -- instead of
    having one large subcontractor build the multi-train
    terminal, the contract will be split up into several
    components. Crocker said Shell, Repsol, and NIOC continue to
    work on the design and evaluation phases of their respective
    parts of the PLNG project. He said Shell would make its FID
    in late 2010 taking all factors, including political ones,
    into account. If the project moves ahead after that point,
    Crocker said LNG deliveries would commence by 2015-16 at the
    earliest.

    --------------------------------------------- -
    SHELL DISMISSIVE OF CATALYTIC CONVERTER THREAT
    --------------------------------------------- -

    ¶6. (C/NF) Crocker was skeptical that the supply of catalytic
    converters to Iran's refineries was a significant issue. He
    was unaware of Shell's sales of catalytic converters in Iran.
    He said the U.S. should know that it is not in the
    regime's interest to upgrade its refineries, as well-placed
    individuals profit handsomely from the export of Iranian
    crude oil at market prices and re-import of refined products
    at heavily subsidized rates. Crocker suggested that because
    of this lucrative arbitrage scheme, it was in the interest of
    Iran's rulers for the refining sector to remain incompetently
    managed.

    ----------------------------
    SHELL'S FRUSTRATIONS IN IRAN
    ----------------------------

    ¶7. (C/NF) Crocker vented several frustrations Shell has
    concerning Iran's behavior and the international sanctions
    against it:

    -- Iranian Indecision: Crocker said the Iranians are not
    clear on what they want for their natural gas; their strategy
    depends on whom one speaks with in Tehran. Some key
    officials want to export LNG, others want to export gas via
    pipeline, and others still want to keep all the gas for
    future domestic use. He said this internal confusion created
    an uncertain environment for IOCs.

    -- Double Standard for China: Crocker said Shell was dismayed
    by the lack of U.S. government criticism of China after
    Sinopec signed its 2007 deal with Iran to develop the
    Yadavaran field. According to Crocker, this underscored
    Shell executives' fear that western IOCs will get shut out of
    Iran long-term to the benefit of Chinese, Russian, and even
    Indian firms who disregard American and European pressure and
    make lucrative investments in Iran's energy sector with
    impunity. He claimed that Tehran was crawling with Chinese
    eager to do business with Iran.

    -- Level Playing Field: Crocker said Shell would welcome
    another UNSC Resolution on Iran that levels the playing
    field by imposing broader trade sanctions on Iran and
    forcing Chinese and Russian firms to comply. In Crocker's
    Qforcing Chinese and Russian firms to comply. In Crocker's
    view, this would be more effective than just targeting the
    finance and energy sectors in bringing pressure against the
    Iranian regime and it would also reduce the IOCs' competitive
    disadvantage.

    -- U.S. Holds the Key: Crocker lamented that P5-plus-1
    overtures would not be attractive to Iran unless they
    included the carrot of a clear timetable for better relations
    with the U.S. He said the Iranians don't want better
    relations with Europe, nor do they want ten years of talks
    with the U.S.

    ¶8. (C/NF) Despite Shell's fraught experience in Iran, Crocker
    concluded this has not deterred the company from a long-term
    presence there. He compared Iran to Venezuela, Russia,
    Nigeria, and Iraq -- other potentially unstable and
    dangerous places where Shell and other IOCs do business.

    THE HAGUE 00000002 003 OF 003

    ¶9. (C/NF) Biographical Note: Crocker worked with the UK
    Foreign and Commonwealth Office for several years, mainly in
    the Middle East, before moving to Shell ten years ago. He
    gained operational experience managing Shell's business in
    Oman before coming to headquarters to oversee government
    relations.

    -------
    COMMENT
    -------

    ¶10. (C/NF) In our dialogue with the Dutch government and
    private sector on finance and trade measures to combat Iran's
    nuclear activities, they express frustration that
    international sanctions are only as strong as their weakest
    link, i.e., Russia, the Gulf states, and -- especially --
    China. The Dutch think they are doing their fair share to
    implement sanctions effectively (and they see far higher
    trade volumes with Iran coming from Germany, Italy, and
    France). The Dutch will continue to be a dependable partner
    on Iran sanctions, but excluding them from the national
    measures dialogue (as occurred in early December) undercuts
    their ability to support our position on a bigger stage. END
    COMMENT.

    CULBERTSON

`