1. (C) On July 2 the Ambassador met with Jeroen van der
Veer, President of the Dutch side of Royal Dutch Shell, to
deliver demarche ref A regarding the Azadegan oil fields in
Iran. Van der Veer was accompanied by Senior Regional
Adviser Dr. Gavin Graham, who recently met with EB/ESC
officials in Washington on June 25 (ref B).



2. (C) Graham confirmed that Shell had urged the Japanese
consortium to seek an extension of the MOU, arguing that
politically this was not good time to be signing agreements.
Graham noted that he found that the Japanese did not fully
understand the potential international repercussions of a
deal with Iran. "They did not appreciate the seriousness of
the situation." However, commercial negotiations between
Iran and the Japanese were "far from resolved," and this was
likely also a factor in the Japanese decision to suspend for
now. Graham said he did not expect the commercial
negotiations to be completed soon. He noted that the June 30
deadline had passed without comment by Iran, perhaps showing
a willingness not to force the issue.

Shell's Role


--------------------------





3. (C) Shell does not have daily contact with the Japanese,
and to date has provided only advice on the logistical
aspects of the plan, not technology itself. Graham said the
Japanese group initially approached Shell due to the
company's experience in "heavy" oil, good record of
cooperation with Japanese firms, and the fact Shell is a
major supplier to Japan. Shell has no formal role in the
Japanese proposal nor in discussions between Iran and the
Japanese. However, Graham confirmed that it if the Japanese
reached agreement with Iran, Shell would consider
involvement, first looking at the commercial feasibility of
the agreement: "We are a commercial company, after all". If
the pact was deemed to be commercially viable for Shell, it
would then consider the political implications. Shell
reiterated that its policy is to keep the USG informed of its
actions, and that it follows a credo of "no surprises."
Graham surmised that other companies would be willing to step
in based on Shell's analysis.



4. (C) Graham said Shell is looking at Iran today for its
prospects 5 years down the road as a major player in oil and
gas. Japan has similar long term interests: it is dependent
on energy imports and Iran is a logical future source due to
its geography. The Japanese will likely extend discussions
with Iran with a view to signing an agreement at a point of
time when political conditions are better. One way to remain
involved while waiting for political conditions to improve
might be to work on demining activity and on handling
dangerous environmental problems.

Bangestan Field


--------------------------





5. (C) Van der Veer said Shell initially looked positively
at the Bangestan Field, but now sees environmental and social
challenges, so they have dropped it from consideration.
Furthermore, the terms offered by the Iranians were not good.
Shell has closed its study group.



6. (C) The Ambassador complemented Shell on its
transparency, underlined the importance of the issue to the
USG, and thanked them for their willingness to engage in
frank dialogue.
SOBEL