CHINA/IRAN: SINOPEC SAYS OIL DEAL DOES NOT HARM U.S.

UNCLAS BEIJING 007445 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM, NEA, EEB, AND INR STATE PLEASE PASS USTR TREASURY FOR OASIA/DOHNER USDOC FOR 4420 E.O. 12958: N/A TAGS: ENRG PREL ECON EINV CH IR SUBJECT: CHINA/IRAN: SINOPEC SAYS OIL DEAL DOES NOT HARM U.S. INTERESTS REF: BEIJING 7434 SUMMARY -------------- ¶1. (SBU) On December 11, Sinopec's Director General for International Affairs confirmed and elaborated on several elements of its deal with Iran to develop oil production at Yadavaran. He told us the activities to be undertaken in Iran constitute a services contract, not an investment. He argued that the deal would not affect Sinopec's or the Chinese Government's views of Iran's uranium enrichment activities. END SUMMARY WHAT SINOPEC TOLD US -------------- ¶2. (SBU) Sinopec International Affairs Director General Tang Suxin elaborated on the Yadavaran oil deal in a December 11 meeting with the Embassy. He made the following points: o The entity that signed with Iran is Sinopec International Petroleum and Exploration Development Company, Ltd., SIPC. (Note: SIPC is a wholly-owned subsidiary of parent company Sinopec Group. Sinopec's listed subsidiary, which trades in the U.S. and on other international exchanges, is a separate entity from SIPC but is also under the parent Sinopec Group.) o The deal is a services contract, not an investment. It is based on a "capital advance" model, i.e., it is structured as a buyback arrangement. This is what Iran requires of foreign petroleum companies. Unlike other countries, there are no product sharing arrangements attainable in Iran. o Services contracts like the one Sinopec has signed with Iran will increase overall global energy supplies. o The contract value is confidential; media reports of $2 billion value may have been sourced from the Iranian side. o Tang could not confirm media reports that the deal also includes LNG purchases. His initial understanding is that it only involves petroleum. Tang cautioned that since the SIPC representative is not yet back from Iran, he may not know all of the terms and conditions of what was signed. o China, like other countries, has normal diplomatic and trade relations with Iran, including with Iran's petroleum sector. These relations are conducted according to normal practice. They are transparent and not in violation of any international rules, regulations, or norms. o The deal does not hurt other countries or the international community. o The deal does not change China's position with regard to containing Iran's nuclear programs. o Sinopec is a fully responsible corporation that always has and will continue to abide by international laws and UN resolutions. ¶3. (SBU) The DG asked that the points he made be forwarded to the USG, expressed hope that that the USG will not be "too concerned," and that "we will see no negative impact." He then stated again that the deal will not change Sinopec's or the Chinese Government's views on uranium enrichment. RANDT