IRAN SANCTIONS ACT (ISA, FORMERLY ILSA): APPARENT

C O N F I D E N T I A L SECTION 01 OF 02 STATE 142040

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/09/2017
TAGS: ETTC PREL ENRG EPET IR CH
SUBJECT: IRAN SANCTIONS ACT (ISA, FORMERLY ILSA): APPARENT
PROGRESS BY SINOPEC ON YADAVARAN PROJECT

REF: A) STATE 126111 AND PREVIOUS (B) BEIJING 6114
(C) BEIJING 6170 (D)BEIJING 6402

Classified By: EAP Acting DAS John Norris; Reason 1.4 (b and d).


1. (U) This is an action message; please see paragraphs 2
through 4 below.


2. (C) Department appreciates Embassy,s continuing close
attention to this matter. Ref. C conveys disturbing news of
apparent progress toward a firm agreement on Yadavaran. The
seriousness of this issue calls for further approaches, which
Embassy is asked to make at the most senior appropriate
levels of the government and company. We believe this would
be an appropriate follow-on to the Ambassador,s broader
discussion of cooperation reported Ref. D.


3. (C) Except for the important point about the
recently-enunciated French position on business with Iran
(below),our arguments are not new. But it is important to
restate them for the record, since a final agreement on
Yadavaran would be an extremely negative development, as the
first major new deal for actually developing an Iranian oil
or gas field in recent years. At a time when Iran continues
to defy UNSC resolutions about its nuclear activities, such
an agreement would encourage Iranian obduracy, damage the
P-5 1 (particularly in light of a new development: the recent
decision by the French government to actively discourage
French firms from finalizing oil and gas deals or bidding on
new projects in Iran),and undermine our increasingly
important efforts to persuade other countries to go beyond
UNSC requirements in further constraining commercial
engagement with Iran. It would also raise concerns under ISA
(the Iran Sanctions Act) and spark a strong reaction in
Congress, where new Iran sanctions legislation is under
active consideration.


4. (SBU) In its discussions, Embassy may draw as appropriate
on previous messages as well as on the following points:

-- Since our recent discussions we have received further
indications that there has been important progress by Sinopec
toward reaching a firm agreement with Iran on developing the
Yadavaran oil field

--The pace of investment in developing Iranian oil and gas
fields has slowed markedly in recent years. Such an
agreement by Sinopec would be would be the first major new
agreement of this kind for some years, and would thus have an
enormous negative impact.

--It would severely impair our common effort to bring Iran
into compliance with UNSC resolutions regarding its nuclear
program )sabotaging the concept reflected in the P-5 1
proposal of offering enhanced economic engagement as an
inducement for Iranian compliance.

--At a sensitive moment when we are considering elements for
a third sanctions resolution, signing an agreement to develop
Yadavaran would reward Iran for defying the Council and
harden Iranian resistance.

--Regarding potential deals of this kind, restraint by firms
from all countries is critical. France has called on its own
companies not to move toward finalizing oil and gas deals, a
key one of which has been under negotiation longer than
Yadavaran.


STATE 00142040 002 OF 002


--In light of the French position, an agreement by a Chinese
firm to go forward on the Yadavaran project would severely
damage P-5 1 unity --in addition to the encouragement it
would give to Iranian defiance.

--Congress is intensely interested in the issue of investment
in Iran, and preliminary agreements earlier this year
concerning major LNG deals with Iran, including one by CNOOC,
drew strong negative attention.

--In addition to its other negative effects, entering into
such an agreement would provide fuel to critics of the U.S
-China relationship.

--Agreements involving investment in Iran,s oil and gas
sector also raise concerns under US law )the Iran Sanctions
Act (ISA),which provides for sanctions against companies
making certain investments in Iran,s oil and gas sector.

--You have told us numerous times that your investment in
Iran,s oil and gas sector is an engineering service
contract. We assume you are doing so to establish your
position that you believe your investment does not violate
ISA. Referring to your activity as engineering work does not
establish whether the activity in question constitutes
investment within the meaning of the ISA statute. The final
decision in this regard rests entirely with the Secretary of
State.

--Hope you will clearly understand the importance of this
matter, and take appropriate steps with respect to any
potential new actions by Sinopec.


5. (U) Please include the four letters ILSA in subject line
of reply.
RICE