IRAN SANCTIONS ACT (ISA, FORMERLY ILSA): REPORTED

C O N F I D E N T I A L SECTION 01 OF 02 STATE 164866

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/05/2017
TAGS: ETTC PREL ENRG EPET IR IN
SUBJECT: IRAN SANCTIONS ACT (ISA, FORMERLY ILSA): REPORTED
ACTIONS BY ONGC AND HINDUJA GROUP RE IRAN OIL AND GAS
PROJECTS.

Classified By: EEB Acting DAS Stephen Gallogly; Reason 1.4 (d).


1. (U) This is an action message; please see paragraph 4
below.


2. (SBU) Press reports indicate that ONCG Videsh Limited
(OVL) and the Hinduja group are seeking to participate
jointly in two Iranian oil/gas projects --the development of
Iran,s Azadegan oilfield and of some portion (perhaps Phase
12) of the South Pars gas field. The two Indian companies
reportedly plan to form a partnership for the purpose of
bidding on these and possibly other Iranian projects. The
proposal apparently originated with Hinduja which, according
to some reports, already has a preliminary accord of some
kind regarding Azadegan with Naftiran Intertrade Company
(NICO),the Swiss-based Iranian entity that has controlled
the field since Japan,s Inpex ceased to be the majority
partner in October 2006.


3. (C) The fact that the firms are linking up for the
specific purpose of bidding on Iranian oil and gas projects
is a most unwelcome development. Hinduja,s reported
existing interest in Azadegan, and the fact that this field
is a focus of the proposed joint effort with OVL, is of
particular concern. The 2006 reduction in the Inpex share of
the deal from 75 percent to 10 percent was a major positive
event, and re-entry of a foreign participant into the deal
would be a significant step backward. Regarding Phase 12 of
the South pars project, we have raised serious concerns with
the Government of Austria and the energy firm OMV about an
MOU with Iran concerning that Phase. OVL is already
reportedly partnering with other Indian firms in exploring
the offshore Farsi block in Iran, where an oil discovery was
announced earlier this year.


4. (C-Rel. GOI and companies) Embassy New Delhi and
Consulate General Mumbai (which are already alert to this
issue) are asked to raise our concerns at senior levels of
the GOI and the companies. In doing so, posts may draw, as
appropriate, upon the following points.

--We are very much concerned about reports that OVL and the
Hinduja group are planning to form a new joint entity for the
express purpose of seeking participation in Iranian oil and
gas projects. Specific projects on which there is interest
in bidding include the Azadegan oilfield, on which Hinduja,
disturbingly, is already said to have a preliminary
understanding with the Iranian firm NICO, and a portion of
the South Pars gas field.

--Regarding Azadegan, the very large reduction in the Inpex
share of the project that took place in 2006 was a
significant positive development in diminishing foreign-firm
participation in Iran,s oil and gas sector. Involvement by
Hinduja or an OVL/Hinduja joint entity, would be a serious
step in the wrong direction.

--Inpex,s pull-back on Azadegan also reflects the
exceptional difficulty of doing profitable commercial
business in Iran.

--Even though not yet at the stage of signing a firm
agreement with Iran, an initiative of this kind, to form a
joint enterprise for bidding on Iranian oil and gas projects,
has the effect of undercutting international efforts to
pressure Iran to comply with UN Security Council resolutions
concerning its nuclear activities.


STATE 00164866 002 OF 002

SUBJECT: IRAN SANCTIONS ACT (ISA, FORMERLY ILSA): REPORTED
ACTIONS BY ONGC AND HINDUJA GROUP RE IRAN OIL AND GAS
PROJECT
--At a sensitive time when we are considering elements for a
third sanctions resolution, proposals intended to facilitate
company involvement in petroleum-sector investment are
extremely counterproductive; in effect, they offer to reward
Iran for defying the Security Council. This will only harden
Iranian resistance.

--Although current UN sanctions against Iran don,t deal
directly with investment, the P5 1 offer to Iran last year
includes the incentive of increased economic engagement if
Iran suspends uranium enrichment and reprocessing.

--If Iran can obtain enhanced economic cooperation without
taking any positive steps, it undermines the concept of this
incentive, leaving us with fewer options for trying to
convince Iran to work with constructively with the
international community.

--Congress is intensely interested in the issue of petroleum
investment in Iran, and the signing of an oil or gas deal by
Indian companies would certainly have negative repercussions
on the Hill.

--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.

--I want to stress that the recent revision of the National
Intelligence Estimate (NIE) on Iran in no way diminishes our
concerns about Iran,s continued pursuit of a nuclear
enrichment capability, in defiance of UN Security Council
resolutions that such activities should be suspended. Iran
remains a serious threat.

--If anything, the revised assessment suggests that Iran is
responsive to international pressure. This makes it all the
more critical to maintain that pressure --including by
avoiding major oil and gas deals.

--For companies: We urge ONGC/Hinduja to reconsider plans
for a joint investment vehicle focused on Iranian oil and gas
projects. We urge that Hinduja not move forward on any
existing understanding with regard to Azadegan.

--For GOI. We hope the GOI will understand the importance of
this matter, and will exert itself to prevent steps by
companies that would have so adverse an impact on
international diplomacy with respect to Iran and would raise
concerns under US law.


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