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Subject: U.S. Firms Buying Oil From Iran; New, Large Purchases Help Tehran to Fund
Date: Sun, 8 Nov 92 09:22:42 EST
Message-ID: <17.1992Nov8.092243@AmeriCast.com>

U.S. Firms Buying Oil From Iran; New, Large Purchases Help Tehran
to Fund Rebuilding Programs<By Steve Coll=Washington Post Foreign
Service=

LONDON, Nov. 7 - After shunning Iranian oil for years because of
political sensitivities, major U.S. oil companies recently have
become some of Iran's biggest customers and are now purchasing
Iranian crude at an annual rate of more than $3.5 billion, ac-
cording to oil traders, industry officials and analysts.

The U.S. purchases amount to about one-fourth of Iran's total oil
exports and mark a major shift in the international trading prac-
tices of some large U.S. oil companies, which earlier refused to
buy Iranian crude except in occasional spot market trades, large-
ly because of Iran's unsavory international reputation and its
various conflicts with Washington.

The new contracts are aiding Iran's drive to plow increased oil
revenues into large-scale economic and military reconstruction
and reassert its claim to be a force to be reckoned with in the
Persian Gulf and beyond.

For the first time since the 1979 Iranian Revolution, U.S. oil
firms are now taking on crude directly from Iran's export termi-
nal at Kharg Island, oil traders and other industry officials
said. And taken together, the U.S. companies have this year re-
placed Japan as Iran's biggest oil customer, according to London
oil traders and statistics compiled by the Middle East Economic
Survey, a Cyprus-based journal.

The contracts between U.S. oil firms and Tehran - most of which
have been signed in 1992 - are permissible under U.S. law, ac-
cording to oil industry and U.S. government officials, because
the oil purchased is not imported directly into the United
States. But the deals are regarded as highly sensitive, traders
and analysts said.

Iran has aggressively sought contracts with major U.S. oil com-
panies at a time when it is on an infrastructure building and de-
fense procurement spree that has involved record imports of well
over $20 billion in goods this year, mainly from the Western Eu-
rope and Asia.

Seeking new oil markets, Iran has announced an effort to increase
its export capacity by more than 50 percent. "As their (oil) pro-
duction increases, they (Iran) have to come up with more sales,"
said one London trader involved with the new U.S. contracts.

Some large U.S. oil firms recently reconsidered their policy to-
ward Iranian contracts because of changes in the oil markets, the
loss of Iraq as an oil exporter, and Iran's efforts to rehabili-
tate its international image, implement free-market reforms and
upgrade its oil operations, traders and analysts said.

"I'd say generally if we couldn't live with them, we wouldn't be
doing the deal," said Eric Larson, area manager of Chevron Corp.
in London.

Iran's attempts to project an image of relative political modera-
tion have been a "helpful background influence" for the new con-
tracts, Larson said. But he also cited commercial factors such as
U.S.  companies' need for diverse oil sources and recent Iranian
efforts to professionalize their oil export operations in Europe
and Asia.

Exxon Corp.  has become the largest U.S. buyer of Iranian crude,
purchasing about 250,000 barrels a day, which would be worth
about $1.8 billion on an annual basis, according to London oil
traders and statistics compiled by the Middle East Economic Sur-
vey, which monitors oil liftings at Kharg Island. Houston-based
Coastal Corp. is the second largest buyer at about 125,000 bar-
rels a day or roughly $900 million a year, according to these
sources.

Spokesmen at the two companies declined to discuss specifics of
their contracts. Exxon spokesman Bill Smith said the company will
buy Iranian crude when its "availability, quality and price meet
our commercial needs." He added, "Our trade has been at all times
consistent with applicable laws."

Coastal's vice president for communications, Dave Scott, said in
a prepared statement that Coastal "abides by all the rules and
regulations put in place by the government of the United States
and is equally sensitive to doing business in a manner that is in
the best interest of the U.S. and the company." He declined to
elaborate.

Besides Exxon and Coastal, Mobil Corp., Texaco Inc., Chevron
Corp. and Caltex Ltd. - an overseas joint venture of Texaco and
Chevron - are buying an average of slightly above 50,000 barrels
a day from Iran, according to industry sources. Phibro Energy
A.G., a Salmon Brothers Inc. oil trading unit, has also negotiat-
ed contracts with Iran recently, sources said, but the amounts
involved could not be determined.

Officials at Mobil and Chevron confirmed contracts with Iran in-
volving about $400 million each in annual purchases. Texaco did
not respond to requests for comment. The officials declined to
discuss the reasons for their renewed direct ties with Iran.

The rules governing purchases of Iranian oil by U.S. firms are
generally restrictive. But U.S. companes are permitted to buy
Iranian crude without a license as long as the oil is refined or
sold outside the United States, according to a U.S. Treasury
Department spokesman.

Traders and other industry sources said these rules are observed
in the recent U.S. contracts with Tehran. The oil being bought is
mainly used by the major U.S. oil companies in their own retail-
ing and refining operations in Europe and Asia.  Some is also be-
ing sold to third parties abroad, in compliance with U.S.  regu-
lations, they said.

During the 1980s, U.S. companies dealt infrequently with Iran and
only in the free-for-all European spot market, where U.S. firms
would occasionally purchase anywhere between $2 million and $30
million worth of oil from Iranian ships to replenish U.S. stocks
held abroad, traders and analysts said. The total number and
amount of such deals with U.S. firms is not public, but traders
said it was generally negligible in comparison to the more recent
contracts.

During the last year, major U.S. oil firms have negotiated siz-
able "term contracts" with the state-owned National Iranian Oil
Co. and arranged to send U.S.-leased ships to Kharg Island to
load large oil cargos on a monthly basis. These new contracts
generally involve commitments by U.S. firms to buy Iranian oil
over periods ranging from six months to a year, traders involved
in the deals said. The contracts have been negotiated since the
end of the Persian Gulf War at National Iranian Oil Co. offices
in London, Toronto, Singapore and Tehran, these sources said.

The earlier policy to stay away from such Iranian deals arose
from a fear among the U.S.  companies of "the possible political
innuendo," said John Lichtblau, an analyst at the Petroleum In-
dustry Research Foundation in New York. The new deals "began ten-
tatively" in 1991 and then "just sort of grew" this year, added
Ian Seymour, editor of the Middle East Economic Survey.

Iran remains on the State Department's list of countries deemed
to be supporting international terrorism. U.S. officials such as
CIA director Robert Gates recently have expressed concerns about
Iran's reported efforts to acquire conventional arms, medium-
range missiles and nuclear weapons. Incidents such as a Tehran
religious foundation's announced increase to $2 million of the
reward for assassination of author Salman Rushdie and the arrest
of a U.S.  citizen on spying charges are the most recent rem-
inders that U.S.-Iranian relations remain far from smooth.

But other developments such as Iran's role in the release of
Western hostages held in Lebanon and its neutrality during the
Persian Gulf War have helped during the last year to shape a ra-
pid change of perception by some U.S. oil companies, traders and
analysts said.

Some U.S. congressmen and senators continue to harshly criticize
efforts to liberalize trade between the United States and Tehran.
But the U.S. oil firms feel that enough has changed in the Middle
East since Iraq's invasion of Kuwait to justify renewed trade
with Tehran, even at the multi-billion dollar level now taking
place, traders said.

Officials at the National Iranian Oil Co. in London did not
respond to requests for comment.<02:17 11-08C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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