French Firm Defies U.S. Law With Iran Deal

PARIS —  In a head-on challenge to U.S. efforts to economically hobble Iran, a French-led consortium has signed a $2-billion investment deal to develop a giant natural gas field in the Persian Gulf. The United States reacted swiftly Monday, saying it will take action if the deal violates U.S. law.

“We regret this decision by [French energy giant] Total. We will investigate whether this violates the embargo law. We will apply the law,” State Department spokesman James P. Rubin said at the United Nations, where Secretary of State Madeleine Albright is attending the opening of the General Assembly. A 1996 U.S. law imposes sanctions on foreign firms that invest significantly in the Iranian energy sector.

French and European officials quickly lined up behind Total, warning the Clinton administration that it would be risky and wrong to retaliate against the company over the weekend deal.

“The application of the dispositions of this law would in effect constitute a grave precedent,” French Foreign Ministry spokesman Jacques Rummelhardt said.

Peter Guilford, a spokesman for the 15-nation European Union in Brussels, said that U.S. countermeasures would be “illegal and unacceptable.”

But White House Press Secretary Mike McCurry said the U.S. will not alter its actions based on whether the EU supports the contract. “Our law is very clear, and requirements under the sanctions act are clear, and we’ll have to administer the law,” he said.

As for the imposition of sanctions, McCurry said: “I’m not prepared to make an announcement, but it’s safe to assume that those who are responsible for implementing that law have followed this transaction carefully. And our argument against the proposed investment is very well known and very well known to both the company and the government of France, and that’s that the proceeds that develop from oil and gas exploration are used in Iran’s unrelenting state-sponsored support of terrorism.”

Thierry Desmarest, Total’s chairman, rejected the rationale behind the punitive U.S. legislation. “These stories of financing of terrorism [by Iran] are absurd,” he said in an interview with the Paris daily Le Monde published Monday.

The U.S. law, sponsored by Sen. Alfonse M. D’Amato (R-N.Y.), was enacted in August 1996 in an attempt to minimize foreign investment in Iran and Libya, two militantly Islamic countries accused by the United States of serving as nerve centers and financiers of international terrorism.

The act provides for sanctions for any company investing $40 million or more in the oil and gas industries of the targeted nations.

“We’re telling companies that invest in the oil sector of Iran or Libya: You can either do business with these countries or with us. You can’t do both at once,” Gregg Rickman, D’Amato’s chief legal advisor, told a symposium of business leaders in France in June.

The U.S. legislation and another law designed to regulate outside investment in Communist-ruled Cuba have raised the hackles of many Europeans, who regard them as outrageous examples of the United States throwing around its economic weight to force other countries to join its ideological crusades.

“The D’Amato law is American,” Rummelhardt said. “It applies in the United States and to American enterprises.” Only the U.N. Security Council, the French official contended, can impose international sanctions valid under international law.

IRNA, the official Iranian news agency, said the deal calls the “bluff” of the D’Amato law. An official with Iran’s state-owned National Iranian Oil Co. told the Reuters news service, “It is a very important turning point for us.

“It is a moral victory because world public opinion, especially in Europe, has taken a firm line against the U.S., particularly with the extraterritorial business of the act. This is the most valuable aspect of the deal for us.”

The agreement signed Sunday in Tehran with National Iranian Oil Co. is for development of an offshore natural gas field, Pars South, in the Persian Gulf. The field, under more than 230 feet of water, contains gas reserves of an estimated 10 trillion cubic yards, making it one of the world’s largest.

Total, the world’s seventh-largest energy company, will own 40% of the consortium, with the remaining 60% equally shared between Gazprom, Russia’s leading energy firm, and Petronas, a Malaysian company. Annual production is estimated to reach 26 billion cubic yards, a quantity that would be equivalent to half of all of the natural gas consumed annually in France, after the field comes on line in the second half of 2001.

Total Chairman Desmarest downplayed the impact of possible U.S. countermeasures over the deal. Under the law, President Clinton could choose two penalties from a menu of six, ranging from a ban on exports to the United States to denying an export license to use America-made goods.

Desmarest said Total’s U.S. subsidiary, Topna, merged just last week with an American energy company, Ultramar Diamond Shamrock, and that Total owns only 8% of the result. That, he said, makes Ultramar an unlikely target for U.S. retaliation.

“Agreement was reached Thursday, just before the Iranian signing,” Desmarest told Le Monde. “It’s a coincidence, but nobody will believe us.”

The Iranian deal is not the first controversial endeavor involving Total. Last year, Total and El Segundo-based Unocal’s investment in a natural gas pipeline in Myanmar, formerly Burma, drew the international scorn of critics opposed to such projects in the country, which is ruled by a military junta.

Before closing the deal with the Iranians, the Total chairman said his company had won the backing of French President Jacques Chirac and Prime Minister Lionel Jospin, as well as officials of the European Union. The French government owns 0.9% of Total.

The trade bloc, however, is still searching for its own policy toward Tehran. In April, the EU nations called home their ambassadors after a court in Germany ruled that Iran’s highest authorities were involved in the assassination of four Kurdish opposition leaders in Berlin in 1992.

Rummelhardt said France is following a double-track approach with Iran: maintaining a firm diplomatic line while rejecting “counterproductive” limits on the development of trade.

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Dahlburg reported from Paris and Kempster from New York. Times staff writer Elizabeth Shogren contributed from Washington.