China’s state-run energy giant is making a new approach to clinch a $3 billion deal for more development of an Iranian oil field, seeking to take advantage of waivers allowed under U.S. sanctions as two European nations have ended crude purchases, according to people familiar with the matter.
The moves highlight the divergent ways nations are reacting to temporary exemptions from U.S. sanctions on Iran. China’s decision to pursue lucrative deals with Tehran and deepen its presence in Iran contrasts with a retreat by Italy and Greece stemming from fear that financial transactions and physical trade with Iran have become too difficult.
China Petroleum & Chemical Corp. , or Sinopec , told its government-owned counterpart, the National Iranian Oil Co., it wanted its share of the field’s production to be granted under the U.S. waiver allocated to China, one person said.
Sinopec is driving a hard bargain, making stringent demands, the people said. The company asked to buy equipment of its choice—made in China—and requested reimbursement for costs as soon as the new development undergoes testing, terms Iran normally refuses.
While U.S. sanctions, which went into effect in November, prevent companies from signing contracts to access new oil fields in Iran, Washington granted exemptions allowing Iranian oil purchases by China, India, Japan, South Korea, Turkey, Taiwan, Italy and Greece to avoid a global oil-price spike.
The Chinese company has informed the U.S. State Department about its Iran oil business, the people said. Sinopec believes it wouldn’t run afoul of a U.S. ban on signing new development deals, as its proposal for further development is part of an existing contract to operate the field, according to the people.
Late last year, after the U.S. allowed China to keep purchasing as much as 360,000 barrels of Iranian oil a day, Sinopec proposed a $3 billion investment plan in the Yadavaran oil field it operates in western Iran, according to people familiar with the proposal. The deal—if agreed—would double production at the field to 180,000 barrels a day within six months, the people said.
Iran’s nationalist-minded oil officials have often imposed stringent conditions, insisting on the use of domestic equipment and companies. Cost reimbursements from oil projects can drag on for years because they are subject to complicated bureaucratic approvals.
A spokeswoman for Iran’s oil ministry said she wasn’t aware of the new offer. Sinopec and the State Department didn’t return requests for comment.
The proposed Chinese deal comes as European oil giants such as France’s Total SA pulled out of the Islamic Republic ahead of the U.S. sanctions, despite Iran holding the second-largest natural-gas reserves in the world and the fourth-largest in oil reserves.
Despite receiving exemptions, three of the countries, Taiwan, Italy and Greece, have stopped buying Iranian oil altogether almost immediately, according to oil executives, because they failed to find ways to comply with other U.S. sanctions—including bans on shipping, insuring and banking with Iran.
While Taiwan only imported 16,000 barrels a day before the sanctions, Italy and Greece bought 300,000 barrels a day, respectively. The ministries in charge of energy in the three countries didn’t respond to requests for comment.
Brian Hook, the U.S. State Department’s special representative on Iran, confirmed that three exempted countries have stopped buying Iran oil but he declined to name them.
The U.S. decision to grant the waivers was made after buyers had already taken steps to reduce Iranian oil imports from 2.7 million barrels a day to below 1 million barrels a day, Mr. Hook said.
The European Union is trying to set up a special-purpose vehicle that would insulate its companies—such as oil refiners—from U.S. sanctions on Iran and create a safe avenue for financial transactions with the country.
But Mr. Hook said such an initiative would fail because companies working with Iran would have to stop doing business with the U.S.
“We don’t see any demand from corporations for a special-purpose vehicle,” he said. “If you are the CEO of a major international company, being given the choice between doing business in U.S. and Iran, it will be the fastest decision you ever make as a CEO.”
Current oil-supply conditions would encourage the U.S. to maintain pressure on buyers to bring their Iran oil imports to zero, Mr. Hook said. “There will be more reductions to come,” he added.