Russia’s Lukoil Ends Iran Energy Development Project over Concern about Increased U.S. Sanctions

Washington, D.C. (March 24, 2010) – The Foundation for Defense of Democracies today welcomed reports that Russia’s Lukoil has abandoned a significant energy project in Iran after recognizing the growing support for strengthened U.S. energy sanctions against the Iranian regime.

FDD has provided leading research and analysis in support of strong, broad-based energy sanctions, including gasoline, natural gas, and oil sanctions, as part of a comprehensive strategy to end the Iranian regime’s pursuit of nuclear weapons.

“The push for broad-based sanctions targeting Iran’s energy sector, including steps taken to make it more difficult for Iran to import gasoline, acquire key energy technology, and attract investment for its energy sector, has already had a major impact. Not only are Iran’s gasoline suppliers exiting the market, but energy investors, banks, technology providers, and insurers now face growing pressure to decide between doing business with the Iranian regime and continuing their business relationships in the lucrative U.S. market,” said FDD Executive Director Mark Dubowitz who directs FDD’s Iran Energy Project. “The Iranian energy industry is in increasingly terrible shape. Lukoil’s exit, while welcome, shows the need for President Obama and Congress to work together to sign energy sanctions legislation into law as expeditiously as possible and enforce existing energy sanctions on the books since 1996 . Lukoil has made it clear that it will consider a return to the Iranian market if U.S. pressure subsides.”

According to Dubowitz, “the mounting pressure on the refined petroleum trade has also signaled to the energy industry that the U.S. government is becoming more serious about enforcing existing energy sanctions law prohibiting investments in the Iranian energy sector. Numerous energy companies are currently in violation of the Iran Sanctions Act and should be concerned that any one of them could be the first energy company sanctioned under this existing law. That would send a shockwave across the energy industry.”

The Iran Sanctions Act (formerly the Iran-Libya Sanctions Act of 1996) prohibits the investment of more than $20 million in one year in the Iranian energy sector. Both the House and the Senate have advanced legislation to expand this legislation to impose sanctions on companies supplying gasoline to Iran and on the insurance, reinsurance, financing, technology, and shipping companies that facilitate this trade. On December 15, 2009, the House approved the Iran Refined Petroleum Sanctions Act (IRPSA) by a vote of 412-12. On January 28, 2010, the full Senate approved the Dodd-Shelby Comprehensive Iran Sanctions, Accountability, and Divestment Act (S.2799), which combines several pieces of sanctions legislation, including the Senate version of IRPSA. The House and Senate bills will be reconciled in conference committee.

As a result, five of Iran’s major gasoline suppliers — BP, Vitol, Trafigura, Shell, and Reliance — have promised to stop their gasoline supplies to Iran after calculating that the political risk from continued trade was too high.

The threat of sanctions has caused numerous banks to stop underwriting gasoline sales to Iran, and two insurance companies, Munich Re and Allianz, have also exited the market, increasing the difficulties that Iran will have importing the 40% of gasoline it needs to meet domestic consumption. A number of energy companies are also reconsidering their investments in the Iranian energy industry.

For more information on FDD’s Iran Energy Project, and the companies involved in Iran’s energy industry, please visit IranEnergyProject.org or contact Judy Mayka at
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