World Energy Sanctions

United States
Energy Information Administration

IRAN IRAQ LIBYA NIGERIA

March 27, 1998

World Energy Sanctions

The following provides information on the current state of energy sanctions either in existence or pending against the following major oil-producing countries. (Note: The United States has imposed sanctions against other countries, including Burma, Cuba, North Korea, and Yugoslavia. The U.S. Treasury Department's Office of Foreign Assets Control maintains a complete list).

IRAN

The Iran-Libya Sanctions Act (ILSA) was passed unanimously by Congress and signed into law by President Clinton in August 1996. ILSA imposes mandatory and discretionary sanctions on non-U.S. companies which invest more than $20 million annually (lowered in August 1997 from $40 million) in the Iranian oil and gas sectors. The passage of ILSA was not the first U.S. sanction against Iran. In early 1995, President Clinton signed two Executive Orders which prohibited U.S. companies and their foreign subsidiaries from conducting business with Iran. The Orders also banned any "contract for the financing of the development of petroleum resources located in Iran." As a result, U.S.-based Conoco was obligated to abrogate a $550-million contract to develop Iran's offshore Sirri A and E oil and gas fields. On August 19, 1997, President Clinton signed Executive Order 13059 reaffirming that virtually all trade and investment activities by U.S. citizens in Iran are prohibited.

The threat of secondary U.S. sanctions has deterred some multinationals from investing in Iran. In August 1996, Australia's BHP pulled out of a proposed $3-billion pipeline project to transport Iranian natural gas to Pakistan and India. Meanwhile, other firms have committed to sizable oil and gas sector projects in Iran despite U.S. sanctions. In particular, France's Total and Malaysia's Petronas are proceeding with development of the Sirri A and E oil and gas fields, and a Total consortium is set to help develop the giant South Pars gas field. Total has escaped U.S. sanctions for its Sirri deal because, despite the $600 million size of this investment, the deal was signed prior to ILSA's August 1996 enactment. Petronas, which acquired a 30% stake in the Sirri deal in 1996, stated in early March 1998 that it would not withdraw from the project despite U.S. objections.

Following the passage of ILSA, Iran and Turkey signed a 22-year gas supply deal worth an estimated $20 billion. Despite U.S. government opposition, Turkish officials stated in March 1997 that they were proceeding with the construction of the required infrastructure. Attempts by the United States to implement ILSA have run into opposition from a number of foreign governments. The European Union, for one, believes that ILSA is "unacceptable" and has barred European companies from complying with it. One possible loophole under ILSA is a provision which allows waiver of sanctions for countries that take "significant steps, including the imposition of economic sanctions" towards Iran. The EU argues that it has taken significant steps towards restricting Iran's access to weapons of mass destruction. The EU also has warned that imposition of sanctions on Total could lead to a trade war with the United States. Another possibility is that President Clinton can waive sanctions in the "national interest," or delay sanctions for up to 180 days pending a final decision.

IRAQ

Prior to Iraq's invasion of Kuwait in 1990, Iraq was producing over 3 million b/d and exporting 2.8 million b/d (1.6 million b/d via the Turkey pipeline, 800,000 b/d via the IPSA2 pipeline across Saudi Arabia, 300,000 b/d from Iraq's Mina al-Bakr export terminal, and somewhat less than 100,000 b/d by truck through Turkey). Iraqi oil exports were forbidden by U.N. Security Council Resolution 661. In April 1995, the Security Council passed Resolution 986, which allows limited Iraqi oil exports for humanitarian and other purposes. Iraq actually began exporting oil under this resolution in December 1996.

Since the end of the 1991 Gulf War with Iraq, U.N. inspectors have been working to determine whether Iraq has complied with cease-fire terms to destroy long-range missiles and weapons of mass destruction. Such compliance is a main precondition for lifting of U.N. sanctions, including the embargo on Iraqi oil exports imposed in August 1990. In the fall of 1997, Iraqi President Saddam Hussein threatened to end cooperation with U.N. Special Commission on Iraq (UNSCOM) weapons inspectors, prompting a crisis with the international community. On October 7, 1997, UNSCOM reported that Iraq had failed to meet demands for complete disclosure of data on its weapons programs as specified under U.N. Resolution 687. On November 12, the U.N. Security Council voted unanimously to condemn Iraq for its October 28 decision to expel U.S. members of the U.N. weapons team, and imposed a foreign travel ban on Iraqi officials considered by UNSCOM to be interfering with its work. On November 13, Iraq responded by ordering all U.S. weapons inspectors to leave Iraq immediately. Following a buildup of military forces in the Persian Gulf region by U.S., British, and others, as well as a last-minute trip to Baghdad by U.N. Secretary General Kofi Annan in late February 1998, a deal was reached in which Iraq apparently agreed to back down and allow arms inspectors full, unfettered access to all suspected weapons sites.

On February 20, 1998, the U.N. Security Council unanimously approved an increase in the amount of oil Iraq may export, to $5.265 billion over a 180-day period (from $2.14 billion previously). After deducting a predetermined amount for war reparations to Kuwait and to fund operations of UNSCOM, proceeds from Iraqi oil sales are then used to purchase humanitarian goods such as medicine, health supplies, foodstuffs, and materials and supplies for essential Iraqi civilian needs. Iraq has claimed that it only is able currently to export about $4 billion worth of oil over 6 months due to technical constraints, and would need additional infrastructure investments (banned under current sanctions) to boost exports beyond 1.6 million b/d.

In anticipation of the eventual complete lifting of sanctions, Iraq already has signed potentially lucrative oil and gas deals with companies from Russia, France, and China. In March 1997, for instance, a consortium headed by Russia's Lukoil signed a 23-year, $3.8 billion oil production-sharing deal with Iraq for development of the West Quma oilfield. French oil companies Total and Elf Aquitaine have negotiated all but the final details of development and production-sharing agreements for the Nahr Umar and Majnoon fields. Nahr Umar is estimated to have potential production capacity of 440,000 barrels per day (bbl/d), while Nahr Umar contains estimated reserves of 7 billion barrels of crude oil. Upping the ante even further, Iraq in mid-October 1997 invited international partners to invest in natural gas projects worth $4.2 billion.

LIBYA

Libya's relations with the international community have been strained since 270 people were killed in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland. On April 15, 1992, the United Nations imposed economic sanctions on Libya for refusing to extradite two Libyan nationals accused of carrying out the attack. These sanctions included the grounding of all air traffic to and from Libya, a reduction in diplomatic relations and a ban on all arms sales to the country. In November 1993, U.N. sanctions were extended to include a freeze on Libyan funds overseas, a ban on the sale of oil equipment for oil and gas export terminals and refineries, and tougher restrictions on civil aviation and the supply of arms. The United States, which enforces its own sanctions against Libya, has attempted to convince the U.N. to consider a total embargo on Libyan oil. However, several key European allies that rely heavily on Libya's low sulfur oil, particularly Italy and Germany, have expressed deep reservations about this option. On August 5, 1996, the United States imposed additional sanctions on Libya. This action -- the U.S. Sanctions Act of 1996 -- extends U.S. sanctions on Libya to cover foreign companies that make new investments of $40 million or more over a 12-month period in Libya's oil or gas sectors.

As of late March 1998, Libya had not surrendered the two bombing suspects, despite indications that sanctions have harmed Libya's economy. Libya has offered to have the suspects tried by the International Court of Justice or in a neutral third country, but has refused to hand them over for trial in the United States or Scotland. In late September 1997, the Arab League and the Non-Aligned nations both called for an easing of sanctions on Libya. The United States responded that such efforts will not succeed unless Libya turns over the bombing suspects. In mid-October 1997, Libya officially asked the United States to hand over for trial U.S. pilots and officials involved in the 1986 bombing raid ordered by President Reagan. The U.S. State Department dismissed Libya's summons as "ridiculous." On March 20, 1998, the U.N. Security Council debated (without taking a vote) Libya's offer to have the suspects tried in a neutral court in exchange for the lifting of sanctions.

NIGERIA

The execution on November 11, 1995 of human rights/environmental activist Ken Saro-Wiwa and eight others by Nigeria's military government of General Sani Abacha set off a wave of international condemnation and sanctions, including suspension of Nigeria from the British commonwealth and restrictions on arms sales. In March 1997, the Nigerian government charged exiled writer Wole Soyinka with treason, thus renewing calls from the United Kingdom and Commonwealth governments for sanctions against Nigeria. In October 1997, the Commonwealth voted to continue the suspension of Nigeria's membership and issued a statement that Nigeria faces expulsion and sanctions, including an oil embargo, if civilian rule is not established by Nigeria's own October 1998 deadline. Although ethnic violence and sabotage have hindered oil production (notably in the Ogoni and Warri regions), Nigeria continues to increase its oil production steadily. Approximately 40 percent of Nigeria's low-sulfur oil exports are purchased by U.S. companies.

Links to other sites:
U.S. Treasury Department's Office of Foreign Assets Control
U.S. Iran-Libya Sanctions Act

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File last modified: March 27, 1998

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