By Saeed Ghasseminejad
June 14, 2018
OMV, a major Austrian energy firm, will no longer resist U.S. efforts to re-impose sanctions on Iran. “Let’s face it, you cannot simply carry on in Iran,” said CEO Reiner Seele, “U.S. sanctions are a much bigger risk for OMV’s business than any possible compensation that Europe … could offer.” The OMV reversal follows the decision of oil giants such as Total, British Petroleum, and Lukoil to leave Iran’s market despite European governments’ opposition to U.S. policy.
Among major players in the industry, OMV was the only one to openly challenge the U.S. Initially, it declared it would not cancel its agreement with the National Iranian Oil Company (NIOC) even though NIOC will soon be under renewed U.S. sanctions. This decision posed a direct threat to the effectiveness of the U.S. sanctions regime, by setting a precedent others might follow.
Since a state-owned firm in the United Arab Emirates (UAE) has a large stake in OMV, the Austrian company faced unique risks if it persisted with its Iranian ventures. The UAE is a strong supporter of the Trump administration’s policy toward Iran. In May, the U.S. Treasury announced that it had identified and designated, with Abu Dhabi’s help, a network of money exchanges financing the Islamic Revolutionary Guard Corps’ (IRGC) Quds Force, which spearheads Tehran’s regional aggression.
Mubadala Investment Company of Abu Dhabi owns 24.9 percent of OMV. In 2013, OMV signed an upstream exploration agreement with Abu Dhabi National Oil Company (ADNOC) to explore the eastern onshore region of the emirate. As OMV’s second-largest shareholder, Mubadala could have challenged OMV’s decision to resist sanctions. In fact, Mubadala could have rightly argued that OMV’s decision put shareholders’ capital in danger by exposing the firm to the risk of U.S. sanctions, which can cost the company billions of dollars in fines, opportunity costs, or both.
If OMV nevertheless refused to cancel the deal with NIOC, the UAE could have denied OMV any future contract in the Emirates and possibly ended its current contracts. The Emiratis could also inform the Austrian government that OMV’s presence in Iran would endanger prospects for other Austrian companies to do business with the UAE.
NIOC was removed from the U.S. sanctions list as part of the 2015 nuclear deal with Iran, but will soon be re-designated as the Trump administration re-imposes sanctions on Iran’s oil industry. If OMV continued working with NIOC, Washington could have cut off its access to the U.S. dollar and American financial system – penalties whose cost would most likely to outweigh the benefits of operating in Iran.
The OMV case shows that the EU and European governments have a very limited ability to influence European companies’ decisions whether to stay in Iran, even when a company wants to remain. At least for now, there is no legal remedy the EU or its member states can offer to assuage a firm’s concerns about its vulnerability to U.S. sanctions should it continue to operate in Iran. As it seeks to restore the pre-nuclear deal sanctions regime, the U.S. Treasury should inform all foreign firms operating in Iran that it is prepared to impose formidable costs on all those who defy U.S. law.
Foundation for Defense of Democracies