Economic Sanctions and Their Effect on the Energy Industry

By Feathers, Lori A. | Texas International Law Journal, Winter 2001 | Go to article overview

Economic Sanctions and Their Effect on the Energy Industry


Feathers, Lori A., Texas International Law Journal


I. INTRODUCTION

Economic sanctions have greatly restricted the ability of oil companies, particularly United States oil companies, to invest abroad and compete in the international arena. According to one estimate, about 40% of the world's population is subject to United States sanctions.1 Sanctions against Iran, Libya, and Iraq, in particular, stand as major obstacles as oil companies look to the Middle East for low-cost development in a time of unstable oil prices. The sanctions are intended to deprive these countries of their primary source of hard currency--oil export revenues.

During the time that sanctions against Iran, Libya, and Iraq have been in place, there has been some evolution in their content and implementation. Recently, we have witnessed the suspension of UN sanctions against Libya, a UN resolution allowing Iraq to import more spare parts to repair its ailing export infrastructure, and the Clinton Administration's trade liberalization with Iran permitting the import of luxury goods, such as carpets and caviar, and the export of food and medicine. Although further liberalization in U.S. sanctions could occur this year, prospects for any major shift in U.S. policies are marginal due to upcoming presidential and congressional elections.

The U.S. Treasury Department's Office of Foreign Asset Control (OFAC) is the agency charged with enforcing U.S. sanctions compliance through the issuance and administration of regulations. Ambiguities in the text of the regulations allow OFAC some discretion in implementation and enforcement of sanctions, and such discretion is colored by the directives of the Clinton Administration's foreign policy team. Thus, sanctions are very much the product of the domestic political climate and reaction to international events.

As long as prohibitions to trade and investment in the petroleum sector of these countries remain in place, many U.S. oil companies will want to position themselves, today, to take advantage of any future relaxation in sanctions. This paper will address some of the steps that U.S. oil companies might take in order to gain a competitive position and prepare for opportunities when, and if, U.S. law permits investment in these important oil provinces. First, however, it is important to emphasize that the permissibility of any of the activities that will be discussed is very fact-dependent. The advice of legal counsel must be sought in order to determine if such activities would be permissible under current legislation.

II. IRAN

Late last year, the Clinton Administration lifted the ban on exporting food and medicine to Iran;2 and just last March, in a sign of encouragement for the success of reformers in Iran's recent parliamentary election, the Administration announced that it was lifting the ban on imports of Iranian carpets, caviar, and other foods.3 While there has been no movement in the Administration's position on activities in Iran's petroleum industry, such steps are nonetheless encouraging.

Unlike the sanctions imposed against Libya and Iraq, economic sanctions against Iran are unilateral-a product of U.S. law rather than of multilateral institutions such as the United Nations. Governing laws with respect to U.S. sanctions are the 1995 and 1997 Presidential Executive Orders4 and the Iranian Transactions Regulations,5 administered by OFAC, as well as the Iran Libya Sanctions Act. Under the Iran sanctions program, U.S. companies are prohibited from all trade, investment, and transactions affecting Iran's ability to develop its petroleum resources.6

Unlike the Libyan and Iraqi programs, U.S. sanctions against Iran do not prohibit travel to Iran by U.S. citizens. Thus, U.S. company representatives may meet Iranian oil officials in Iran and also, with the permission of the Iranian government, make site visits to some of the oil fields and facilities in which Iran is currently seeking investment.

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