Iran loses patience with Shell's indecision

The Guardian

· Oil firm has until June to commit to £5bn project
· Tehran already holding talks with competitors

A view over methanol factory installations and oil wells in Kharg Island in the Persian Gulf. Photograph: Kaveh Kazemi/Corbis

Shell has been warned by Iran that it must commit itself to developing a $10bn (£5bn) gas field in the turbulent Middle East country by June or risk the project being handed over to a rival.

Europe's largest oil and gas company has delayed making a final decision on the grounds of soaring costs but also in the knowledge that a decisive move would put it in political conflict with Washington at a time of mounting tension over Tehran's uranium enrichment programme.

Shell's British competitor, BP, said three years ago that it would not pursue business in Iran, claiming it was politically "not a flyer".

Iran's oil minister, Gholam Hossein Nozari, has been losing patience with Shell - and Total of France - over deals to develop phases 11 and 13 of the huge South Pars field, and this week issued an ultimatum.

"The deadline we have given to Total and Shell is June and it is the last chance we are giving them," Nozari said, adding that Tehran "will definitely make the final decision" after the deadline.

Officials in Iran said negotiations with a number of Asian companies had already started and that they were likely to replace Shell and Total if the two continued to prevaricate. There has already been speculation that Gazprom of Russia is keen to muscle in on the deal, while Sinopec of China has signed a $2bn contract to develop the Yadavaran oilfield.

Jeroen van der Veer, the chief executive of Shell, was expected to meet Nozari on the sidelines of an International Energy Forum meeting, which both were attending in Rome yesterday. "We will be discussing some projects with some companies," Nozari said.

Shell was unavailable for comment last night but has said previously that it would not decide until the end of this year due to the difficult investment environment, where construction costs and the falling dollar were causing havoc with planning.

The group has refused to discuss the backlash any such move might produce in Washington. President George Bush is putting pressure on companies not to do business with Iran because of its nuclear programme, which has brought relations between Washington and Tehran to a new low. The two sides have also been trading insults over US allegations that Iran is supporting insurgents in Iraq.

Shell had been hoping that a change in the US presidency would open the way for oil companies to pursue a deeper involvement in Iran. However, relations between the Tehran government and Shell and Total are getting worse.

In February, Total's boss, Christophe de Margerie, said: "We have not burnt our bridges with Iran. We will find solutions to maintain our long-term presence."