Cablegate: Ilsa: Dutch, Shell On Yadavaran, Iran, Sakhalin Ii

VZCZCXRO1545
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #2654/01 3551621
ZNR UUUUU ZZH
P 211621Z DEC 06
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 7753
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1966
RUEHIL/AMEMBASSY ISLAMABAD 0955
RUEHKL/AMEMBASSY KUALA LUMPUR 0143
RUEHMO/AMEMBASSY MOSCOW 1698
RUEHNE/AMEMBASSY NEW DELHI 0558
RUEHNY/AMEMBASSY OSLO 4955
RUEHOT/AMEMBASSY OTTAWA 5104
RUEHUNV/USMISSION UNVIE VIENNA 0114

UNCLAS SECTION 01 OF 02 THE HAGUE 002654

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/UBI (RREITER)

E.O. 12958: N/A
TAGS: ETTC EPET ENRG PREL NL CH IR
SUBJECT: ILSA: DUTCH, SHELL ON YADAVARAN, IRAN, SAKHALIN II

REF: A. STATE 194960 ...
90574

2006-12-21

06THEHAGUE2654

Embassy The Hague

UNCLASSIFIED//FOR OFFICIAL USE ONLY

06STATE194960

UNCLAS SECTION 01 OF 02 THE HAGUE 002654

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EUR/UBI (RREITER)

E.O. 12958: N/A
TAGS: ETTC EPET ENRG PREL NL CH IR
SUBJECT: ILSA: DUTCH, SHELL ON YADAVARAN, IRAN, SAKHALIN II

REF: A. STATE 194960

B. THE HAGUE 02316

1. (SBU) Summary. The Dutch government supports targeted
sanctions against Iran but not actions that limit Shell's
activities there. Shell does not plan a final Yadavaran
investment decision until 2008 and will keep State abreast.
The government continues to follow negotiations between
Gazprom and Shell over Sakhalin II, Shell's big natural gas
project. End Summary.

2. (U) Econoff raised U.S. concerns about the Iran's
Yadavaran oilfield project with Ministry of Foreign Affairs
(MFA) officials John Roosegaarde Bisschop, Gulf States
division head, and senior policy officer Loek ten Hagen on
December 15. On December 18, Econoff discussed Yadavaran and
developments at Sakhalin II with John Crocker, Shell's head
of international government relations.

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Iran Policy and Relationship with Shell
---------------------------------------

3. (SBU) MFA's Roosegaarde Bisschop responded with three main
points on Iran. First, he said MFA supports a UNSC resolution
with teeth, meaning reversible sanctions targeted against
the assets and travel of individuals associated with Iran's
nuclear program. Iran had crossed the line. The Dutch, he
said, fully support the P5 discussions, as part of a dialog
aimed at a diplomatic solution. Harsher measures -- such as
omnibus sanctions or those complicating Shell operations --
are not on the table and would be very difficult to get
through the UN, he said.

4. (SBU) Second, regarding Shell, Roosegaarde Bisschop noted
that Shell briefs MFA on a regular basis about the Pars gas
field development, but not Yadavaran. While MFA shares advice
to ensure that Shell's activities fall on the safe side
politically, the ministry refrains from voicing approval or
disapproval over Shell projects, he said. MFA has become more
involved with Shell, he said, because the energy security
situation has forced shell to look at markets where the
political environment is hazardous.

5. (U) Third, Roosegaarde Bisschop noted that French and
Italian oil companies were much more advanced in their
efforts in the Iranian energy sector. He asked whether we had
reached out to these countries with the same message.

-----------------------------------------
No Final Decision on Yadavaran Until 2008
-----------------------------------------

6. (SBU) In response to reftel A points, Shell's Crocker said
that a deal on Yadavaran had been imminent for months. He
added that Shell had recently seen a sense of urgency on the
Iranian side and some signs that the Chinese were ready, but
the two had yet to come to agreement. If they do agree,
Crocker continued, Shell would examine it and decide whether
to issue a statement of interest. After that it would take
Shell 12-18 months of analysis to decide whether to invest.
Such a decision would be taken in 2008 at the earliest, he
said, adding that Shell would notify State -- which he visits
on a regular basis -- before any decision is made.

7. (SBU) Crocker expressed concern about USG efforts to
discourage investment in Iran's energy sector. In the short
run, he said, the volume of oil produced in Iran will remain
unchanged, whether or not Shell participates in Iran oil
projects. This is because phase I oil extraction -- a period
that normally lasts 10 years -- is not tricky, and the
Iranians and Chinese have the requisite technology to proceed
on their own. It is from the second phase onward, Crocker
added, where the exclusion of foreign oil companies will have
an impact. Since this is beyond 2020, it might make life
difficult for ordinary Iranians at a time when the political
environment hopefully may be more friendly toward the west,
Crocker said. That said, he added that Shell views its
relationship with the USG as important and that the company
is very conscious of how its actions are perceived.

THE HAGUE 00002654 002 OF 002

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Sakhalin II: Shell on Possible Gazprom Participation
--------------------------------------------- -------

8. (SBU) On Sakhalin II, Crocker offered thoughts on
Gazprom's potential involvement and helpful USG actions.
First, Crocker said Shell had always thought having a Russian
partner was a good idea, and had offered, in exchange for
other assets, a 25% stake to Gazprom before discussions were
disrupted by the potential revocation of Shell's Sakhalin II
environmental permit (reftel B). The Russians, however, had
offered less than 30% of what Shell considered fair. Talks
have made some progress in the last week. Gazprom's
participation could now go either way, Crocker said, adding
that Shell is open to a Gazprom stake at a different level as
long as it was a commercially viable and defensible to
shareholders. Failing this -- and if the Russian government
continued to use all means to apply pressure -- Shell would
be prepared to go to international arbitration.

9. (SBU) Second, Crocker said G8 countries should emphasize
to Russia that its treatment of Shell does not fit within
internationally accepted norms. Crocker hoped that the G8
message would include a discussion of the potential delays to
Japanese, Korean, and U.S. consumers. A failure to deliver
would hurt these countries as consumers and Russia as a
supplier. In one to two weeks, these countries may need to
issue strong public statements to Russia -- but for now the
messages should be delivered privately, Crocker said.
BLAKEMAN

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