C O N F I D E N T I A L THE HAGUE 000276


SIPDIS

NOFORN
SIPDIS

STATE FOR EUR/WE (TSMITH), EUR/ERA, EEB/ESC/IEC
USDOC FOR 4212/USFS/MAC/EURA/OWE/DCALVERT

E.O. 12958: DECL: 03/19/2018
TAGS: EPET, ETTC, IR, NL
SUBJECT: ISA: SHELL ADVISOR DESCRIBES "STALEMATE" WITH IRAN

REF: A. 07 THE HAGUE 935
B. 07 THE HAGUE 246

Classified By: CDA Michael Gallagher, reasons 1.4 (b) and (d)

1. (C/NF) SUMMARY: Shell is continuing its "go slow" approach
and is in a "stalemate" with Iran for commercial as well as
political reasons according to a Shell official. These
comments are consistent with remarks made by Shell CEO van
der Veer to then Ambassador Arnall in November 2007. END
SUMMARY.

--------------------------------------------- ----
(C/NF) Shell will keep its "finger in the pie"...
--------------------------------------------- ----

2. (C/NF) Econoff discussed Shell´s Iran strategy with Simon
Smits (protect), a government relations advisor seconded to
Shell from the Dutch Ministry of Foreign Affairs (MFA),
during a March 7 event at a think tank in The Hague. (Note:
Smits will transfer back to the MFA´s Environment Department
in 2008. End note.) Smits said that Shell was continuing
its "go slow" approach to investing in Iran, and he expected
the company to go "very slow" in the near term given the
latest UN Security Council resolution on Iran. He said Shell
wanted to keep "a finger in the pie" in Iran, partly to block
other groups -- that do not share "misgivings" about doing
business with the current regime -- from establishing a
dominant position in Iran´s hydrocarbon sector. To that end,
Smits added, Shell maintained a "candle burning" presence
with just a few employees in Iran. These comments are
consistent with remarks made by Shell CEO Jeroen van der Veer
to then Ambassador Arnall in November 2007 -- that Shell was
still reviewing the economic feasibility of investing in Iran
and that the company would not decide whether to move forward
for at least a year. (See reftels for related reporting.)

--------------------------------------------- -------------
(C/NF) ...but doesn´t want Ahmadinejad to reap the profits
--------------------------------------------- -------------

3. (C/NF) Smits described the commercial factors behind
Shell´s "go slow" approach. He said that President
Ahmadinejad wanted to get oil and gas flowing from its
undeveloped fields (e.g., Yadavaran) as quickly as possible,
without regard for maximizing the fields´ long-term
profitability. Smits speculated that such impatient tactics
might extract only fifteen percent of the potential oil and
gas from the ground, although this would still generate
significant short-term income for the Iranian government.
Smits said that Shell´s operating philosophy did not allow
for exploiting resources in this manner. He said that the
Iranian government was strongly opposed to Shell´s slower
development approach -- which has led to a "stalemate" over
Shell´s investment prospects. Smits added that Shell was
making a political calculation as well as a commercial one --
bringing the undeveloped oil and gas fields onstream more
deliberately would increase the likelihood that Iran´s
current leadership will be gone when the fields are yielding
bigger payouts.

Gallagher