The U.S. State Department expressed disappointment regarding Royal Dutch/Shell's agreement with Iran to spend $800 million on developing two offshore oil fields, but industry observers doubt that the U.S. will do anything about it. In 1996, Congress passed the Iran Libya Sanctions Act (ILSA), which threatens to punish foreign firms investing more than $20 million annually in Iranian or Libyan energy projects. But, ILSA permits the U.S. government to grant waivers as it did for TotalFina's South Pars deal. Julia Nanay, a director with the Washington-based Petroleum Finance Co. Ltd., expects that the U.S. government will waive the Royal Dutch/Shell Iran project or take no action at all. "My impression is that this will not be sanctioned," Nanay said, noting the U.S. is reviewing its sanctions policies so it would be a difficult time to be trying to punish anyone. "I think this is the beginning of the end of sanctions," she said. Eric Thomas, a spokesman for the USA Engage coalition of U.S. companies of various industries opposed to unilateral U.S. sanctions, says the TotalFina waiver has set a precedent. "It's hard to speculate now what the government will do in terms of a waiver," Thomas says. Although USA Engage opposes sanctions, waivers "only make the situation worse for the American oil companies. It's a no-win situation." The U.S. government seeks to isolate Tehran for allegedly supporting terrorism, although Iran denies that it has. -Paula Dittrick

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