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LONDON: Royal Dutch Shell is struggling to pay off $1 billion that it owesIranfor crude oil because European Union andUSfinancial sanctions now make it almost impossible to process payments, industry sources said.

Four sources said the oil major owes a large sum to the National Iranian Oil Co (NIOC) for deliveries of crude, with one putting the figure at close to $1 billion. A debt of that size would equate to roughly four large tanker loads of Iranian crude or about 8 million barrels.

"Shell is working hard to figure out a way to pay NIOC," said an industry source, who requested anonymity. "It's very sensitive and very difficult. They want to stay on good terms withIran, while abiding by sanctions."

A Shell spokesman declined to comment.

The European Union toughened financial sanctions and placed a ban on Iranian oil imports on Jan. 23, but gave companies until July 1 to wind down their existing business.

With daily contract volumes of 100,000 barrels, Shell ranked asIran's second biggest corporate client - along withFrance's Total - behindTurkey's Tupras.

Shell CEO Peter Voser said on Mar. 7 the company would take its final deliveries of Iranian crude "within a matter of weeks".

Rigorous US and European financial measures, aimed at punishing Iran for its nuclear programme have already come into force, making it increasingly difficult to pay for and ship crude from Iran, say oil executives.

"There are big frustrations with the payment route - theUSpressure is really working," said a senior oil source. "It's now nearly impossible to use the banking system."

Such financial restrictions were in part behind Total's decision to stop purchasing Iranian crude at the end of last year, industry sources say. Total also bought about 100,000 barrels per day fromTehran.

Industry sources say some ofIran's big customers may have been using the Dubai-based Noor Islamic Bank to channel payments toIran. It is not known whether Shell was processing payments via Noor Islamic Bank.

Diplomats say the bank bowed to pressure fromWashingtonand cut ties with Iranian banks in theUnited Arab Emiratesat the end of last year.

Given the outstanding amount owed in the face of sanctions, senior oil executives say the only way forward is for Shell to ask the British government to help settle the account withIran.

An approach was made by Shell, sources say, but the company was rebuffed.

A small portion of the Shell debt could be written off through an outstanding payment NIOC owes the company for development of the offshore Soroush/Nowrooz oilfields, say industry sources.

Shell and European rivals such as Total andItaly's Eni have built longstanding relationships withIran, OPEC's second largest exporter, through their work at the country's oilfields and years of crude oil purchases.

But while the are loath to burn bridges withTehran, they also cannot afford to put business in theUnited Statesand elsewhere in the West at risk.

Copyright Reuters, 2012
 

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