What I Saw at the Recent Iranian LNG Summit Is Important for All U.S. Investors

"Trust, but verify" is a well-known phrase from the Reagan era, often used by the White House back then when discussing negotiations with the Soviet Union.

But President Reagan knew he was actually adapting a much older Russian proverb - Доверяй, но проверяй ("Doveryai, no proveryai").

Such are the often strange twists in international diplomacy.

I mention this because a critical energy conference I attended last week reminded me that we may well be revisiting that territory. Territory that is, for me, familiar because of the international geopolitical arc of my career.

This time around, however, the United States isn't exactly dealing from a position of strength. These talks were made so much harder by America's self-inflicted wounds.

Investors run a real risk of missing out here...

What I Saw as the Only American in the Room

There were two parallel sessions at last week's Iranian LNG & Gas Summit in Germany's financial center, Frankfurt.

On one level there was the official program of the first international summit devoted to Iranian natural gas and LNG (liquefied natural gas, the key to exporting gas beyond the reach of pipelines).

On another level there was a series of meetings held on the margins of the summit. The discussion here was much more frank and forthcoming, in some cases resulting in quite pointed and direct conversations.

That I was the only American here occasionally put me at the center of matters. And that's not the only reason why the summit was grueling.

It now looks like the U.S. energy industry, and more importantly, American shareholders, are going to be left behind as the rest of the world rushes to cash in on a major new market...

Iranian-American Tensions Couldn't Come at a Worse Time

I gave some formal presentations before and throughout the summit. But it was the sidebar conversations that took up most of my available time, such that by the time it was over, I was beginning to feel exhaustion creep in.

With the world's largest conventional gas reserves, Iran has always been regarded as a likely main player in the developing global gas market. However, as with crude oil, the imposition of Western sanctions has impeded any progress for years.

That was supposed to change after 2015's so-called "nuclear deal" between Iran and the P5+1 (the five permanent members of the UN Security Council - the U.S., China, Russia, France, and the UK - along with Germany).

Officially referred to as the Joint Comprehensive Plan of Action (JCPoA), the accord specifies Iranian compliance with an international demand that it pull back from developing nuclear weapons. In return, the international sanctions were to be phased out.

Tehran had always denied it had an interest in developing nuclear arms. Yet the United States repeatedly pointed to actions inside Iran that could not be explained in any other way.

An impasse ensued that both made life inside Iran worse and created protracted geopolitical friction.

These days there is still rhetoric coming from Washington alleging nefarious Iranian intent, compounded by an executive order (EO) prohibiting visas for Iranian citizens (and those of six other Muslim countries) trying to enter the United States, and, of course, the inevitable retaliatory moves against visas for U.S. citizens by both Iran and Iraq (another country on the "list of seven").

It's that particular development that has called into question my intended appearance in May at the Iranian Oil Summit in Iran's capital, Tehran.

The U.S. Ninth Circuit Court ruling may have prompted a suspension in the enforcement of the order, but the visa issue from Iran remains in limbo.

One conclusion, however, is very apparent from the long days of meetings...

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U.S. Companies Are Being Left Behind by the Sanctions

The United States is alone in its view that Iran is out of compliance with the provisions of the JCPoA. In fact, aside from the U.S., all Western observers agree that Iran has complied with all provisions of the agreement.

Now, the U.S. government is touting Iran's recent missile tests as a violation of the agreement. While it may have fanned geopolitical flames, Iran's missile launch wasn't out of bounds; the Khorramshahr medium-range ballistic missile isn't capable of carrying a nuclear warhead.

Don't get me wrong: There are plenty of reasons why America should be circumspect of Iranian actions and motives, but nevertheless, we're running the risk of missing out on an energy boom.

So, while the United States continues to keep sanctions in force, Europeans have already relaxed provisions. Governments in London and Berlin have announced their intentions to increase business ties with Tehran.

Companies are entering negotiations for Iranian projects and Tehran is responding with some unusual transparency and contract revisions.

Major energy companies such as French Total SA (NYSE ADR: TOT) and Anglo-Dutch Royal Dutch Shell Plc. (NYSE ADR: RDS.A) are now well into what they hope to be multibillion-dollar natural gas and LNG projects - just a fraction of the deals that may be on the cards in the near to intermediate term.

Of course, after prolonged periods of negotiation and project analysis, some of these deals will remain too risky and potential European partners may still delay or walk away altogether. In the case of natural gas and LNG, these projects are years away from any beginning of operations anyway.

The fact that Total and Shell are already in business throws into stark relief the fact that U.S. businesses are likely to fall well behind foreign competition in what is shaping up to be a major opening market.

The main projects will find outside partners and move forward with or without American-based involvement. That means the primary damage to U.S. interests will be self-inflicted.

You'll hear more from me about the players and issues raised in the private meetings here, in due course.

But two anecdotes will give you the flavor of this damage... and the problems Americans, with increasing frustration, are going to experience...

"Trust, but Verify" Is a Two-Way Street

During a particularly intense summit exchange, an oil trader from a Middle Eastern country received an email alert and immediately cut off our conversation.

I asked him why he was leaving.

He apologized and replied: "Sorry, but my home office has advised that I am not in compliance if I talk about anything Iranian with an American."

On another occasion, an Iranian expert insisted on speaking Farsi, even though I knew perfectly well he was conversant in English.

His reasoning for that was pointed, even through the filter of a translator: "During the sanctions, I was not allowed to import many English words," he said with a wry smile. "As a result, these days I do not have enough to string into full sentences."

That quip speaks volumes about where this situation might be headed...

I'll be updating my Oil & Energy Investor readers with more on the global developments from this conference - including the fallout for American investors. You can click here to get my alerts twice each week.

This Could Be Trump's First Global Challenge: Iran is only one of several potential trouble spots right now. In the South China Sea, the U.S. and China are facing off over oil- and gas-rich waters. If the Chinese decide to deploy the deadly "sha shou jian," the conflict could heat up in seconds... and the U.S. Pacific Fleet could be vaporized. Click here to see footage of an actual Chinese wargame featuring this deadly weapon and learn about America's potential ace in the hole...

About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

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