Time Magazine: Terror-Free Investing Aims at Iran

By Adam Zagorin/Washington

If it helped isolate apartheid-era South Africa, why couldn’t it do the same for Iran? That’s the question some U.S. and Israeli officials are posing, as they ramp up efforts to get big institutional investors to divest themselves of any companies that do business with Tehran.

As part of this escalating war by other means, former Israeli prime minister Benjamin Netanyahu recently visited the U.S. and met with representatives of U.S. pension funds, whom Netanyahu encouraged to stop investing in any company that does business with Iran.

One session with the state treasurer of Massachusetts and pension representatives from Rhode Island as well as New Hampshire legislators could lead to concrete steps in the next few months, sources tell TIME. “I’m generally opposed to bringing politics into investing, but former prime minister Netanyahu gave an impassioned plea as to how divestiture could be successful and why it is important, not only to the Middle East but to the entire world,” Massachusetts State Treasurer Tim Cahill told TIME. “We’re exploring the financial impact of such a move,” he said, adding that the $46 billion fund is also exploring investment opportunities in Israel and Jordan, a close American ally.

Netanyahu’s session with Cahill, a Democrat, was arranged with help from former Massachusetts governor and Republican presidential candidate Mitt Romney, who himself has recently visited Israel. Netanyahu has also said he plans to meet with governor Arnold Schwarzenegger of California, a state that has huge pension funds, including the influential Public Employees Retirement System, or Calpers, worth some $225 billion.

Netanyahu’s efforts are just one part of a still small but growing U.S. finance trend known as “terror-free investing.” Modeled in part on the economic boycott of apartheid-era South Africa, “terror-free investing” is designed to isolate countries on the U.S. terrorism list like Iran, Sudan and North Korea by purging U.S. pension funds of the stock of any company that might do business with such regimes. The state of Missouri has gotten its multibillion-dollar Missouri State Employees Retirement System screened to remove what it regards as terror-related investments, with counsel from State Street Global Advisors as well as the Washington, D.C.-based Conflict Securities Advisory Group. The Louisiana sheriffs public pension fund has adopted a similar approach, with advice from T. Rowe Price.

In 2005, The Roosevelt Anti-Terror Multi-Cap Fund (ABMGF) launched what it claimed was the world’s first mutual fund in the “terror-free investing” category, screening out the stock of companies that do business in Iran, Libya, Syria, Sudan and North Korea. Its investment choices have been independently certified by the Conflict Securities Advisory Group, a private research provider that maintains a list of some 485 largely foreign-owned companies that includes South Korea’s Hyundai, the French oil producer Total and France’s BNP bank, among others.

At the same time, the U.S. government has also recently stepped up cooperation with Saudi Arabia, the world’s top petroleum producer, to keep the price of oil at around $50 a barrel — nearly one-third below last year’s peak — a price level partly intended to help cut the oil bill for American consumers, but also to reduce Iran’s petroleum revenues, which last year hit some $44 billion. More broadly, U.S. sanctions have long prevented American companies from dealing with Iran, but recently U.S. officials have been urging European and Asian banks to avoid involvement with Iran as well; the Treasury has also placed serveral large Iranian banks on U.S. watch lists of institutions suspected of supporting terrorism.

On top of that, previous measures to penalize foreign companies that make sizable investments in Iran’s giant oil and gas sector, like the 1995 Iran-Libya Sanctions Act, remain in force. The measure calls for U.S. sanctions on foreign companies that invest more than $20 million a year in Iran’s energy sector, and last week Royal Dutch Shell admitted that could put in jeopardy its projected $10 billion investment in an Iranian gas field in cooperation with Spain’s Repsol. Shell Chief Executive Jeroen van der Veer said, “I would like to emphasize that we have here quite a dilemma. This is Iran. They are the number two in oil and gas reserves in the world…. But we have all the short-term political concerns.”

In spite of such concerns, Iran says it has managed to attract more than $10 billion in foreign cash since U.S. sanctions were enacted. Perhaps for that reason, Tehran officials insist international pressure makes little difference to them — or to the European governments and companies that are resisting it. “There’s a great amount of interest [in investing], ” National Iranian Oil Company Director Gholam Hossein Nozari told a recent industry conference in Vienna. Iran’s state-owned oil company, which controls the world’s second-largest oil and natural-gas reserves, is auctioning 17 oil blocks that could attract nearly $600 million in foreign investment. Norway’s Statoil ASA, Russia’s OAO Lukoil Austria’s OMV AG, and Spain’s Repsol SA were involved in the two-day conference in Vienna, where the tenders are being presented. According to Nozari, Iran needs about $94 billion of foreign investment by 2014 to bolster oil and gas production, especially because its current output is dropping by some 7% every year due to depletion and lack of upkeep at major fields.

http://www.time.com/time/nation/article/0,8599,1586891,00.html