Swiss Court Orders Israel to Pay Iran 1 Million NIS for Shah-era Debt

Loss of appeal is latest in lengthy legal campaign being waged between Iran and Israel over oil revenues from partnership formed between nations before 1979 Islamic Revolution.

Laying the final part of the Eilat-Ashkelon Pipeline, 1969.
Daniel Rosenblum / Starfot

The Trans-Asiatic Oil Company, which is controlled by Israel, lost its appeal of the arbitration decision that obligates it to pay back a debt of $1.2 billion to Iran’s national oil company.

The Swiss Supreme Court in Lausanne ruled on June 27 that Trans-Asiatic must pay the Iranians 250,000 Swiss francs (about 1 million shekels, or $260,000) of the monies that have been deposited with the court, and another 200,000 francs in court costs.

According to Global Arbitration Review, which published the Swiss court’s ruling, Iran’s oil company has been removed from the sanctions regime, so there is no legal obstacle to paying it any money.

The lost appeal is the latest round in the legal campaign being waged between Iran and Israel for 37 years over the oil transporting and marketing partnership that the two countries formed before the 1979 Islamic Revolution. The partnership consisted of two enterprises, the Eilat-Ashkelon pipeline, which operated as a land bridge for streaming Iranian oil from the Red Sea to the Mediterranean, and Trans-Asiatic Oil Ltd., or TAO, which was registered in Panama, run in Tel Aviv and operated a fleet of tanker ships and marketing channels to sell Iranian oil to European customers.

The partnership, launched in 1968, stopped operating after the Islamic Revolution of 1979, when Iran cut off diplomatic relations with Israel. But despite the diplomatic disconnect, the Iranians pursued three different arbitration procedures against Israel and the companies it controlled, in an effort to get paid for oil supplied to Israel on credit before the revolution, and to obtain the value of their half the partnership. The total estimated sum in dispute is some $7 billion.

So far the Iranians have won two of the arbitrations that focused on payment for the oil that had been supplied. The primary dispute, over the revenues and assets of the partnership, is still being deliberated.

Last year, the Iranian oil company won a lengthy arbitration procedure when two of three arbitrators ordered TAO to pay the Iranians $1.2 billion for 50 oil deliveries that were made before the revolution erupted, along with $362 million in interest. They rejected a counter-suit by Israel, which demanded that the debt be erased to compensate Israel for all the oil that wasn’t supplied after the revolution. According to Israel, the original partnership agreement called for Iran to supply oil until 2017.

An Iranian source last year revealed the results of the arbitration, but Israel, which has kept the arbitration with Iran classified, refused to address the details other than to announce that it would not be paying hostile Iran a thing.

This new Swiss verdict officially confirms that the Iranian information last year was correct, though the ruling does not mention the names of the firms involved. TAO had appealed one component of the arbitration decision, arguing that the procedure in which compensation to Israel had been debated wasn’t conducted properly and that there were contradictions in the majority’s opinion on this issue. But the Swiss High Court denied the appeal and ordered the compensation and court costs paid to Iran.

TAO operates as part of the Eilat-Ashkelon Pipeline Co. with offices in Tel Aviv’s Amot Hamishpat building. The original claim over the partnership itself, which is still being arbitrated, relates to Iran’s shares of the Eilat-Ashkelon Pipeline Co., two oil ports and storage facilities, and the fleet of tankers which were seized by Israel. The Iranians are trying to establish that Israel must cover the debts of the Panama-based company, apparently on the assumption it will be easier for a functioning government to pay the debt than a straw company whose assets will be hard to identify.