Royal Dutch Shell said on Thursday it saw a dilemma over investing in Iran, holder of the world's second-largest oil and gas reserves and a political enemy of the United States.

The Anglo-Dutch company and Spain's Repsol have signed a preliminary deal to develop part of Iran's giant South Pars gas field, despite growing U.S. pressure not to invest in the Islamic Republic. Tehran values the deal at $10 billion.

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Shell Chief Executive Jeroen van der Veer said politics would be taken into account when a final investment decision is taken in about a year.

"I would like to emphasise that we have here quite a dilemma. This is Iran. They are the number 2 in oil and gas reserves in the world," he told a conference call following Shell's fourth quarter results.

"But we have all the short-term political concerns."

Washington is urging its allies to go beyond United Nations sanctions against Iran over its atomic programme and cut off foreign investment, but the Shell CEO said he was unaware of any pressure at this early stage.

"In the final investment decision, that is when you commit the big money," he said.

"That is the moment that you have to take into account all aspects which are relevant on that day. And that, of course, can be be political considerations as well."

U.S. officials have said the preliminary deal struck by Shell and Repsol with Iran could trigger U.S. sanctions under the Iran-Libya Sanctions Act.

The Iran sanctions measure, which took effect in 1995, requires Washington to slap sanctions on foreign companies that invest more than $20 million a year in Iran's energy sector.

But the measure has proved toothless and Tehran has lured more than $10 billion in foreign cash into its oil and gas fields.

Among the mainly European companies was Shell, which invested close to $1 billion in Iran's offshore Soroush/Nowrooz oilfields. France's Total and Italy's ENI have also invested billions in projects.

Notable for its absence, is BP whose CEO John Browne has said investment in Iran is off limits, for now, for fear of damaging the company's relationship with the United States.

For its part, Iran remains undaunted by Washington's efforts to discourage foreign investment.

"We are doing our job just as usual," Gholamhossein Nozari, Managing Director of the National Iranian Oil Company told reporters at an energy conference in Vienna.

"We haven't seen any negative response from companies so far. We hope the political situation will be resolved."

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