Borysfen Intel

Iranian Crossroads: Where to Go? Part 2. Iran: the energy factor

May 30, 2014
<p>Iranian Crossroads: Where to Go? Part 2. Iran: the energy factor</p>

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Konstantynova Vira

Iranian Crossroads: Where to Go? Part 2. Iran: the energy factor

But that is only the political facade of the situation. Let's have a look at the geostrategic facade. The crisis in Ukraine in the global dimension, according to the author, has several interconnected levels: geopolitical, geo-economic, energy, social and civilization- identity. We will pay attention to one of the most strategically important — the energy level. The issue of energy security of Europe is getting sharper against the background of interpretations of a new wave of anti-Russian sanctions. In this case, it is understandable why Europe is slow to introduce the sectoral package of sanctions which will affect, among other things, the energy basis of the Russian economy. By the way, in this context, it is interesting to draw parallels with the Iranian situation. One may say that that tool of sanctions did prove to be effective: the mood of the Iranian society has changed, whereby H. Rouhani was elected President of the country. That is, the effectiveness of negotiations on the nuclear issue has actually increased, and Iran had to agree to dialogue. As you can see, Europe already has an algorithm which, if necessary, will be adapted to Russian realities. But the biggest risk for Europe is the Russian monopoly on the energy market. It is quite logical that Europe will be looking for alternative ways of hydrocarbons supplies, especially of natural gas. And then quite intriguing will look possible rapprochement of the West with Iran for the sake of diplomatic and economic pressure on the Russian Federation. The role of energy resources such as oil, petroleum products, natural gas, coal, etc., for the world economy is difficult to overestimate. Iran is one of the largest states in the Middle East, having such strategic resources. In terms of proved natural gas reserves, Iran ranks second in the world, and in terms of proven oil reserves — the third. Through the Strait of Hormuz, Iran supplies the world market with about 40% of its hydrocarbons. So to ignore Europe's energy needs and at this not to mention the IRI's abilities in the energy sector would be both unwise and economically unprofitable for the Iranian leadership, especially when these needs could be at least partially met by Iranian supplies, which, by the way, will provide additional income to Iran's state budget. But this is somewhat idealistic seeing of the current situation.

Dependence of countries on imports of Iranian oil
Dependence of countries on imports of Iranian oil

http://www.vestifinance.ru/

Today's realities

A realistic approach requires a different attitude to the situation. Objectively, Russia is the largest supplier of natural gas to European countries, and most of it is delivered by pipelines crossing Ukraine's territory. Therefore, tensions between Russia and Ukraine raise serious doubts about future supplies of gas to Europe through Ukrainian territory. Although European countries do demonstrate the unity of positions and willingness to act decisively against Russia, they are largely dependent on Russian gas. For a long time, European countries have been trying to reduce their dependence on Russia. This is confirmed by trans-regional projects of pipelines for transportation to the European market of natural gas produced in the Middle East and in the Caspian Sea region. In this case, the Islamic Republic of Iran gets an opportunity to act as a new supplier of natural gas to Europe. But is Iran ready to use this historic opportunity that has arisen due to the current political crisis between Russia and Ukraine?

Frankly speaking, at the moment Iran cannot completely replace the Russian Federation at the European market. The reasons are as follows: the sanctions regime suspended the development of the energy sector of Iran's economy, especially in the gas sector; insufficient are investments into exploration and development of gas fields, as well as into ensuring the technical side of gas supplies to Europe. According to the author of these lines, all the above-mentioned is a long-term perspective. If the Iranian nuclear issue, at least partially is resolved as soon as possible through diplomatic channels, new horizons will open for Iran's cooperation with European countries. Europe will also remove the sanctions regime from the energy sector, and restart investing into this Middle Eastern country.

Turkey and Azerbaijan controls the Trans-Anatolian gas pipeline (TANAP)
Turkey and Azerbaijan controls the Trans-Anatolian gas pipeline (TANAP)

http://novostink.ru/

By the way, in the Iranian political circles they understand that in order to become a supplier of natural gas to Western Europe in the nearest future, Iranians need to work closely in this area with Turkey and Azerbaijan. Because they control the Trans-Anatolian gas pipeline (TANAP). We should not forget about another trans-regional project — NABUCCO. Although its construction has been suspended due to a sharp rise of the construction costs and the economic crisis in Europe, however, taking into consideration the current mutual relations between Russia and Ukraine, European countries can intensify the implementation of this project. From the very beginning, experts kept stating that IRI's participation in this project would be reasonable. But because of the nuclear issue and tough sanctions regime, Europeans had to give up the idea. Iran's participation in this project will allow to fill in the capacities of the gas pipeline, as the Azerbaijani gas alone will not be enough, and the Turkmen gas is refocused on Asia.

Construction of the pipeline «Nabucco» will appear an important route of supply of natural gas produced in Azerbaijan
Construction of the pipeline «Nabucco» will appear an important route of supply of natural gas produced in Azerbaijan

http://energyscee.com/

Nevertheless, thanks to the pipeline «Nabucco», will appear an important route of supply of natural gas produced in Azerbaijan. Today, Iran, using the existing gas pipeline Iran-Turkey could partially fill the European market with gas. Back in July 2010, Iran and Turkey agreed on the construction in 2013 of the aforementioned pipeline «Iran — Turkey-Europe», 3,300 miles long and costing 7 billion US dollars, with the maximum throughput capacity of 40 billion cubic meters of gas per year from the field «South Pars» in the Persian Gulf to Bazargan on the Iranian-Turkish border. The European section of the pipeline will be laid in Turkey, Greece and Italy, where the pipeline will split into two additional branches: the northern part will go to Germany, Austria and Switzerland, and the southern one — to France and Spain. However, in the situation of the boycott by Western oil and gas compani es, Iran did not have its own sufficient financial resources for the implementation of this project. Talks on this gas pipeline construction resumed in late 2013. Signing of the bilateral agreement is expected soon. At the same time, Iran is in talks with one of the Western European countries, most likely with Germany, about supplying it with Iranian gas to the amount of 25 billion US dollars, which at the price of 372 US dollars per 1,000 cubic meters can make more than 62 billion cubic meters of gas. This is approximately 45 % of Russian gas delivered by Russia in 2013 to 18 countries in Western and Central Europe — 139 billion cubic meters (Iran and Turkey are negotiating on exporting Iranian gas to Europe http://neftegaz.ru/news/view/119870).

Battle for Europe, new EU gas supply routes
Battle for Europe, new EU gas supply routes
http://top.rbc.ru/

We should point out that this pipeline is currently transporting Iranian gas to Turkey, and the Iranian side can increase the capability of the pipeline on the basis of its technical characteristics. Therefore, to gain a foothold in the European gas market, Iran must not only resolve its disagreements with the international community over its nuclear program, but also to strengthen ties with countries of neighboring sub-regions, especially with Turkey, Azerbaijan, and Turkmenistan. Giving up the continuing for a long time strained relations between Azerbaijan and Turkmenistan opens for Iran a possibility of cooperation with these countries. Parties have stopped disputes about the oil field «Kapaz" in the Caspian Sea and agreed to create infrastructure to pump Turkmen gas to Europe. The telephone conversation between the Presidents of Azerbaijan I. Aliyev and of Turkmenistan G. Berdymuhamedov, during which was discussed the construction of the Trans-Caspian gas pipeline under the Caspian Sea, is another potential threat to Russia's monopoly on the European market. It is logical that Moscow opposes the construction of this pipeline, justifying its position by the unresolved legal status of the Caspian Sea and its concern for the environment. However, this news can be interpreted as the emergence in the region of the gas alliance against Russia's monopoly.

With the participation of Iran, this alliance will put significant pressure on Russia on the European gas market. In this context it is important to understand the level of bilateral relations between Iran and Turkmenistan and Iran and Azerbaijan.

Construction of 5 thousand km gas pipeline costing $ 10 billion will allow to supply gas from the South Pars (located on the territory of Iran and Qatar) to Europe via Iran, Syria, Lebanon and the Mediterranean region
Construction of 5 thousand km gas pipeline costing $ 10 billion will allow to supply gas from the South Pars (located on the territory of Iran and Qatar) to Europe via Iran, Syria, Lebanon and the Mediterranean region
http://bin.ua/news/

On the other hand, Iran's cooperation with Azerbaijan in the long run may develop in other spheres, as Azerbaijan can assist Iran in implementation of the project of a pipeline to transport natural gas from Iran to Iraq and Syria. The agreement on building the pipeline, known as «Islamic Gas», was signed by the parties in July 2012. The pipeline through Iran will be 225 km, Iraq — 500 km, Syria — 600 km. The design capacity of the pipeline is 110 million cubic meters of gas per day. However, this project is currently stalled due to the large number of technical problems. Only Azerbaijan's help can make a difference and that will be especially valuable for Iran. Baku has experience in developing multi-national gas pipeline projects. Simultaneously, Azerbaijan has access to modern technologies through its partners, and these technologies can be very useful for the development of a gas pipeline from Iran to Iraq and Syria. (Iran and Russia-Ukraine Crisis: Natural Gas Exports and New Regional Opportunities Analysis http://www.eurasiareview.com/20042014-iran-and-russia-ukraine-crisis-natural-gas-exports-and-new-regional-opportunities-analysis/)

Recently, after a certain normalization of relations between Iran and the West, the USA and the EU have embarked on reducing sanctions against Tehran, which creates prerequisites for recovery of economic cooperation between Western countries and Iran, in particular, in the energy sphere. Thus, in January of this year were partially lifted international sanctions against Iran. The EU and USA cancelled the ban on insurance and transportation of Iranian oil and export of Iranian oil products. All in all the USA and EU thawed Iranian assets in the amount of 4,2 billion US dollars of the total amount of frozen Iranian assets(100 billion US dollars). In case of complete removal of international sanctions, Tehran plans to resume oil exports to the level which was carried out before the introduction of UN sanctions in 2006 year. Speaking at the end of January 2014 at the World Economic Forum in Davos before representatives of the world's energy companies (BP PLC, Eni SpA, Royal Dutch Shell PLC, Aramco, Total SA) Iranian President H. Rouhani said Iran is ready to resume constructive cooperation with European countries and to ensure global energy security. According to Western experts, only Iran can create a real alternative to Russian gas in Europe. If this happens, the Russian-Iranian military-political alliance will certainly fall apart.

But always remains the danger of escalation of tensions between Iran and the United States, Iran and the EU. With this solitaire Iran's real ally is Russia. This balance, according to the author, Iran will seek to maintain in its foreign policy using «windows of opportunity» which open on this or that line.

Possible ways to transport Iranian gas to Ukraine
Possible ways to transport Iranian gas to Ukraine

http://www.rg.ru/

A pressing question arises before Ukraine: what to do in such a situation? I think the Ukrainian society has made its conclusions about the need to ensure its defense capability. Only consistent policy of the state can strengthen and reinforce the country's defense. Again, at this stage, when ensuring public security in the country is the number one priority, it is necessary to combine these spheres and develop them in parallel in the current unfavorable conditions. The country's foreign policy is also very important. Traditional partnership with the countries of Europe and America should be combined with a more active foreign policy in Asia, focusing on the key players in the region, especially on Iran. Active diplomacy may well tip the scales in favor of Ukraine.

Among the main promising vectors of the Ukrainian-Iranian economic cooperation can be mentioned similar to the RF spheres: energy; oil and gas, petrochemical industry; aviation industry; metallurgy; mining; engineering; training of specialists, in particular for the Bushehr Nuclear Power Plant. Foundations for the development of Ukrainian-Iranian cooperation have been laid in shipbuilding, heavy engineering, mining, etc. Implementation of plans for cooperation with Iran was harmed by the Ukrainian leadership's not being interested enough in the development of relations with this country because of geographical distance, international pressure and the negative image of the Islamic Republic of Iran in the world. However, it should be noted that the Ukrainian-Iranian relations in the context of the current foreign policy situation around Iran and the political situation in Ukraine are characterized by the absence of fundamental contradictions affecting the dynamics of the relations between states.

It is necessary to create such conditions which would make Iran get interested in cooperation with Ukraine not less than with Russia. Iran is Ukraine's important economic partner because of its economic potential, prospects for investment cooperation and cooperation in the energy sphere. In this sense, we should take advantage of favorable situation around Iran to bring bilateral Ukrainian-Iranian relations to a qualitatively new level. Ukraine may become one country to Iran, cooperation with which will give a new impetus to the Iranian economy. The level of trade between the two countries shows great potential. In 2012, the trade turnover between Ukraine and Iran amounted to about 1.5 billion US dollars. In 2013, due to objective reasons, first of all due to the impact of international sanctions, the Ukrainian-Iranian trade was reduced. Since the beginning of 2012 in the Ukrainian exports to Iran had taken place major structural changes. To date, in the total amount predominates the share of agricultural products and foodstuffs. (Embassy of Ukraine in the Islamic Republic of Iran: Trade and economic cooperation between Ukraine and Iran: http://iran.mfa.gov.ua/ua/ukraine-ir/trade).

Therefore it is necessary through creation of economic conditions to make interested both, Ukrainian business circles at the Iranian market and Iranian businessmen — at the Ukrainian one. Economic cooperation should be reinforced by the cultural and humanitarian cooperation.

So, Iran supports peaceful solution to the crisis in Ukraine without any form of foreign intervention. While the international community is focused on the Russian aggression, for Tehran has now appeared the most favorable moment to gradually withdraw from the political and economic isolation, to strengthen its position at the European energy market. In the future, it may discourage European politicians and their American colleagues from hasty steps to escalate tensions around Iran. From the geopolitical point of view, normalization of relations with Iran by lifting the sanctions on the energy sector and resumption of cooperation and investment could significantly undermine Russian energy monopoly positions, and then weaken or even undermine the economic basis of any military operation of the Russian Federation in the long term. This way several problems can be solved at the same time: for Iran it is not just the resumption of deliveries of energy resources to Europe, but a carte blanche for delivery to those countries which have reduced or completely abandoned Iranian hydrocarbons because of not wishing to worsen relations with the United States. For Europe, the reduction of energy dependence on Russia in the situation of the sharp crisis of confidence and blatant aggression of the latter against the state that has a common border with the EU has become a priority task of the common foreign policy. But neither Iran nor Europe is interested in strengthening confrontation with Russia. Not only because they have close economic and trade ties with a high potential in the development, but also due to the fact that Russia cannot be excluded from the system of international relations of today, without destroying the very system. Consequently, the USA and EU's pressure on Russia will be made to a certain point, after which the system of international relations may incur huge losses.

 

Turkey and Azerbaijan controls the Trans-Anatolian gas pipeline (TANAP)

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