April 14, 2015

What Can Ukraine Count on in Case of Easing of Sanctions against Iran?

Bohdan Sokolovskyi

Lately specialists and experts have been quite actively and enthusiastically analyzing how the world's development could be influenced by easing or even lifting of the West's sanctions against Iran in exchange for this country's reduction of its nuclear program.

It should be remembered that the agreements in principle on this issue were reached during the next round of negotiations at the level of Ministers of Foreign Affairs of the USA, China, Russia, France, Great Britain and Germany — on the one hand, and Iran — on the other. The agreements were reached in early April of this year in Lausanne. The corresponding contract must be prepared and signed June 30, 2015.

First of all, the question arises — how it will affect the fate of Iran and its main opponents?

It should be noted that Iran with its population of nearly 77 million people, of course, is not Europe. But — this is one of the leading Asian states regarding scientific development. The people with its own system of values, which, for the most part, ordinary Ukrainians do not understand. Those values can't be considered the best or not worthy of attention. They are just different. Fundamentally different from those that we confess. In a word, Iran is a great, original Asian country with a relatively well-developed science and education system. The country is well aware of and as far as possible invests into development of new technologies for the sake of the future of the nation. It has and uses every opportunity to attract scientists from around the world to the Iranian science and technology. It actively introduces modern technologies, in particular, those of the Ukrainian aircraft engineering. Largely because of the West's sanctions, Iran has to begin production and use of its own goods and services rather than of those that could be shipped from Western countries. On the other hand, Iran still lacks advanced technologies, that are being developed by the West, and cannot be replaced by the countries-supporters of Iran, in particular the Russian Federation.

Iran does not assume any obligations to destroy something

As for the above-mentioned agreements in the format Iran-“the Six”, — the following should be noted: Iran does not assume any obligations to destroy something, centrifuges for uranium enrichment included (unlike Ukraine, where everything that had to do with NF had been liquidated); it is not clear in which direction from Iran the highly enriched uranium should be taken away — nothing is said about countries from which it could be quickly and easily returned; Iran has preserved the most valuable thing in the nuclear program — specialists. Analyzing, it can be concluded that the above-mentioned round of negotiations is Iranians' certain success.

A separate question — Iranian oil.

Daily oil production in IranIn general, this state is the 4th in the world in proven oil reserves. It produces a little less than 4 million barrels a day. It plans to increase oil production to 8 million barrels per day. Prior to the introduction of sanctions it could control up to 5 % of the world oil markets. Revenues from oil exports play an important (although a slightly less important than in the Russian Federation) role in filling the budget. Iran is one of 12 countries- members of OPEC with the potential quota of about 14 %. It can be assumed that, as a result of introduction of sanctions of the Western world (primarily the USA and the EU) the Iranian oil (there are two types of it: Iran Heavy and Iran Light) is mainly replaced by Russia. Therefore, in case the sanctions are lifted, de facto Iranian oil on world markets could “oust” Russian oil. However, guided by the above data, it is difficult to envisage how Iranian oil affects the total price of oil on world markets in the long term after the lifting of sanctions. There are also optimistic assumptions, and pessimistic ones. But time will tell. In the short term, of course, the appearance of Iranian oil in the world markets will “bring down” the price of oil. Most likely — to the level of the cost of oil in some countries where it is high — because there is an assumption that someone “stands” behind the oil market and influences it. So, Iran most likely is subject of influence on the market, not the object.

Actually, the question of the cost of oil implies a more detailed analysis. On some Iranian fields it is 3 to 4 US dollars, on other — 6 to 7 US dollars. That is, on average, it can be assumed that the cost of a barrel of oil (together with transportation cost) is somewhere around 5 US dollars. That is to say that it is roughly the same as the cost of other exporters of the Persian Gulf.

It is important to note that in Russia, in particular, according to the former Deputy Prime Minister of oil industry, the cost of oil (transportation cost from the deposit included) is 30 to 40 US dollars and gradually increases as the “old” and easily accessible deposits get exhausted and production shifts towards Arctic where the cost of oil is high.

However, the world oil price, of course, is interesting to Ukraine, taking into account our participation in global processes. Although it is always interesting to find out in more detail how the emergence of Iranian oil in the world markets will affect our state. Simply put, what we can expect in this case?

Ukraine should not care about oil prices on international markets

Here it is necessary to recall that the majority of petroleum products are imported to Ukraine from the refineries, owned by the Russian Federation, or those receiving Russian oil. Besides, there is every reason to believe that the prices of petroleum products in our country are the result of the sellers' collusion and actually do not depend on prices of raw materials (oil) in international oil markets.

With this in mind, it turns out that Ukraine should not care about oil prices on international markets. As well as whether there is Iranian oil there or not. We now should actually not care how much Iranian oil is there.

It would be different, if Ukraine had its own refinery under full government control receiving oil from international markets and producing high quality oil products in large quantities with the possibility of entering the market, and thus seriously affecting the price. In this case, Ukraine would be directly interested in oil prices on international markets staying as low as possible. Including — thanks to Iranian oil. That is, only with a modern refinery, Ukraine would be really interested in lifting of economic sanctions against Iran. As it is, the question of Iran — is the theme for cabinets, and that's it.

Let me remind you that a project of such new petrochemical complex was designed and prepared for implementation in 2008. Unfortunately, it has not been implemented. And now there is a need to return to this question.

Russia has no arguments?

Ukraine is considering options that would allow to completely abandon Russian gas importsAs it became known, despite the consent of the Ukrainian company “Naftogaz of Ukraine” and the EC, the Russian side postponed the negotiations on gas first from the 14th to the 13th of April, 2015, and soon again postponed them indefinitely. This “pushing or pulling” shows, first of all, the Russian “Gazprom” and its owners' being not sure.

Firstly, the Russian side is well aware that Europe is serious about reducing purchases of Russian gas. In other words — it “pushes” “Gazprom” from its wealthy markets. There is no equal, civilized replacement to them. This means that Russia will suffer tangible losses, in addition to Western sanctions because of its aggression in Ukraine.

Secondly, the Russians realized that Ukraine is seriously considering options that would allow to completely abandon Russian gas imports. And their once very powerful fifth column in the gas industry in Ukraine also feels insecure. That is to say, the Kremlin has finally realized that it is losing the Ukrainian gas market.

The situation develops obviously not in favor of Gazprom

Thirdly, the time is approaching (the nine-month lag) when the price of gas, calculated on the contract in 2009, based on the price of oil, could reach 200 and less US dollars per 1,000 cubic meters (as it was in 2009).

In all these directions of the situation develops obviously not in favor of “Gazprom”. And most importantly — Russia can no longer cover up its actions, as before, with lies, because now it won't be allowed to, first of all by the EC.

Representatives of Ukraine in this situation should strengthen work on abandoning Russian gas imports, demonstrate intransigence and to seek a revision of the contracts of 2009. In particular, in order to set the price lower than 200 US dollars per 1,000 cubic meters and to secure non-discriminatory conditions for the import and transit of Russian gas.

We need to hurry with the study of alternatives to Russian gas, since the delay is profitable to Russians. And we should not delay the changes until the autumn, when the Kremlin again will dictate its terms.