November 4, 2013

Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere

The Independent Analytical Center for Geopolitical Studies “Borysfen Intel” affords ground to the analysts generation for expressing their point of view regarding the political, economic, security, information situation in Ukraine and in the world in general, according to their personal geopolitical studies and analyses.


Note that an authors’ point of view
can disagree with the editor’s one

Oleksiy O. Volovych

Ukraine and the Persian Gulf States: Cooperation in the Energy Sphere Part 1.

Persian Gulf sub-region is an integral and the most important in economic and political dimensions part of the Middle East and the Arab World. Geopolitical and geo-economic role of these countries is extremely important, since they have large reserves of energy resources and investment potential, highly developed infrastructure and high purchasing power. All this taken together defines their strategic importance for Ukraine.

According to the generally accepted world standards of energy security, energy supply from one source should not exceed 25% for any country, because only in such circumstances, the state may develop as energy independent. In the vast majority of European countries energy carriers come from 5-8 external sources. Meanwhile, Ukraine is a country experiencing deficit of energy, as from its own sources of fuel and energy resources it meets its oil needs only by 10-15 %, of natural gas — by 25-30%. The main volumes of energy carriers (oil, gas, nuclear fuel), it buys virtually from a single source — Russia (oil — 90%, gas — 60 %, and almost 100 % of nuclear fuel).

Under these circumstances, the dependence of the Ukrainian energy sector and the economy as a whole on imported energy carriers is critical, because in recent years the Russian side has been using the energy factor as a significant lever for not only economic but also for political influence. Thus, Ukraine's great dependence on Russian energy carriers poses the problem of their diversification in the row of high priority tasks to strengthen its energy security.

There are few regions in the world from which Ukraine could receive energy carriers, alternative to Russian ones. They are the Caspian countries, North Africa and the Middle East sub-region — 8 countries of the Persian Gulf. The latter is the richest in energy carriers. Cooperation with states of the Persian Gulf in the energy sector is of strategic importance for strengthening Ukraine's energy security through diversification of energy sources, as these states have 54% of the world's proven oil reserves and 40 % — of natural gas. According to forecasts of “The International Energy Agency” (IEA), oil production in the Gulf in 2020 may reach 42.9 million barrels per day, as compared to 21.7 million barrels per day in 2000 (see Appendix 1).

The urgency of Ukraine's cooperation with the Persian Gulf countries in the energy sphere is also determined by the fact that the prospects of oil and natural gas supplies to Ukraine from Azerbaijan and Turkmenistan, as well as from the volatile North Africa today are quite slim. Possibilities of Azerbaijani gas supplies to Ukraine some Ukrainian experts, in our opinion, traditionally exaggerate.

Firstly, according to the CIA-World-Factbook, proven natural gas reserves in Azerbaijan as of 1 January 2012, are even less than Ukrainian ones (849.5 billion cubic meters and 1.104 trillion cubic meters respectively). Besides, Azerbaijan, compared with Ukraine produces less natural gas (as of 2010, respectively, 16.68 billion cubic meters and 19.36 billion cubic meters). It should also be noted that in neighboring Azerbaijan, Kazakhstan and Uzbekistan there are more proven reserves of natural gas, and they mine and export it in large volumes.

Secondly, for the past 18 years, Azerbaijan has concluded with various countries and major oil and gas corporations of the world more than 30 agreements for the supply of energy resources. Today, Azerbaijan as a potential source of gas supply is included in several prospective oil and gas projects in the Black Sea- Caspian region, in which Ukraine is now practically not engaged. Besides, over the past two years Baku has promised to supply gas, apart of Ukraine, also to Lithuania, Poland, Greece, Syria, Jordan, etc. To all this, the promised by Azerbaijan gas to Ukraine will be produced only in 2017, after the launch of the Shah-Deniz-2 gas field.

Ukraine could expect to receive Turkmen gas, reserves of which (2.6 trn cubic meters) are larger than in Azerbaijan, and Turkmenistan's gas exports (48.5 billion cubic meter) as of 2009 exceeded the export of Azerbaijan's ones(5.5 billion cubic meters) about 9 times. However, the needed for this construction of the Trans-Caspian gas pipeline has not begun yet, and it is not known whether it will ever begin at all. Wasting no time, Turkmenistan is looking for alternative markets for its gas exports. Thus, in December 2009 Turkmenistan introduced into service two new gas pipelines — one to China, the other — to Iran.

One of the factors that determine the priority of Ukraine's cooperation with the Persian Gulf States is their relatively close geographical location. Thus, between the northern regions of Iran and Iraq and southern borders of Ukraine (Crimea) there are only Turkey and the Black Sea. The distance in a straight line between the northern border of Iran and Iraq and Southern Crimea is less than 1.000 km. It is even shorter than the distance in a straight line from Kerch (1.050 km). Today, Ukraine is facing a question — to get expensive natural gas, let's say, from deposits of Surgut in Western Siberia, or cheaper one — from Qatar, located almost at the same distance from Ukraine — about 2.500 km. But the biggest problem is how to deliver energy carriers from the Persian Gulf countries.

At the same time, considering the prospects of Ukraine's cooperation with the Gulf states in the energy sphere, it should be noted that the geopolitical situation in the sub-region and around it is the rather complicated and conflictogenic. However, compared with other Arab countries, where during 2011-12 had taken place dramatic socio-political transformations, the Gulf countries remain so far relatively stable. After the above-mentioned transformations, Egypt's role as the leader of the Arab world got weakened, so now three countries of the Persian Gulf claim for the place of new leaders — Saudi Arabia, Qatar and the UAE.

Despite its massive military presence, the United States and its NATO allies have failed to provide stability in the Persian Gulf, because their very presence is a source of instability and stimulates growth of anti-American sentiment among Arabs and Iranians. One of the main factors destabilizing the situation in the Persian Gulf is the arms race. For this indicator, the Gulf sub-region ranks first in the world. In the period from 2005 to 2010 alone, the USA had supplied Arab countries of the Persian Gulf with arms worth over 40 billion US dollars. It is assumed that in the coming years the same countries will be supplied with mainly American arms worth 60 billion US dollars. Accelerated militarization of the sub-region is under the pretext of defending Arab allies against potential threat of the Iranian nuclear missiles. The USA proposes to create in the Gulf Arab countries, including Iraq, a so-called “security belt” for Israel — a joint Air Defense system in these countries, which could detect and destroy launched into Israel Iranian missiles.

From time to time between Arab countries — members of the Cooperation Council for the Arab States of the Gulf (CCASG), territorial disputes arise on certain financial, economic and trade and customs issues, as well as controversies over some regional and international issues. Significant differences in the positions of the Council can be observed, in particular, with regard to individual Gulf States signing separate agreements on the establishment of free trade zones with the United States, introduction of a single currency, the expansion of the CCASG due to the accession of new members (Jordan, Morocco). One of the factors destabilizing the political situation in some Arab countries of the Persian Gulf (especially in Iraq, Kuwait, Bahrain, and KSA), is considered discrimination against the Shiite population, campaigning for equal rights with the Sunnis to participate in government bodies. This means that in the future the fight of Shiite Arabs for their legitimate rights and freedoms will only increase.

Ukraine's Cooperation with Leading States of the Persian Gulf in the Energy Sphere.

Ukraine — Republic of Iraq.

According to the CIA-World-Factbook, as of 2012 Iraq was the fifth largest in the world (after the KSA, Venezuela, Canada and Iran) in terms of proven oil reserves (143 billion barrels). In 2012, Iraq ranked eighth in the world in terms of daily oil production (3.3 million barrels /day). According to forecasts of International Energy Agency, by 2020, Iraq's oil production will more than double, reaching the level of 6.1 million barrels /day, and 8.3 million barrels /day by 2035 (see Appendix 1).

In 2012, Iraq took 13th place in the world in terms of proven natural gas reserves (3.171 trillion cubic meters). In 2010, natural gas production in Iraq amounted to 1.303 billion cubic meters, which almost all went to domestic consumption.


In 2012, the trade turnover between Ukraine and Iraq reached 872 489.7 thousand US dollars Its increase, compared with 2001, almost three times, shows the presence of unused opportunities to enhance cooperation, particularly in the energy sphere (see Appendix 2).

During the 22 years of independence of our state, the question of Ukraine's cooperation with Iraq in the field of energy more than once has been discussed at different levels. Various projects have been proposed, including construction of an oil pipeline along the route Kirkuk-Ceyhan-Kirikkale-Samsun with further transportation by tankers to the ISIC “Yuzhnyi”. However, apart from declarations of intents, no real and significant results have been reached.

Note: In 1994 Public Joint-Stock Company «Institute of Oil Transportation» (IOT)calculated various cost options for Middle Eastern oil supplies to Ukraine and determined the optimal pipeline from Kirkuk (Iraq)-Ceyhan-Kirikkale-Samsun (Turkey) with a total length of over 1.600 km, followed by the transportation of oil by tankers from Samsun terminal in Odessa — 770 km. This option, apart from oil supplies to Ukraine, allowed to provide transportation of crude oil to Europe through the pipeline Odesa-Brody — 625 km. The agreement with Turkey on construction of Ceyhan-Kirikkale-Samsun oil pipeline was signed in June 1996, and the Verkhovna Rada (Parliament) of Ukraine ratified it in December 1997.

In 2002, Iraq and Ukraine signed a protocol on the UN “Oil-for-Food” Program. It was assumed that Ukraine could supply Iraq with oil extraction equipment, pipes, and to train Iraqi oil specialists. In 2003, “Naftogaz” of Ukraine signed a Memorandum about its intentions together with the Polish company Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) to establish a joint venture for the assessment of Iraq's oil and gas infrastructure, restoration of pipelines and facilities for the storage and transportation of oil, but, sadly, it has never come to implementation of these intentions.

During his working visit to Iraq in early September 2004, the Prime-Minister of Ukraine Viktor Yanukovych met with President Ghazi al–Yavor and Prime-Minister Ayad Allawi. The main theme of the talks was the development of Ukrainian-Iraqi cooperation and involvement of Ukraine in the post-war reconstruction of Iraq. Among the various questions of bilateral cooperation was also discussed the question of cooperation in the oil and gas industry, in particular, oil exploration, production and transportation of it.

In recent years, issues of Ukraine's cooperation with Iraq in the energy sphere have been discussed during bilateral meetings at various levels. In early February 2011, there was a meeting in Kyiv of the First Deputy Prime Minister Andriy Klyuyev with the Governor of Baghdad Salah Abdul-Razzaq. 20-22 November 2012 with a three-day official visit Iraq was visited by the former Minister of Foreign Affairs of Ukraine K. Gryshchenko. On the 2nd of December, 2012 in Baghdad, the fourth meeting of the Ukrainian-Iraqi Joint Commission on Trade, Economic, Scientific and Technical Cooperation took place. Within its framework among many other issues of bilateral cooperation was also discussed cooperation in the energy sphere. The Ukrainian side at the meeting was headed by the Special Representative of Ukraine for the Middle East and Africa E. Mykytenko, Iraq – by the Deputy Minister of Industry and Minerals Adel Karim.

On the 1st of April, 2013, the Special Representative of Ukraine for the Middle East and Africa met with the Ambassador of the Republic of Iraq in Ukraine Shorsh Khalid Saud and discussed the question of activation of trade and economic cooperation between the two countries, particularly in the energy sphere. Special attention was paid to the planned for this year business forums with participation of Ukrainian and Iraqi businessmen, as well as organization of the Fifth meeting of the Ukrainian-Iraqi Joint Commission on Trade, Economic, Scientific and Technical Cooperation.

For more than 12 years of Chernivtsi Machine Building Plant has been supplying Iraq and Iran with equipment for processing, transportation, storage and synthesis of oil, gas and condensate. Ukrainian enterprises and companies could take part in the reconstruction of the destroyed and construction of new power plants in Iraq, which now produces only 8.8 MW, while the need is for at least 140 MW.

Some attempts of some Ukrainian private oil and gas companies to enter the energy market of Iraq so far have been fruitless. Thus, the shareholders of the largest Ukrainian private company CJSC “Neftegazdobycha” decided to directly invest in oil production in the autonomous Kurdish region of Iraq, though, as is well known, the central government of Iraq does not recognize the legitimacy of international agreements in the field of energy, concluded with the administration of Iraqi Kurdistan. Besides, the recent conflict situation between the shareholders of this company has negative impact on its image and does not increase the chances for its finding a niche in the energy market of Iraq.

Now at the territory of Iraq are functioning a lot of oil companies from different countries. The level of competition is high, the conditions of tenders are strict enough, so only by offering an attractive package of conditions for the implementation of projects, and above all their funding, Ukrainian companies can get their chance to win at the tenders. However, to date Ukraine has not offered a single contract which would provide its funding from Ukrainian sources. At this, Iraq primarily favors cooperation with the companies of those states, military contingents of which were securing stability in the country after 2003.

The problems that may complicate cooperation of Ukraine with Iraq in the energy sphere at this stage include internal military-political and socio-economic instability, in particular, the tension in the relationship between the leadership of Iraqi Kurdistan and the central government of Iraq. Uncompromising struggle continues between leading Iraqi political forces, religious-ethnic confessions. Sufficiently real is the threat of disintegration of Iraq along ethnic and religious lines. In various parts of Iraq are still very active armed criminal groups. Corruption in the upper echelons of the Iraqi government has reached a dangerous for the national security level. Political instability, continuous terrorist attacks, overuse and corruption among local bureaucracy alienate many potential foreign investors. Insecurity remains on the Iraqi-Syrian border. Only in the Kurdish province of Dahuk the number of refugees from Syria is 80 thousand people. The USA accuses the Iraqi authorities that they allow Iran to use Iraqi airspace to deliver Iranian arms to Syrian government forces. The tension in the Iraqi-Turkish relations also remains.

Ukraine - the Islamic Republic of Iran

CIA-World-Factbook states that as of January 2013 Iran ranked fourth in the world (after the KSA, Venezuela and Canada) in terms of proven oil reserves — 151 billion barrels, accounting for about 10% of world reserves. In 2011, Iran ranked fifth in the world in terms of daily oil production (4.231 million barrels/day). More than 60% of Iran's oil exports went to countries in the Asia-Pacific region, and the rest — to Europe and Africa. Iran ranks second in the world in terms of proven natural gas reserves (33.07 trillion cubic meters in 2012), after Russia (47.57 trillion cubic meters in 2012). In 2010, gas production in Iran amounted to 146 billion cubic meters, which almost all went to domestic consumption (144.6 billion cubic meters). As an exporter of natural gas (7.87 billion cubic meters), Iran is the 25th in the world.


In our opinion, to be second in the world by gas reserves, and to export just a small amount is very unacceptable to the international community. Therefore, if Iran does not solve the problems around its nuclear program and does not activate the production of gas in large quantities and its delivery to the countries of Europe, it will provoke serious threats to its national security.

Regime of international sanctions and the oil embargo adversely affects the economic situation in the country. Thus, according to the International Center for Development Studies (London), Iran annually loses about 40 billion US dollars because of international sanctions. Currently, inflation in the country is around 25 %, the unemployment rate is 20 %. Accordingly, the international sanctions hamper Iran's access to modern technologies of development of oil and gas infrastructure. However, “The Economist” in its November 2012 issue predicts that by 2017 Iran's GDP will grow by more than 400 billion US dollars and will amount to 881.2 billion US dollars. In 2012, Iran's GDP grew by 45.7 billion US dollars, amounting to a sum of 481 billion US dollars. In 2012, Iran’s foreign exchange reserves amounted to about 100 billion US dollars.

According to Iranian data, in 2011 in the Iranian territorial waters in the Caspian Sea at the depth of 700 meters was discovered a giant oil and gas field Sardar Jangal. According to preliminary estimates, its oil reserves are about 8 billion barrels, and natural gas — 50 trillion cubic meters (NB!), which significantly increases the gas reserves of Iran and puts it on the first place in the world (by a large margin from Russia and Qatar). Azerbaijan has put forward its demands on the part of the said deposit, which is another factor for growing of tension in even without this, complex relations between Baku and Tehran. In 2012, Iran discovered deposits of gas hydrates in the Gulf of Oman, the energy potential of which, according to Iranian experts, equals all Iran's proven reserves of oil and gas.

Of the eight countries of the Persian Gulf, Ukraine has the highest turnover with Iran, which in 2012 made 1232 112.4 thousand US dollars, compared to 164 900.4 thousand US dollars in 2001. Like Iraq, Iran in the early 90s also proposed to build oil and gas pipelines Iran-Caucasus-Black Sea-Ukraine-Europe.

Note: In 2000, the Kyiv Research Institute “Transgaz” developed a feasibility study on the project of the pipeline: Iran-Armenia-Georgia-Black Sea-Ukraine-Europe. The Ministry of Fuel and Energy of Ukraine estimated the project to 5 billion US dollars. Shipments should reach about 60 billion cubic meters of gas per year, of which 10 billion cubic meters — for Ukraine, with further increasing to 15 billion cubic meters. In July 2005, “Naftogaz” of Ukraine offered the Iranian government to consider the option of construction of a gas pipeline along this route, but the project, like many others, was not realized due to some internal circumstances, both, in Ukraine and in Iran, and also because of the unfavorable geopolitical situation in the Middle East, in particular, around Iran.

In the situation of the lack of any progress in the construction of the gas pipeline on the route Iran-Ukraine-Europe, the Ukrainian government and private companies are trying to use all available means in order to gain a foothold in the Iranian energy market on their own or in cooperation with strong foreign oil and gas companies. Examples of such cooperation of Ukrainian companies have been demonstrating in recent years, supplying Iran with gas pumping equipment from the Sumy Frunze Research and Manufacturing Association, as well as pipes from Khartsyzk plant. Some Ukrainian companies do not want to publicize their activities in the Iranian market, they have joint projects with Iranian companies such as “Petropars” and “Hirbodan” in the sphere of exploration, development and production of oil and gas, construction of new and reconstruction of existing refineries.

Iran's company PEDEC in cooperation with the National Iranian Oil Company NIOC plans to lay an underwater gas pipeline to transport gas from the gas field in the Iranian Salman sector of the Persian Gulf to the terminal on the Sirri Island. For this project PEDEC created a consortium, which includes the Ukrainian branch of the Iranian company Iran Naft Gas Prom and “Institute of Oil Transportation” (Kyiv).

By proven reserves of coal (578 million tons), Iran ranks first among the countries of the Persian Gulf, but extraction of coal in the country is only 2 million tons per year. Since this amount is not enough for the development of the steel industry, Iran buys coal and coking coal in some countries, including Ukraine. For several years now, Ukrainian coal has been supplied to Iran not directly, but through Syria and Lebanon. Coal exports to Iran are carried out by enterprises, which are subordinate to CJSC “Donetsksteel.” Coal is loaded on ships belonging to the Iranian company IRISL in the port of Mykolaiv. Ukraine sells to Iran averagely 170-200 thousand tons of coal monthly. According Ukrderzhstat (State Statistics Service of Ukraine), for the period from January to August 2012 the value of exports of Ukrainian coal to Iran amounted to 421 million US dollars.

Currently in Iran 3 plants for liquefying natural gas are being constructed. One of them, a capacity of 100 million cubic meters per day, is being built together with Chinese companies in the field South Pars. Two more plants in conjunction with European companies are being built on the same field with a daily capacity of 50 and 75 million cubic meters of gas. At present, the readiness of these plants is 60 %. The construction of these plants is supposed to be completed in 2013-2014. Given the fact that in a few years, Iran will be one of the suppliers of LNG, it is already time for studying the conditions for Ukraine's getting it.

The situation in Iran and around it largely hinders cooperation with Ukraine. The Iranian nuclear program remains a major problem in relations between Iran and Western countries. Recently, however, after another round of negotiations of the “Six” with Iranian representatives in October 2013 in Geneva, there are positive developments. At the same time, Washington and Tehran have not just demonstrated their willingness to participate in a direct dialogue on both, bilateral relations and the issue of Iran's nuclear program, but have actually started it.

Tensions between Iran and some neighboring states, in particular, the United Arab Emirates, Kuwait, Turkey and Azerbaijan, is not decreasing. Strained relations are between Iran and Turkey over the conflict in Syria. However, despite worsening of bilateral Turkish-Iranian relations, Turkey continues buying Iranian gas and is not going to stop doing so. Apart from gas, almost half of the oil it consumes, Turkey imports from Iran. Such co-relation of the two countries in a certain way guarantees that Ankara and Tehran will not step over the red line in their relationship.

Developing cooperation with Iran and Qatar we should take into account peculiarities of relations between the two countries, which can be described as a good neighbor relation with tacit elements of “under-the-carpet” competition at the world energy market. Iran and Qatar are connected by mutually beneficial economic relations. Iran supplies Qatar with agricultural products, food, light industry and chemical industry products, as well as with building materials. In its turn, Qatar exports petroleum to Iran. In Qatar, there are about 160 thousand Iranian citizens, many of whom hold senior positions in various large companies, or work as advisers to Qatari businessmen, particularly in the gas sphere. Qatar and Iran have an agreement on division of natural gas deposits in the shared offshore area in the Gulf. Qatari area is called “North Pars” (6 million square kilometers), and the Iranian — “South Pars” (3.7 million square kilometers.)

During his visit to Doha in early September 2010, Iranian President M. Ahmadinejad spoke about “deep and brotherly relations between Iran and Qatar”, pointing out that Tehran and Doha share the same positions on various regional developments, including the situation in Afghanistan, Iraq and Palestine. However, today, Iran and Qatar hold opposite positions on the situation in Syria. If Qatar provides a large-scale financial assistance to the Syrian opposition, Iran continues to support its long-term strategic ally — President B. Assad.

An example of the competition between Qatar and Iran at the world gas market is the desire of Doha to supply LNG to Turkey (about 3 billion cubic meters) in case if Ankara fails to make an agreement on acceptable prices for gas with Iran. In the future, Qatar plans not only to ship LNG to Turkey, but also to lay a gas pipeline through the territory of KSA, Iraq and Syria. However, the unstable situation in Iraq and Syria does not allow to implement this project so far. And if, B. Assad wins the opposition and remains in power in Syria, the construction of the above-mentioned gas pipeline on Syrian territory will not be possible. This is one of the reasons due to which Doha supports the Syrian opposition in overthrowing B. Assad’s regime.

Appendix 1


Proven oil reserves



Domestic  consumption



 151.2 billion.bbl

4.231 million. bbl/day

2.295 million bbl/day




143.1 bln.bbl/day

3.3 million bbl/day

2.6 mln.bbl./day

818,000 bbl/day



25.57 billion bbl.

1.631 million bbl./day

704,300 million bbl/day

169,900 bbl./day



97.8 billion  bbl.

3.087 million bbl./day

2.036 million bbl./day 

572,100 bbl./day


Saudi Arabia

264.6 billion bbl.

10 million bbl/day

6.88 million bbl./day

2.817 million bbl./day



101.5 billion bbl.

2.682 million bbl./day

1.365 million bbl./day

339,000 bbl./day



4.902 billion bbl.

890,500 bbl./day

701,600 bbl./day

98,000 bbl./day



107.2 million  barrels

45,000 bbl./day


48,580 bbl./day

225,100 bbl./day


Appendix 2


Volume of commodity turnover in 2001,
thousand U.S. dollars

Volume of commodity turnover in 2011,
thousand U.S. dollars

Volume of commodity turnover in 2012,
thousand U.S. dollars



5 429.0

2 136.2


293 074.2

609 722.7

872 489.7


164 900.4

1 174 037.4

1 232 112.4



40 360.8

23 226.6


1 326.2

3 380.1

10 854.8


118 423.6

467 204.0

482 528.9


3 247.9

21 053.7

70 705.5

 Saudi Arabia

126 708.2

909 492.1

1 175 022.3

To be continued