Iran and Russia, allies in Syria, forge major energy links
Beirut - As the world waits for US President-elect Donald Trump to move from tweeting to conducting foreign policy, Iran and Russia continue to extend their energy cooperation.
Visiting Russian Energy Minister Alexander Novak on December 13th signed an agreement for a 5-year Russian loan for a $1.6 billion gas-fuelled power station in Hormozgan province, aimed at producing 1,400 megawatts (MW) as Iran seeks to increase production from 76,000 MW to 100,000 MW by 2021.
In recent months, Iran has signed memoranda-of-understanding (MoUs) with Russian companies for seven oil fields, six of which are already operating but with very low recovery rates.
Tehran’s motivation is clear: It wants foreign investment and expertise to better exploit the world’s largest combined hydrocarbon reserves. The Russians have much to offer.
Moscow’s calculations are nuanced. Its three largest energy companies — Lukoil, Gazprom and Rosneft — are reaching into Europe and across Asia. Their gas and oil pipelines follow many byways of age-old silk roads but their growing power and links to the Russian state are very modern.
Iran’s wariness of Russia goes back even beyond the 1828 Treaty of Turkmenchay, when the Qajar dynasty ceded vast Caucasus territories to the Russian empire. More recently, Iran’s leader Ayatollah Ali Khamenei balked in 2006 at the failure of his top security official, Ali Larijani, when the latter’s “tilt to Moscow” failed to stop Russia supporting UN Security Council sanctions over Iran’s expanding nuclear programme.
Tensions with Russia eased with the landmark 2015 nuclear agreement with US-led world powers but old suspicions persist in Tehran.
“True, the Russians treat Iran as a pawn, not a partner,” a leading Iranian business journalist told The Arab Weekly. “History — and perhaps the Russian mentality — shows that they would never favour ‘strengthening’ Iran, other than for a limited time in a way that suits their broader goals in their chess-like international policy.
“Specifically on oil and gas, cooperation should help both sides, given Iran’s relative isolation but it may also give Russia further means to exert pressure [if it chooses to do so] and even give [Russian President Vladimir] Putin more ammunition when it comes to dealing with Trump.”
Tactics, however, are not strategies: Iran’s relationship with Russia will outlast Trump. Moscow has a huge, well-staffed embassy in Tehran, a city where Washington has lacked diplomatic representation since 1979.
Russia supplies arms — most recently the S300 air-defence missile system — and has developed Iran’s only functioning nuclear power station at Bushehr. Moscow strongly supports the nuclear deal.
Contact between Iranian President Hassan Rohani and Putin seems good. The two have, in recent weeks, had telephone conversations about oil production levels — just before the Organisation of the Petroleum Exporting Countries (OPEC) agreed to reduce output by 1.2 million barrels a day and more recently over finding a “quick resolution” to the Syrian conflict.
Given the deals Iran has struck since sanctions eased in January 2016 with, among others, Total and Shell, there is every incentive for Russian operators.
The seven oil-field MoUs signed by Russian companies are among 49 Iran has designated for the new Integrated Petroleum Contract (IPC), designed to give greater profit incentives to foreign operators through removing set production-shares and extending contract lengths from five to up to 20 years.
The two largest fields, Mansouri and Ab Teymour, each with about 15 billion barrels, have been assigned to Lukoil. Gazprom, Tatneft and Zarubezhneft share the other five.
Iranian Oil Minister Bijan Zanganeh has said Iran was in talks with Rosneft over four other oil fields while Gazprom is reportedly discussing gas projects, including a pipeline to India, storage and developing conversion facilities for liquefied natural gas (LNG), all areas in which Gazprom has vast experience.
As well as financial muscle, the Russian operators have technological expertise. Of the seven fields covered by MoUs all except Dehloran, a new field containing 5.2 billion barrels assigned to Tatneft, are in operation but with low recovery rates varying from 6-17%.
Nor does the cooperation stop there. Zanganeh announced that Iran intends to supply Russia with 100,000 barrels of oil a day with half the payments in technology and equipment, apparently a means to minimise problems with dollar payments, which Washington has been slow to facilitate despite the 2015 nuclear agreement.
The Oil Ministry in Tehran has suggested there will be a “swap” agreement by which northern Iran would receive gas and oil from Russia in return for supplying Russian tankers with oil to export from Iran’s southern coast, reducing transportation costs for both sides.
These arrangements flow from coinciding national interests, even geography. Whatever wariness exists on both sides, Moscow and Tehran have a relationship based on realpolitik and mediated by communication.
Both are seasoned chess-players. As of January 20th, Trump will need more than 140-character tweets if he is to play with either one.