Russia, Iran strive for larger energy cooperation
By Aynur Karimova
Lifting sanctions in fact opened large opportunities for the resource-rich Islamic state to push forward its long stagnated industry. Intensified visits to Tehran in an effort to find a deserved place in the perspective Iranian market are reality of the past few months. But could Russia really become the favorite partners in the oil and gas industry of Iran is now debated by experts unambiguously.
Iran and Russia have recently voiced their intention to develop all-out cooperation in the energy sector - from swapping oil and gas to involving Russian companies in the development of Iran's oil and gas fields.
The removal of the international sanctions on Iran and the recent improvement of Tehran’s relations with the Western countries have tackled the competition among the energy companies for the vast Iranian market. Russia is among these states.
Russian companies are keen on participating in the development of oil and gas fields in Iran and eye projects for increasing Iranian oilfields’ recovery rate.
After the 5+1 agreement with Iran and lifting of sanctions over the Islamic Republic's energy sector, Iran officially invited all foreign companies to invest in the country's oil and natural gas, LNG, petrochemical sectors.
Gazprom, Lukoil and other Russia companies were active in Iran as well.
Energy analyst Omid Shokri Kalehsar said that after 5+1 agreement, the CEO of Lukoil has announced that Lukoil is to reopen it office in Tehran.
"Gazprom is also ready to get back Iran giant South Pars filed. Russia firms are also active in Iran nuclear sector. And Iran is planning to made agreement with Rosatom to build new nuclear power plant in Iran," he told Azernews.
Iran's Oil Minister Bijan Namdar Zanganeh expressed his country's interest in intensifying energy cooperation with Russia in the post-sanctions era. Such a statement was made at a meeting with Russian Energy Minister Alexander Novak in Tehran on March 14.
Novak, who addressed the journalists after the meeting with Zanganeh said that Iran has right to be exempted from crude output cuts to stabilize the market "with an aim to remedy the losses inflicted on its economy from international sanctions."
"Since Iran’s production decreased under sanctions, we totally understand Iran’s position to increase production and revive its share in the global markets,” he noted.
Energy ministers of Russia, Saudi Arabia, Venezuela and Qatar agreed to freeze the oil output after the negotiations in Doha on February 16. They decided to stabilize oil output at the level of January 11, if other major exporters follow the suit.
Such a decision was aimed at dealing with decreasing oil prices and relieving the glut on the world oil market. Kuwait and UAE also joined this deal.
James Dorsey, a senior fellow at Nanyang Technological University's S. Rajaratnam School of International Studies, believes that believes that the Islamic Republic has made clear that it will not subject itself to quotas "as such it is likely to win market share if others voluntarily cut production."
Kalehsar, in turn, noted that Iran’s first priority is to recover its oil production capacity at the level of before sanctions.
"Before the EU and the U.S. imposed economic sanctions on Iran, the Islamic Republic produced some 4.5 million barrels of oil per day and now, the country is planning to produce such amount of oil in a short term. Iran does not care more about oil prices. Iran expects from OPEC and non-OPEC members to free oil production, but allow Iran to produce more oil and recover its oil production capacity," he noted.
The Islamic Republic, after the removal of international sanctions, is planning to take its rightful share in the world energy market, primarily as a major natural-gas exporter.
Iran with the world’s second largest gas reserves and the fourth largest oil deposits, has already declared its readiness to re-enter the global oil and gas market. Tehran is looking for markets to target, and Europe is interested in Iranian gas as the primary objective of the EU is the diversification of energy resources and decrease of gas dependence on Russia.
One can expect that the relations between Tehran and Moscow will worsen if Europe replaces Russian gas to Iranian blue fuel.
However, Dorsey believes that Russia will have to balance its differences with Iran over energy with its other interests in the region that involve Iran such as Syria.
"As a result, it is unlikely to put those other interests at risk," he said.
Kalehsar, in turn, said that exporting natural gas to the European consumers is Iran's long term plan as Iran needs about 6 billion euros of investment for construction of relevant pipeline.
"It is clear that the EU energy demand is decreasing, and the EU is planning to import LNG from the U.S. to decrease its dependency on Russia gas. Sooner or later Iran will export gas to the EU as Iran needs market for its gas. Iran is also planning to use Oman LNG facilities to produce LNG in Oman and export it to the EU," he stated.
Tehran has been considering various destinations for diversifying energy supply routes and transporting its natural gas to Europe.
Ukraine, which has energy refining and export infrastructure, could take a significant share on the Iranian market by meeting the needs of a post-sanctions Iran.
Also, Ukraine's potential to transit Iranian blue fuel to Europe, is the most important factor for Iran, which has been working to figure out ways to enter the European gas market.
Commenting on the affect of such a transit operation to Tehran's ties with Moscow, Dorsey said Russia realizes that Iran makes a point of acting in its own interest and not easily buckling down to pressure.
"Russia needs Iran as much as Iran needs Russia. As a result, oil exports to Ukraine are not going to make Moscow happy but unlikely to create a breaking point. Moreover, Russia realizes that Ukraine will no longer accept dependency on Russia," he added.
Kalehsar, however, is pessimistic on the possibility of this transit.
"The main question is in which pipeline Iran can export gas or other fuels to Ukraine. Iran has to build pipeline but due to the Ukraine's security and stability problem, I am not sure that foreign companies will invest in such projects," he said.
Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova
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