The Strategic Importance of the Strait of Hormuz and Global Energy Security

The principle governing the world oil market is, simply put, supply and demand. When there is a balance between supply and demand in the oil market, prices remain stable. Based on assessments by geopolitical theorists, an open conflict in the Strait of Hormuz, and even the threat of a possible conflict, can have dangerous consequences for energy security, and, consequently, energy producers and consumers themselves.

THE WORLD’S MOST IMPORTANT OIL SUPPLY CHOKEPOINT

According to the US Energy Information Administration, in 2018, 21 million barrels of oil and oil derivatives (equivalent to 21 percent of global oil and oil derivatives) were shipped daily from the Strait of Hormuz. The United States imported 1.4 million barrels of oil and oil derivatives per day from the region, transported through the Strait of Hormuz. According to the US Energy Information Administration, in 2018, more than 76 percent of the oil and oil derivatives from the Strait of Hormuz were shipped to Asian countries. Most of the oil used by China, India, South Korea, Japan and Singapore passes through the Strait.Посмотреть изображение в Твиттере

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Javier Blas@JavierBlas

CHART OF THE DAY: Timely briefing note about the Strait of Hormuz from the @EIAgov, including updated 2018 #oil flow data | #OOTT #Iran Link here: https://www.eia.gov/todayinenergy/detail.php?id=39932 …212:12 – 20 июн. 2019 г.Смотреть другие твиты Javier BlasИнформация о рекламе в Твиттере и конфиденциальность

The Strait of Hormuz is one of the most important international waterways in the world, and facilitates the export of about one-fifth of the world’s crude oil. Due to reduced Iranian oil exports and instability in the region, the price of crude oil has increased dramatically in recent weeks, and the closure of the Strait of Hormuz will likely continue to spark turbulence in the global energy market.

CHINA

The control of resources and energy pathways (which play a role role in energy security and economic growth of major energy consuming countries) has always been a priority of world powers and factored in heavily to global political equations. The United States sees an opportunity to control oil trafficking in important export zones such as the Strait of Hormuz to reduce the economic growth of China and other countries.

For China, oil security is the most important issue in regard to energy security, while for other countries it is often gas or other fuels. According to the latest statistics, China is the biggest beneficiaries of the Strait of Hormuz; they receive about 4 million barrels of oil per day from Saudi Arabia, Iran, Kuwait, Iraq and the United Arab Emirates. Around 42% of China’s imported oil passes through the Strait of Hormuz.

Lowering the importance of the Gulf region’s oil for the United States may reduce the security of their interests in the region. The use of regional markets, the prevelent issue of international terrorism and the prevention of non-peaceful nuclear expansion, along with controlling the flow of oil and energy, are among the major factors compelling US interest in the region. This assures that competition and security questions for China in the Strait will only continue to rise.

THREATS TO CLOSE OF THE STRAIT OF HORMUZ

Iran’s recent threats to shut down the Straight are hardly the first of their kind. Last year, Iranian President Hassan Rouhani said that if the United States continues its efforts to cut Iran’s oil exports, Iran will ensure that no other country can export its oil. Iran’s Supreme Leader Ayatollah Khamenei said that Rouhani’s threats represent the official policy of the government. Unilateral action by Iran to stop shipping ships in the Strait of Hormuz, according to international law, will be considered as the pretext for war for those countries that rely on the Strait and their allies.Посмотреть изображение в Твиттере

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Platts Oil@PlattsOil

UPDATE: US to end Iran sanctions waivers in May; Iran threatens to shut Strait of Hormuz | #crudeoil #OOTT | @BrianJScheid + @meghangordon story: http://plts.co/mEai50rbYkS 1511:07 – 22 апр. 2019 г.23 человек(а) говорят об этомИнформация о рекламе в Твиттере и конфиденциальность

The strategic position of the Strait of Hormuz allows Iran to levredge its control in order to achieve specific economic and political goals. If the Straight were to be closed, the flow of oil would spiral into a deep shock, making it very difficult for countries that ship oil from the area, and very costly on their economies.

THE CARTER DOCTRINE AND THE IMPORTANCE OF THE STRAIT OF HORMUZ

In the early years of the Iran-Iraq war, under the aegis of President Jimmy Carter, “Centcom” was established to maintain security and stability in the Gulf region. The principles of the Carter Doctrine in regard to Persian Gulf security are as follows: “Any attempt by foreign forces to attack the Persian Gulf is an attack on the vital interests of the United States. Such attacks must be repulsed in any way that is necessary, including military action.”

ALTERNATIVE ROUTES TO THE STRAIT OF HORMUZ

Saudi Arabia built pipelines in 2007 that would allow the transit of oil from the Persian Gulf to bypass the Strait of Hormuz. The Saudi Arabia Petroline (East-West pipeline) is 750 miles long, extending from oil fields east of the country to the Red Sea in the west to the port of Yanbu.

Through the petroleum system, the Saudis can go round the Strait of Hormuz or Bab Al-Mandeb and reach tankers in the Red Sea, and from there the Suez Canal and the Mediterranean. The pipeline has not yet been completed. Saudi Arabia also has an inactive pipeline that crosses Iraq, but has ceased Iraqi operations after the Iraqi invasion of Kuwait.

Dan Tsubouchi@Energy_Tidbits · 29 мая 2019 г.

Bolton seems to confirm May 6 Iran report of explosions at Yanbu port, “had been a 4th unsuccessful attack on Saudi Arabia’s Yanbu port a few days before the operation off Fujairah” Remind Houthis long range missile threaten critical Saudi oil infra. https://www.dailymail.co.uk/news/article-7081167/The-Latest-Bolton-says-Iran-stick-nuclear-deal.html …John Bolton says Iran ‘almost certainly’ behind oil tanker attacksThe U.S. National Security Adviser said he was sure Tehran was to blame for the attacks earlier this month. He was speaking to reporters in Abu Dhabi ahead of emergency summits in Saudi Arabia.dailymail.co.uk

Dan Tsubouchi@Energy_Tidbits

Yanbu: EIA data – 2nd most critical Saudi oil infrastructure, only export capacity not thru Strait of Hormuz, oil pipeline 4.8 mmb/d & NGL pipeline 0.29 mmb/d to Yanbu, 635,000 b/d refining capacity, export terminal storage capacity 12.5 mmb and loading capacity 6.6 mmb/d., #OOTT208:52 – 29 мая 2019 г.Информация о рекламе в Твиттере и конфиденциальность

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Смотреть другие твиты Dan Tsubouchi

Earlier this year, the UAE, with the intention of circumventing the Strait of Hormuz, signed a contract with a Korean company (SK Engineering and Construction Company (SKEC) to build the world’s largest oil storage facility. The capacity of this warehouse will be 42 million barrels. This oil storage will be built in the Fujairah area of ​​the eastern part of the country (by the Emirate coast of the Oman Sea and the eastern side of the Strait of Hormuz). The UAE has already built a pipeline that can transport 70 percent of its oil production to the international markets without the Strait of Hormuz.

Meanwhile, in the event of a military conflict in the region, plans to bypass the Strait of Hormuz will not provide security for the transfer of oil from the region to the global market.

QATAR AND LNG EXPORTS

Along with carrying oil from the Strait of Hormuz, more than a quarter of the world’s LNG is also transported through the waterway. The importance of the Strait of Hormuz for Qatar is more than other countries in the region. As the largest LNG producer and exporter, the country needs the stability and security of the region to deliver LNG to its customers (mainly in East Asia) at a specific time. Given the fierce competition in the global LNG market and the widespread investment of the US, Australia, Russia, Mozambique and in the LNG industry, any conflict in the region will cause not only part of Qatar’s share of the LNG market to be lost, but other countries will be able to replace Qatar as the largest producer and exporter of LNG. In the event of a military conflict in the region, the LNG market will also be damaged. The price of this product will increase and countries that simultaneously import oil and LNG from the region will be more harmful.Посмотреть изображение в Твиттере

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USQBC@USQatar

The #UnitedStates & #Qatar are #EnergyPartners. Qatar’s supply of #LNG is critical to global stability & a $30-$40B expansion project will ensure a stable supply. #USQatarBusiness208:35 – 9 июл. 2019 г.Смотреть другие твиты USQBCИнформация о рекламе в Твиттере и конфиденциальность

Maintaining security in the Strait of Hormuz is vital for all oil-exporting countries. If the Saudi and Emirate pipelines can reach the Red Sea with full capacity, and the UAE’s stockpile will be operational on time, and the need for these countries to use the Strait of Hormuz will be reduced. In this context, the strategic importance of the Strait will be reduced for exporters and consumers in the medium term. This would mean a geopolitical change in energy in the medium term.

Every country in the region relies on its stability and security in order to export oil and related products in time. Because of this, any conflict in the Strait of Hormuz is against the national interests of Qatar, which exports oil and is the world’s largest LNG exporter. LNG cannot be exported through the pipeline, and the country needs to export its LNG through the Strait of Hormuz, or suffer a decline in its share of the global LNG market and, consequently, a reduction in its foreign exchange earnings.

In a worst-case scenario, the oil market will suffer intensely due to a possible conflict in the region, or as a result of Iran taking action to close the Strait. Oil prices will increase, and energy security and economic growth will be faced with crisis. As a result of these considerations, the possibility of establishing a global consensus against any country closing the Strait of Hormuz will also increase.

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Japan prime minister to visit Tehran, with energy security the main concern

As Japan looks to ensure security in the region, it could play a vital role in negotiating between Iran and the US.

Japan is the third-largest economy in the world, needing a regular supply of energy from reliable sources and routes. 

The diversification of energy resources is, therefore, a key pillar of Japan’s energy policy, in particular as it imports most of its oil from the Middle East. Saudi Arabia is Japan’s main oil supplier and besides Saudi Arabia, the UAE, Russia, Kuwait, Qatar and Iran supply additional oil.  Stability and peace in the region directly affect Japan’s energy security and economy.

Any tension or conflict in the region from which Japan imports energy or on a route it travels may increase the oil price, resulting in a significant negative impact on Japan’s economy as well as other major oil importers. Japan is therefore attempting to play an active diplomatic role in the Middle East to decrease the impact of tensions in the region. As the fourth largest consumer and importer of oil in the world, the largest importer of liquid gas (LNG) and the second largest importer of coal after China, it has no choice but to mediate regional Middle Eastern risks.

Japan’s major oil suppliers

In 2018, Saudi Arabia and the United Arab Emirates were the largest suppliers of oil to Japan with Iran coming in sixth. According to Japan’s Ministry of Finance, its crude imports from Iran dropped 42 percent in April compared to March, reaching 169,000 barrels a day on average. In March, the country imported an average of 292,000 barrels of oil a day from Iran. In February, Japan’s oil imports from Iran reached 76,000 bpd. At the time of Iran’s sanctions waivers the government of Japan extended insurance of state-owned oil imports from Iran for one year. This was the Japanese government’s move to encourage its refineries to continue importing oil from Iran.

Zarif’s Visit to Japan

During the last few months, Iran has begun to actively lobby diplomatically to increase its relations with major Iranian oil buyers; Iran does not want to lose its share in regional and world oil markets. Last month Iran’s Foreign Minister, Mohamad Javad Zarif, visited Tokyo and met with Japanese Prime Minster Shinzo Abe and Foreign Minister Taro Kono.

Taro Kono in his press conference after meeting with Zarid said: “We are very worried about the Middle East and will not hesitate to try to reduce tensions and resolve confrontations.” He emphasised that Iran needs to continue to uphold its commitments under the Iran Nuclear Deal, urging Iran to maintain its implementation. Zarif, at a meeting with his Japanese counterpart, said that Iran continues to honour its commitments under the Iran Nuclear Deal, despite US withdrawal from it. During his trip to Japan, the Iranian foreign minister told reporters that there is no way to negotiate with the United States. Zarif had set the goal of his trip to Japan to confront the “tension” of the United States.

Trump’s Visit to Japan

Japan is one of America’s closest allies. President Donald Trump visited Japan recently meeting with Japanese Emperor Naruhito and Shinzo Abe. Trump, in his joint press conference with the prime minister, asked Japanese businessmen to make more investments in the US. North Korea and Iran were also major topics which Trump focused on in his meeting with Shinzo Abe. Trump in his visit to Japan, said of Shinzo Abe’s visit to Iran: “I know that both Japan and its prime minister have good relations with Iran. We will see what will happen.”

Japan’s private and state-led companies with high technology and enough financial capabilities hold the potential to invest in Iranian infrastructure and oil and gas fields. Iran needs billions to recover its oil and gas production capacity; due to sanctions after the 1979 revolution Iranian oil and gas production capacity dramatically decreased, and without foreign technology and financial capability it will not be easy for Iran to increase oil and gas production capacity. Iran’s petrochemical and refinery sectors also need foreign investment due to ageing infrastructure the majority of petrochemical and refineries need to be repaired.

Shinzo Abe to visit Tehran

The relationship between Tehran and Tokyo has always been peaceful and based on mutual respect. One of the focuses of economic cooperation between Iran and Japan after the expansion of relations between the two countries in recent decades has been the issue of energy and contracts for oil and gas.

Shinzo Abe’s trip to Iran will be the first visit by a Japanese prime minister in over 40 years and has become particularly important regarding intensive diplomacy between Iran and the United States and tensions in the region. The continuation of energy imports from Iran is not the main concern for the Japanese government. The country can easily find an alternative to Iran’s oil and gas condensate, countries such as Saudi Arabia, Kuwait and the Emirates can easily meet the needs of the Japanese energy market. LNG imports from Qatar and the United States could also replace Iran’s gas condensate in the Japanese energy market.

Japan’s energy security will not be affected by US sanctions against Iran’s oil exports. However, any possible agreement between Iran and the United States will be in the interest of Japan. With the abolition of sanctions, Japanese companies can invest in oil and gas fields, refineries, and renewable energy in Iran. The country’s products will also have a greater chance of selling in the Iranian consumer market.

Is it possible for Japan to be mediator between Iran and US?

Japan’s major concern is decreasing the likelihood of conflict and tension in the region. The tensions and conflicts in the energy supply countries of Japan, as well as the routes that bring oil and gas resources to the Japanese market, have a direct impact on the security of energy and economic growth in the country. The major import of Japanese oil from Saudi Arabia, the UAE and Kuwait, and any military engagement in the region, especially in the Strait of Hormuz, directly threatens not only the energy security, but also the economy of the country. Any possible conflict in the region would mean an increase in oil prices, which would not be pleasant for the economy of major energy consumers, including Japan.

Given that the 12 pre-conditions by US Secretary of State Mike Pompeo have not yet been eliminated, if the talks are negotiated with Japan’s possible mediation, it would be difficult to reach an understanding between Iran and the United States in the current situation. If Iran and US officially choose Japan as mediator, it could play an important role.

It should be noted that negotiation without a precondition is different from the new agreement without a precondition. It is hoped that with Shinzo Abe’s trip, the tension in the region will be somewhat reduced.

Any conflict in the region and insecurity for oil tankers would be detrimental to all energy producers and consumers in the region. Shinzo Abe’s visit to Tehran will increase Japan’s role and political presence in the region and will enable Japan to play a role in stabilising security in the region. 


https://www.trtworld.com/

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US Oil Embargo Stalls Iran-India Energy Relations

Before the Trump administration decided to target Tehran’s oil exports, Iran and India experienced a positive trend in relations.



India was Iran’s second largest oil customer, importing 457,000 barrels of oil a day before the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in May 2018. Last November, India was one of eight countries that received a six-month waiver to continue importing Iranian oil; it bought 300,000 barrels per day during this period. In April, however, the Trump administration did not renew the waivers. India announced on May 24 that it would abide by US sanctions and stop all such imports.



US sanctions also forbid foreign investment in Iran’s energy sector. In the past, India had expressed interest in developing the Farzad B gas field, which is shared between Iran and Saudi Arabia. In 2008, an Indian company, the Oil and Natural Gas Corporation (ONGC), discovered the field, whose reserves are estimated at around 22 trillion cubic meters. India made a $3 billion offer to Iran for a thirty-year extraction of this field, from which Saudi Arabia already produces 500 million cubic meters of gas a day, but was turned down. In 2016, Saudi Arabia signed a $1 billion contract with Indian and Singaporean companies to increase production in its share of the field from 500 million cubic meters per day to 2 billion cubic meters.

Energy security and resource diversification is a key pillar of Indian foreign policy. India is the third largest consumer of oil in the world and imports about 80 percent of its oil needs. 

In recent months, the US has increased its own energy exports to India and signed a 20-year contract to export liquefied natural gas (LNG) to India. Iraq and Saudi Arabia are also seeking to increase their share in the Indian oil market. 



India’s largest refinery, Indian Oil Corporation, this year signed its first long-term agreement to import US oil. The contract, worth $1.5 billion, covers 60,000 barrels per day from March 2019 to March 2020. The company previously bought US oil from the spot market and signed a short-term contract in August 2018 to buy 6 million barrels of oil from the United States between November 2018 and January 2019.



According to India’s Minster of Petroleum and Natural Gas, Dharmendra Pradhan, India will compensate for the gap caused by the drop in Iranian oil imports by importing oil from other OPEC member countries. In addition, India will look to the United States and Mexico to meet demand for gasoline, diesel and other refined petroleum products. 



One area of India-Iran cooperation that has so far escaped US sanctions is the Chabahar port in southeastern Iran on the Gulf of Oman. India aims to use the port to increase its influence in the region, as well as to gain more market share from Afghanistan, Central Asia and the Caucasus. India has now become one of the world’s leading exporters of goods and services. Finding a route that reduces the time it takes to deliver goods and desirable in terms of cost and security is a constant concern for Indian officials and businessmen. The Chabahar port can serve as a gateway to Turkmenistan, Afghanistan, Uzbekistan, Kazakhstan, Azerbaijan, Armenia, Georgia and Russia. India could also use Pakistani ports to access the Central Asian and Caucasian markets, but Chabahar is politically and economically more affordable and more reliable.

Despite India’s public acceptance of the US oil embargo, analysts believe that Indian oil imports from Iran, while significantly reduced, will not completely end. It is expected that Iran can still sell 100,000-150,000 barrels per day (bpd) to smugglers in international waters who will then deliver this to India. 



However, India oil imports are down 57 percent from April 2018. India importedabout 277,600 bpd from Iran this April, down about 31.5 percent from March.The Indian government has announced that it will postpone final decision on Iran’s oil imports until after Indian general elections. Meanwhile, Iranian Foreign Minister Mohammad Javad Zarif has held talks with his Indian counterpart, Sushma Swaraj, during his visit to New Delhi on May 14. 

During the previous sanctions period, India continued to import oil from Iran and paid imported oil money with Indian currency, the rupee. It seems that the government of Narendra Modi will try to continue importing oil from Iran. New Delhi is currently mulling over plans to use Iran Pasargard Bank in India to make the transactions for Iranian oil. 



India is likely to buy oil from Iran with a special discount, but the main question is how it will be possible for the Indian government to pay oil money to Iran. It is important to note that during 2017 and two years after the signing of JCPOA, Iran has not received all money from India for exports oil during pervious sanctions. 



The Modi government is interested in expanding energy relations with Iran, but without solving the money transfer problem, it will be difficult for Iran to export more oil to the Indian market. Another key issue is how much the Modi government will be able to resist the Trump administration’s pressure to cut off Iranian oil imports.



In the longer term, however, Iran needs to solve its problems with the United States to realize its energy potential. Iran’s energy sector needs more foreign technology to boost oil and gas production capacity. Otherwise it will lose its regional and global market share.



Considering that Iran’s oil buyers are finding alternatives to Iranian oil, it seems that Iran may have a hard time recapturing its share in the oil market because of uncertainty about US sanctions. Energy diplomacy needs to be redefined and the role of energy in Iran’s foreign policy needs to be reviewed. Indian private companies have good experience and enough financial resources to contribute to the Iranian oil sector, but Iran must first resolve its disputes with the United States and improve its legal framework for foreign investment.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, currently serving as a visiting research scholar in the Schar School of Policy and Government at George Mason University. Omid is a PhD Candidate in international relations at Yalova University, Turkey. Follow him on Twitter: @ushukrik.

www.atlanticcouncil.org

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US sanctions and the future of Turkish-Iranian energy ties

April 17, 2019

On paper, Turkey and Iran should be natural partners when it comes to energy. On the one hand, Turkey has a growing demand for oil and gas and lacks significant domestic resources, making it highly reliant on imports. On the other hand, Iran has huge hydrocarbons reserves — the world’s fourth largest for oil and second largest for gas, according to the U.S. Energy Information Administration. In reality though, things are more complicated. Energy relations between the two countries are not without their challenges, foremost among which are U.S. sanctions on Iran and disputes over pricing, although there is also a strong opportunity for greater cooperation in the form of Turkey’s efforts to become a regional energy hub.

At present, Iran is one of Turkey’s leading suppliers of oil and gas. According to figures from the Turkish Energy Market Regulatory Authority (EMRA), as of January 2019, Iran was Turkey’s third-largest source of oil imports by volume, accounting for 12.35 percent of the total, behind Iraq (23.5 percent) and Russia (15 percent). It was also Turkey’s second-largest supplier of natural gas, accounting for just over 14 percent of the total, behind Russia (31.6 percent) and narrowly ahead of Azerbaijan (13.9 percent) and Algeria (12 percent).

U.S. sanctions
The reimposition of U.S. sanctions on Iran in October 2018 has presented an immediate and obvious hurdle to Turkish-Iranian energy ties. In the aftermath of the U.S. move, Turkey’s purchases of Iranian crude oil reportedly fell to zero, according to news reports. Since then, however, they have picked up again. Turkey was one of eight countries that received a temporary sanctions waiver enabling it to continue buying Iranian crude for a limited period of time, on the condition that it work to reduce its imports of Iranian oil and find alternative suppliers. The waivers are currently set to expire in May, and it is unclear as yet if the Trump administration will extend them. Nevertheless, the trend when it comes to oil imports from Iran is clearly downward: According to figures from EMRA, they fell by nearly half from January 2018 to January 2019, from 22 percent of total imports to 12.35 percent.

Pricing dispute
Pricing has long been a bone of contention between Turkey and Iran when it comes to energy. Under a 25-year agreement signed in 2001, Iran exports 10 billion cubic meters of gas annually to Turkey at a price of $507 per thousand cubic meters. Turkey first objected to Iran’s prices in 2009, when it said they were too expensive and demanded a discount. Soon after, an arbitration court granted Turkey a 12.5 percent discount on the original price. In 2012 Turkey took action against Iran again, suing it for overpricing on gas sales, and in 2016 the International Court of Arbitration (ICA) ruled against Iran in its dispute with Turkey. After reviewing the case, the ICA ordered Iran to reduce its gas prices by 13.3% by the end of 2016 and pay $1.9 billion in compensation to Turkey due to overpricing.

Iran’s gas prices are indeed much higher than those of its competitors, Azerbaijan and Russia, making it unlikely that Iran will be able to maintain its share of Turkey’s energy market unless it takes action. The current natural gas contract between the two countries is set to expire in 2026, and Turkey is planning to construct infrastructure to boost imports from Azerbaijan and Russia in regions of the country that primarily consume Iranian gas at present. Considering these factors, if Iran wants to maintain its role as a key natural gas exporter to Turkey and extend the existing contract past 2026, it will need to offer additional discounts or other incentives.

Turkey’s efforts to become a regional energy hub
One major potential opportunity for closer cooperation is Turkey’s ambitions of becoming a regional energy hub, leveraging the country’s geography and pipeline network to serve as an energy corridor between the oil-and-gas-rich states of Central Asia and the Middle East and the major consumer countries in Europe. If Turkey can put in place the required infrastructure and liberalize its energy market, this goal may be achievable, and energy imports from Iran could help it to realize this objective.

In line with its broader aim of becoming a regional energy hub, Turkey is working to diversify its oil and gas supplies as a central part of its energy policy. At present, the country is planning to import more natural gas through projects such as Turk Stream, an undersea gas pipeline running from Russia to Turkey. Liquefied natural gas (LNG), primarily from Qatar and the U.S., is also playing a growing role in the Turkish energy market. Imports from the latter jumped from nothing to nearly 8 percent of the total in just one year, from January 2018 to January 2019, according to figures from EMRA.

In theory, Iran could play a greater role here as well, but boosting the volume of Iranian gas exports to sell on to other countries would not be easy. Iran needs foreign technology and financing to increase its production, but due to U.S. sanctions neither is likely to be forthcoming until Iran can solve its problems with the West over its nuclear program, missile tests, and human right issues. In addition to addressing its geopolitical problems, Iran also needs a legal framework that would help to attract foreign investment. Without foreign energy firms and foreign capital, Iran will be not be able to produce more oil and gas for export. It will also need to address the issue of reliability, which has long been a problem with Iranian gas exports. If the country is to play a greater role as a supplier, it needs to guarantee that it will not cut the flow of gas, especially in wintertime.

Despite their proximity and complementarity as producer and consumer, Iran and Turkey face considerable, if not insurmountable, hurdles to closer cooperation on energy. If they can manage to overcome the challenges associated with U.S. sanctions and pricing and leverage the opportunities presented by Turkish efforts to become a regional energy hub, the two may well be able to finally make the most of what should be a natural partnership.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, currently serving as a visiting research scholar in the Schar School of Policy and Government at George Mason University. Omid is a PhD candidate in international relations at Yalova University, Turkey. The views he expresses are strictly his own.

www.mei.edu

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Saudi Arabia’s Plan to Lure Iraq From Iran

A Saudi economic delegation visited Iraq on April 3, seeking to promote the expansion of diplomatic and economic relations between the two countries—and to give Iraq an alternative to growing Iranian ties. 

This was the second meeting of the Iraqi-Saudi Coordination Council, which held an initial meeting in 2017. The Saudis offered a $1 billion loan for the creation of a sports complex to be known as Sport City. The council also announced the establishment of consular centers for visa services in Baghdad and two other Iraqi cities.

These positive developments in Iraq-Saudi relations are the latest chapter in a new Riyadh approach to Iraq which began in late 2015. Until then, Saudi Arabia refused to recognize the Shia-dominated government that came to power in Baghdad after the 2003 US invasion. From 2003 – 2014, Saudi Arabia tried to confront Iran’s influence in Iraq and the rise of pro-Iranian Shia political groups by supporting the Sunni insurgency against Iraq’s central government. 

This policy did not succeed, and, in a major turnabout, Saudi Arabia re-established diplomatic relations with Iraq in late 2015. Diplomatic contacts and economic relations between the two countries have increased since then, as other Gulf Cooperation Council (GCC) countries such as Kuwait and the United Arab Emirates have also improved their relations with Iraq. In the meantime, the main objective of Saudi policy toward Iraq remains the same: reducing Iran’s influence in Iraq in the context of the ongoing Iran-Saudi proxy war.

Iraq’s economic, diplomatic, and religious ties with Iran have grown despite efforts by the United States and Saudi Arabia to diminish them. In 2016, Iran was the third largest exporter to Iraq after China and Turkey, and accounted for 16 percent of Iraq’s total imports. Iranian religious tourism to the Shia holy cities of Najaf and Karbala is the leading source of tourism revenue for Iraq. Even more significantly, Iraq, despite its own considerable energy sector, imports a large amount of natural gas and electricity from Iran. Iran also enjoys significant political influence in Iraq and has developed close ties with several Shia and Kurdish political factions.

From the Saudi point of view, the most important dimension of Iraq’s dependence on Iran is energy imports. Saudi Arabia is planning to provide Iraq with alternative sources of energy in an effort to reduce this dependency, but this will not be an easy task. Iraq, despite huge oil reserves, faces a shortage of electricity and relies on imported electricity from Iran to cover a portion of this shortage. Domestic electricity production in 2018 was 16,000 MWs and it also imported 1,200 MWs from Iran. Yet Iraq still faces an electricity shortage that in hot summer months exceeds 5,000 MWs.

Furthermore, in addition to direct electricity imports, Iraq relies on natural gas from Iran to produce a portion of its domestic electricity. As a result, about one third of Iraq’s electricity is produced directly or indirectly through energy trade with Iran.

In 2018, Iraqi officials intensified their efforts to find alternative sources for electricity imports for several reasons. First, Iraq has come under pressure from the United States to abide by US economic sanctions on Iran and reduce its energy dependency on that country. Given how hard this is to achieve in the short run, Washington has repeatedly provided waivers but with reluctance, emphasizing that these exemptions are temporary. The energy imports from Iran are also risky because in periods of high domestic demand, Iran might reduce or even stop energy exports to Iraq. This happened in the summer of 2018 and led to severe power outages in southern Iraq. These shortages caused massive street protests, especially in the southern port city of Basra, against the Iraqi central government and Iran.

Iran defended its reduced electricity exports to Iraq because of rising domestic needs, but Iraqi officials criticized this policy and decided to approach Saudi Arabia as a potential alternative source. This development has provided Saudi Arabia with an opportunity to use energy trade to gain more political influence in Iraq. In June 2018, the spokesman for Iraq’s Ministry of Electricity, Musab Sari al-Mudaris, announced that Saudi Arabia had agreed to launch a solar power plant with production capacity of 3,000 MWs in its northern region near the Iraqi border for electricity exports to Iraq at a discounted price. Although there has been a dispute about the accuracy of this report, the potential for energy cooperation between Saudi Arabia and Iraq remains strong and the United States is also putting diplomatic pressure on Iraq to expand these ties in order to reduce Iraq’s dependence on Iran.

The warm reaction of the Iraqi government to Saudi initiatives does not imply that Iraq will abandon its economic and diplomatic relations with Iran. Rather it appears that Iraq is trying to create a balance in its relations with Iran and its Sunni Arab neighbors. This balanced approach was evident in Iraqi President Barham Salih’s April 2 interview with Asharq Al-Awsat in which he emphasized that “Bolstering relations with the Kingdom is an integral part of our vision for what Iraq’s ties should be like.” He added, “It is in our interest to enjoy good relations with Iran based on common interests.” 

In light of Iraq’s ethnic mix and the proportional representation of Sunnis, Shias, and Kurds in its political institutions, remaining neutral in the Saudi-Iran proxy war will serve Iraq’s interests well. Hence it should come as no surprise that after his April 6 visit to Tehran, Iraq’s Prime Minister Abdul-Mahdi plans to visitRiyadh later this month.

www.atlanticcouncil.org

Nader Habibi is a Henry J. Leir professor of practice in the economics of the Middle East at the Crown Center for Middle East Studies in Brandeis University. He focuses on economic conditions of Iran and GCC countries. Follow him on Twitter: @NaderHabibi2.

Omid Shokri Kalehsar is a Washington-based senior energy security analyst, currently serving as a visiting research scholar in the Schar School of Policy and Government at George Mason University. Omid is a PhD Candidate in international relations at Yalova University, Turkey. Follow him on Twitter: @ushukrik.

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Strategic Port Deal with US May Affect Iran-Oman Relations


The deal will improve the United States’ ability to develop power in the Persian Gulf. 

Oman has been able to steer clear of regional disputes in recent years and play a more balanced role in the Gulf while maintaining good relationships with both Iran and the United States.

However, US sanctions against the Iranian oil sector have challenged the bulk of Iran’s energy transit and export plans, including the Iran-Oman natural gas pipeline.

The United States and Oman have signed an agreement allowing Washington to use Omani ports for commercial, military and security purposes. The agreement gives US military forces better access to the Arabian Gulf and fewer ships will need to sail through the Strait of Hormuz.

The deal will improve the United States’ ability to develop power in the Persian Gulf. The port of Duqm is strategically located outside the Strait of Hormuz and is 550km from Muscat. It’s an ideal port for the development of the sector.

Iran expressed interest in using the same ports and has many times threatened to block the Strait of Hormuz, which is a strategic oil shipment route, in response to hostile US actions.

The strait, a sensitive position in pipeline projects, has always been a source of conflict between Iran and the United States. In August 2018, the United States claimed full control over the oil and gas pipelines in the area and threatened to resort to force if Iran disrupted passage of ships from the area.

Regardless of the US presence in the region and the various deals signed with Arab countries, Iran’s ties with countries such as Oman remain strong and significant.

By the end of 2018, Iran-Oman trade volume totalled approximately $1 billion. The development of a maritime transport fleet between the two countries, the facilitation of visa issuance for Iranian and Omani nationals, the increase in Iranian companies in Oman and the more competitive prices of Iranian exports in Oman have improved relations between the parties.

In 2013, Iran and Oman signed a memorandum of understanding on natural gas exports. With Iran’s implementation, the gas pipeline ran directly from the Gulf to Oman.

The 25-year contract for the transfer of Iranian gas to Oman through the pipeline was worth $6 billion. Tehran and Muscat agreed to issue 1 billion cubic feet of gas per day from Iran to Oman. Part of the gas would be converted to liquid natural gas (LNG) in target markets. The remaining capacity of the pipeline would involve future markets in the southern Persian Gulf.

Iran and Oman have agreed to change the route and design of the Iran-Oman submarine pipeline to avoid crossing UAE territorial waters. Iran’s gas pipelines to Oman would pass through a depth of about 1,000 metres, instead of 300 metres, so its distance would be slightly shorter and doesn’t cross UAE territory.

Iran has five LNG projects but, because of sanctions, these projects are incomplete. Iran planned to use natural gas to export to Oman and use some of this natural gas to produce LNG in Omani facilities.

Even if the strategic agreement between the United States and Oman does not affect the Iran-Oman natural gas project, Iran will have a hard time completing its natural gas projects and oil production capacity recovery projects without solving its problems with the West over human rights abuses and missile programme development.
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Energy investment fuels Saudi relations with Pakistan, India and China

audi Arabia uses oil and broader energy diplomacy to deepen the influence and impact of its foreign policy. One key pillar of Riyadh’s strategy is to use investment in other countries’ infrastructure to take larger shares in foreign markets and to decrease market share for rival nations.

Energy diplomacy is the interaction between two or more countries interconnected by various power-production or consumption sectors, including one or more components of trade, services, investment, technology and energy transmission. 

This kind of diplomacy deepens informal links, improves relations between countries and global engagement, and, in addition to economic and technological dimensions, can also address political and security dimensions.

Iran-Saudi competition 

Iran and Saudi Arabia, two regional rival powers in the Middle East with huge oil and gas reserves, compete on a variety of issues; however, the main confrontation between Tehran and Riyadh is on one matter: each wants to be the superior political actor in the Middle East. 

Tehran and Riyadh have faced off in geopolitical confrontations in the region for decades, including the recent wars in Syria, Iraq and Yemen, and over the presence of IS in the Middle East. The competing strategies have centred on weakening their rivals’ standing and stabilise their own position, investing in creating domestic and foreign political pressure on the rival country.

US sanctions

Iran’s largest export destination is primarily China, followed by the European Union, India and Turkey. In 2017, China imported an average of 700,000 barrels per day from Iran. China’s growing economy is dependent on oil imports – and focusing on energy sources is the primary objective of China’s National Energy Policy.

Between April and August 2018 India imported 658,000 barrels of oil per day from Iran


Before the US sanctions on Iran, Chinese companies were actively present in Tehran’s energy industry. Iran, meanwhile, had considerable involvement in China’s energy sector through providing reliable energy for rapid economic growth. As the partnership deepened, the Chinese firms strengthened their role as an influential actor in the Middle East energy market. 
India is Iran’s second-largest oil customer. Between April and August 2018 India imported 658,000 barrels of oil per day from Iran. India is also interested in getting more involved in Iran’s oil and gas exploitation and infrastructure projects.

Saudi investments

During a recent trip to Pakistan, which met with widespread praise from compliant Pakistani officials, Saudi Crown Prince Mohammed bin Salman announced Saudi Arabia’s willingness to “help” its economy. 

Saudi oil minister Khalid Faleh said he would invest $10 billion in oil refineries in the Gwadar Port on the Indian Ocean. Direct investment in Pakistan has declined by 17 percent in recent years, and the efforts of the Islamabad government to create interest among foreign investors in a direct presence in Pakistan have not had much effect. 

Foreign direct investment in Pakistan over the past seven months has fallen by $30 million compared with the same period last year. Pakistan’s economic situation gives Saudi Arabia an opportunity to influence Pakistani foreign policy and its relations with neighbours.

In 2014, Pakistan signed an agreement with Iran to import natural gas from the Islamic republic. But due to its financial problems, Pakistan is unable to construct a pipeline to import gas from Iran. India and Pakistan signed the TAPI project with the aim of importing natural gas from Turkmenistan. Saudi Arabia also showed interest in providing financial support for the TAPI project. 

All developments in the region show Riyadh is interested in playing a role in regional energy diplomacy and geopolitics.

Saudi Arabia has an active involvement in the Indian energy market and will use its investments to influence India’s foreign policy and reduce Iran’s role in the Indian energy market. In early 2018, Saudi Aramco held 50 percent of Indian refinery shares, with a value of $44 billion, and capacity to refine 60 million tons of crude oil a month. 

India is a major oil customers of both Iran and Saudi Arabia, and the two countries are working hard to get more from India’s energy market. Saudi Arabia has been planning a massive surge into south Asia, and has allocated cash from its $500 billion foreign investment fund to India. 

Aramco set up a new office in New Delhi to oversee its participation in the Indian energy market, and last year India invited Saudi Arabia to participate in the Strategic Reserves programme.

During MBS’ recent trip to New Delhi, his first official visit to India, it was announced Saudi Arabia would invest $100 billion in India over the next two years. Based on a $44 billion investment last year in the petrochemical sector, the $100 billion reported may not be far off reality. 

Could Saudi investments in Pakistan’s Gwadar port be a threat to Indian investment in the Chabahar port in the coming years?

China has major projects such as the one road belt and the sea silk route, which will increase the role of China in regional and global markets. The new Silk Road plan is designed to invest in the infrastructure of more than 60 countries and the development of two commercial routes, the Silk Road Belt and the Silk Road of the Sea, which were presented by China in 2013.

The construction of the oil pipeline from Gwadar to China will reduce the delivery time of oil from the current 40 days to just one week



By becoming a crucial point on the route, Gwadar will become an industrial hub for the region, easily accessible to Central Asia, Afghanistan, the Middle East and Africa. 

Saudi Arabia also has geopolitical considerations in Gwadar. The construction of the oil pipeline from Gwadar to China will reduce the delivery time of oil from the current 40 days to just one week, and Saudi Arabia, like most other oil suppliers, is investing in oil and gas companies in the long term for oil refineries and petrochemicals.

When bin Salman visited China, the leaders of both countries emphasised the need to develop bilateral relations and signed no fewer than 35 economic cooperation agreements worth a total of $28 billion at a joint investment forum. 

Saudi Arabia’s Aramco, the world’s largest oil exporter, will sign a memorandum of understanding with China’s Norinko Corporation to build a refinery and petrochemical project in Panjin, northeast China. Aramco also plans to raise the minimum stock in Zhejiang’s petrochemicals. Zhejiang’s petrochemicals division is building a refinery and petrochemical complex in the eastern province of Zhejiang. 

These investments help Saudi Arabia regain its position as the world’s primary oil exporter to China. Saudi Arabia is also strengthening its market position by signing oil supply contracts with non-governmental Chinese refineries. Riyadh also wants to play an important role in China’s One Road One Belt project.

Saudi investment in the Pakistan, India and China energy sectors gives an opportunity to play a key role in these countries’ energy security. Riyadh will be able to increase oil exports to these countries, while an Iran under sanctions will be unable to play an important role. 

If the US doesn’t extend its waiver to major Iran oil buyers, it is likely that Iran’s biggest customers – mainly China and India – will look to Saudi Arabia.

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UAE Becoming a Leader in Renewable Energy

Abu Dhabi is one of the most important examples of a city that is creatively seeking to strengthen its renewable energy sector.

Countries across the world are planning to increase the share of renewables in their national energy baskets, particularly to generate electricity. The United Arab Emirates has an ambitious plan to become a leader in the Middle East in reducing reliance on fossil fuels and increasing renewable energy production.

The United Arab Emirates intends to expand the use of new energies in pursuit of such goals as exploiting renewable resources that are not oil-dependent. The Emirates has become a hub for clean energy technology, providing funding to build renewable energy projects around the world and investing millions of dollars in fundamental research on energy, water, microelectronics, advanced materials and transport systems.

The UAE serves as a model for renewable energy sector. Masdar Abu Dhabi, for example, a regional leader and international player in renewable energy and sustainable urban development, has invested more than $2.7 billion in clean energy development since 2006.

MENA countries with huge oil and natural gas reserves are looking to increase the use of renewable energy. Some have the potential to export electricity generated by renewables and decrease dependency on revenue from exported oil and decrease greenhouse gas emissions. Studies suggest that electricity generated from renewable sources is cheaper than power produced from fossil fuels.

The UAE State of Energy Report 2015 said the share of power generated from natural gas will drop from 98% in 2012 to less than 76% in 2021, as clean energy enters the mix and energy efficiency grows.

UAE Energy Strategy 2050 targets an energy mix combining renewable, clean energy sources and nuclear power to meet the Emirates’ economic requirements and environmental goals of 44% clean energy, 38% natural gas, 12% coal and 6% nuclear.

The United Arab Emirates has a clear, ambitious target for clean energy and is joining other countries to maximise clean energy use. It is likely to become one of the world’s leading solar power producers because sunlight is one of the natural advantages of the country.

Studies indicate that, if the UAE reaches its renewable energy goals, it could save $192 billion by 2050 in the energy sector.

More than in any other city in the United Arab Emirates, Dubai is seeking to become a Smart City, focusing on the use and development of clean energy. Dubai recently initiated its “Clean Energy Strategy 2050” initiative, which is designed to increase Dubai’s green and clean energy share by 75% by 2050.

Dubai officials stressed their commitment to creating a sustainable model for energy conservation and supporting economic growth without harming the environment and natural resources. The project, estimated at $13 million, is “scheduled to provide up to 7% of Dubai’s energy from clean sources in 2020, which will increase to 25% in 2030 and to 75% in 2050,” a UAE government report stated.

Last May, Dubai began the second phase of what will be the world’s largest solar park. Worth some $14 billion, the park will eventually produce 5,000 megawatts (MW) of energy, providing power for about 800,000 households.

Meanwhile, a French power company and Masaood Abu Dhabi jointly offered to construct a 300-MW photovoltaic power plant to produce power at 1.79 cents per kilowatt-hour, which would be the cheapest rate at which electricity has ever been produced in Abu Dhabi.

The United Arab Emirates is determined to find a clean replacement for natural gas, helping both the environment and its budget. By 2050, the UAE will have invested approximately $150 billion in renewable energy. This is expected to save the country $192 billion through reducing dependence on gas subsidies.

The Masdar city project is one of the UAE’s most important renewable energy-based projects. Begun in 2006 as a wholly owned subsidiary of the state-owned Mubadala Development Company and guided by Abu Dhabi Economic Vision 2030, Masdar aims to develop clean technology and future energy solutions in terms of design, innovation, research laboratories and implementation.

Masdar operates through four interconnected business units and a research division that complements their work. With $2.7 billion put towards clean energy development in the past decade, the project functions as an investment model for other cities.

The UAE government plans to invest $340 million in sustainable development efforts in developing countries. Abu Dhabi has invested some $46 million in renewable energy projects in Africa and the Caribbean.

In addition, Emirates Company is the host and official partner of the Solar Impulse 2 project, a plan to fly a solar-powered aircraft around the world without the use of fossil fuels.

The UAE’s pioneering outlook in developing renewable energy will help the country become a leader in developing environmental policy and in job creation. Investing in renewable energy creates approximately three times more jobs than oil and gas and the United Arab Emirates plans to create more than 90,000 jobs in renewable energy by 2030.

Abu Dhabi is one of the most important examples of a city that is creatively seeking to strengthen its renewable energy sector. By 2030, the city is expected to contain about 40,000 inhabitants and the project will create more than 50,000 jobs there.

As solar energy gains traction throughout the world as an inexpensive source of energy, countries with high solar indexes are looking to reassess their energy strategies. Increased investment by the Emirate government and private energy firms in other countries gives the United Arab Emirates an opportunity to be a key player in renewable in the region.

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Iran’s Rouhani In Iraq: A new era in bilateral ties?

The potential for trade and economic growth between Iran and Iraq is enormous but global rivalries are a constant wrench in the relationship.

Rouhani’s official visit to Iraq comes at a time when Iran is experiencing multiple regional and foreign policy challenges partly resulting from the imposition of new sanctions against Iran’s energy industry. According to Iraj  Masjedi, the Iranian Ambassador to Baghdad, the purpose of Rouhani’s trip is to strengthen relations between the two countries in political, economic, cultural, and social matters.

With the intention of reducing the effects of the US sanctions against Iran’s energy sector and circumventing sanctions through its neighbours, Iran is interested in boosting its relations with Iraq.

Developing and expanding relations with neighbours is Iran’s first foreign policy priority.  Rouhani’s visit to Iraq is his first visit to Iraq as a president. Considering the good relations between Iran and Iraq, this trip could have taken place years ago, but political problems have led to a long-delayed trip.

In his meeting with Iraqi President Barham Salih, Rouhani mentioned the vital role Iraq has in Iran’s regional policy and both countries intentions to boost relations in coming years.

Barham Salih told Iranian journalists that Iraq wants to help the Iranian people reduce the suffering from US sanctions. He said that Iraq and the region would be affected by sanctions, but they are working to minimise the impact – which is quite a strong message to the US government.

Five memorandums of understanding were signed regarding industry, mining, trade, a railroad project, business visas, healthcare cooperation and oil.

Energy exports to Iraq

Iran exports electricity to neighbouring countries, and plans to become a regional electricity hub in the long term. Iran exports between 200 and 250 megawatts of power to Iraq, Afghanistan, and Pakistan. Currently, Iraq is the largest importer of electricity from Iran. The official electricity export agreement between Iran and Iraq was signed in 2005 and has annually renewed. According to the latest deal between the two sides, Iran exports 120 megawatts of electricity annually to Iraq through three transit routes in Basra, Diyaleh, and Amarah.

According to Mohammad Hosseini, the secretary-general of the Iranian-Iraqi joint business room, Iran has $2 billion demand for energy exports to Iraq. Under the contract with Iraq, Iran’s exports of electricity to Iraq are done in dollars, and gas exports to Iraq are done in euros. But after the US invasion, Iraq was not able to pay the price of electricity and gas imported from Iran based on either of these two currencies.

Electricity exports to Iraq have become a thorny issue in bilateral ties. Last summer Iran cut electricity exports to Iraq due to a lack of a domestic network. Some analysts believe that despite the lack of debt payments, Iran intends to continue to export energy to Iraq for political and economic reasons.

Iran’s failure to export power to Iraq has paved the way for Saudi Arabia to invest in the construction of a 3000-megawatt solar power plant in Iraq to increase its presence in the Iraqi energy market with the intention of reducing Iran’s share of the market in the long run and consequently achieve its political goals in Iraq.

Saudi Arabia has offered to sell electricity from the plant for a quarter of Iran’s electricity exports to Iraq. Iranian officials during Rouhani’s visit to Iraq shows their interest to supply Iraqi natural gas and electricity, but there is no significant progress on paying back their debts to Iran.

Iraq’s greater production in shared oil fields

Iran and Iraq share several joint oil and gas fields. The shared fields encompass Azadgan, Azar, NaftShahr, Dehloran, Paydar Gharb, Yaran, Yadavaran, and Arvand.

The Azadegan and Azar oil fields are the most important of the lot. Iraq has been able to extract and produce more oil than Iran and Iraq designed a new oil contract which favoured foreign companies. US sanctions mean Iraq is unable to attract foreign capital and technology to regain its oil and gas production capacity.

Currently, Iraq produces twice as much as Iran from the shared fields.

Iraq, from 2005 to 2017, has been able to increase its oil production from about 1.7 million barrels per day to 4.7 mpbd. In June 2018, Iraq handed over the development of several oilfields near the Iranian border to the UAE’s Alhelal company.

Meanwhile, Iran has also taken steps to increase production in the western part of Karoun, some of which are shared with Iraq. It should be noted that the amount of reserves in the section of Iran, which includes the Azadegan (North and South), and Yaran (north and south) fields, is estimated to be at 64 billion barrels.

The United States has repeatedly called on the Iraqi authorities to reduce energy imports from Iran, but Iraqi officials have declared how hard it’s been to find an alternative.

The two countries potential bilateral cooperation has tremendous commercial potential, but the current complications have prevented Iranian firms from benefiting from the Iraqi market.

Turkish firms have been more successful than their Iranian counterparts in the Iraqi market as the Turkish government supports all the businessmen and the private sector in the Iraqi market. The volume of trade between the two countries is currently at $12 billion, and the two countries are trying to increase the trade volume in the medium term to $20 billion.

Iran intends to use the Iraqi dinar in its exchanges with Iraq instead of the dollar. The possibility of using the Iraqi dinar can have a direct impact on the economic areas in the border regions.

Iran seemingly intends to play a role in rebuilding Iraq, but the presence of Iran at every level is a threat to US interests in the region. Iraqi officials have repeatedly expressed their desire for good relations with their neighbours, primarily for economic growth. The withdrawal of US forces from Iraq has increased Iran’s political influence in Iraq. The active presence of Iran in all political, economic, and military sectors in Iraq can be considered as a trump card against the United States.

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Iran-Gulf Energy Relations in the Time of Trump Sanctions

Analysis: Iran could easily export cheap gas to GCC nations, but only if it improves political relations with arch-enemy Saudi Arabia,

Over the past two years, Iran has bolstered its relations with several Arab countries as the Gulf crisis has deepened.

While the Gulf Cooperation Council [GCC] has in the past tried to present a unified, timely and relevant response to regional developments, these attempts are sometimes individualised by the actions of a member nation.

Iran’s relationship with every member of the GCC is different. Oman, the closest country to Iran among GCC members, maintains its warm political relationship with Tehran in a relatively predictable direction.

Iran-Oman relations faced few challenges either before or after the 1979 revolution. Oman’s policy of establishing close and positive relations with Iran, and a constant emphasis on the development of relations in all political, economic and cultural fields, has led Tehran and Muscat to recognise each other as strategic partners in the Middle East.

Oman also played a mediation role in Iran’s nuclear talks with the P5+1 countries and hosted several rounds of dialogue between Iranian and US foreign ministers.

Tensions between Iran and Saudi Arabia, meanwhile, have built steadily during the Hassan Rouhani era. They have mutually exclusive interests in Syria, Iraq and Yemen. The attack on Saudi diplomatic sites in Tehran and Mashhad also enflamed tensions more than ever.

In Iraq, since the fall of Saddam, Iran’s influence has grown significantly. Along with Iran’s allies in Lebanon, Syria and Yemen, Tehran’s regional expansionism has grown and alarmed Riyadh, which is fearful that growing Iranian influence comes at the expense of its own regional power.

Saudi Arabia has used the current tranche of US sanctions against Iran to produce more oil and take Tehran’s share of the world market. Riyadh is also trying to use its investments in major buyers of Iranian oil, such as India, to persuade them to reduce Iran’s role in their energy markets.

The GCC has always viewed the Islamic Republic of Iran as a fundamental threat to its existence, and from the outset, has taken a hostile attitude towards Iran.

Meanwhile, facing the collapse of the nuclear deal and the new sanctions, Iranian officials have declared they are “ready and interested” to develop bilateral relations with Iran’s neighbours, mainly the GCC.

 

Leveraging energy resources 

Iran’s geopolitical importance is in no small way connected to the existence of huge energy reserves, drawing the attention of global powers to the region. This, along with the strategies of other regional and global powers, largely shapes the foreign policy of the Islamic Republic.

Iran’s main objective is to promote its regional status – and the biggest obstacle to achieving this is the strong US military presence in the region.

Regionalism as a main factor in Iranian foreign policy gives an opportunity for Iran to expand relations with the GCC. Iran, with huge oil and gas reserves, can be an energy supplier (mainly of natural gas) to some GCC members such as Oman, the UAE and Kuwait.

Given the fact that the Gulf countries are Iran’s top priority for gas exports, after negotiations with Oman, there is now the possibility of adding Kuwait to Iran’s list of gas customers.

Ali Reza Kamali, the former CEO of Iran’s Gas Export Company, said the current survey of Iran’s first gas exports showed it would only require the construction of a 200 kilometre pipeline to reach the markets of Oman, Kuwait, the UAE, Saudi Arabia, Bahrain and Iraq.

While in recent years these countries have been believed to have little need for oil imports, they have little in the way of gas – except for from Iran.

If Iran does increase its gas production capacity, there is a possibility of export to the Gulf. Although initial talks for Iranian gas exports to Kuwait have not yet been finalised, the operation of the Iranian gas pipeline to Iraq could provide the foundations for the necessary physical infrastructure to provide gas onwards to Kuwait.

This means the technology and personnel to export gas through Iraq to Kuwait is largely already in place, and this programme could become operational not long after a contract is signed.

Although countries such as Iraq, Saudi Arabia, Kuwait and the UAE do have gas resources, these consist mainly of gas with oil, and they do not have independent gas reserves. These countries are also focused on oil production.

Hamidreza Aragi, the director of Iran’s National Gas Company said that if gas contracts between Iran and neighbouring countries were signed, the security of the countries of the region would be tightly linked.

In terms of economics, politics, population, history of the formation and influence of Saudi Arabia in the Arab world, Saudi Arabia has long sought to expand its influence within the GCC as its most important member.

To enter a new era in Iran’s relations with the Council, both sides would need to be able to shift their concerns towards tangible diplomatic achievements. Iran has also to be more active in foreign diplomacy in order to eliminate problems with its neighbours.

 

To enter a new era in Iran’s relations with the Council, both sides would need ti  be able to shift their concerns towards tangible diplomatic achievements

 

Iran still has huge potential in the petrochemical sector, and exporting more petrochemicals may provide an alternative to exporting LNG while oversupply lowers the value of the LNG market.

Recent political tensions in the region have affected natural gas agreements with Iran’s neighbours, with energy experts believing political tensions between Iran and Saudi Arabia have an overall negative effect on Iran’s ability to conduct business over natural gas agreements with other Arab nations.

Iran enjoys good political and economic relations with Oman; however, foreign factors have delayed the project of Iranian-Omani natural gas pipeline at the planning phase.

Iran should try to reduce tensions with Saudi Arabia to a manageable level, as the relations between Iran and the Gulf Cooperation Council depend on Iran’s relations with Riyadh.

History has shown that ties between the Gulf Cooperation Council and Iran have improved as relations between Iran and Saudi Arabia improve.

/www.alaraby.co.uk

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