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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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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The Future of Iran-South Korea Energy Relations Post Sanctions Era

Energy always plays an important role in US foreign policy. Some analysts believe if the Trump administration is serious about shaking up U.S. foreign policy, increasing U.S. energy security would be a wise first step. By following a policy of energy security at home and in the American hemisphere, the Trump administration can increase power for itself aboard.  One of the Trump administration’s goals from renewed sanctions on the Iranian energy sector is to have an opportunity to help the U.S. energy industry with the imposition of the right policy. Finding a new market for US LNG and US oil may be the aim of US sanction against Iran. The shale gas boom gives an opportunity to the US to turn into one of the World’s leading condensate exporters.

 South Korea Energy Imports from Iran

South Korea, as one of the world’s leading technical and engineering services exporters, has a significant financial and credible reputation with Iran, which is pursuing industrial development policies and using advanced technologies and attracting foreign capital. South Korea is one of the major trading partners of Iran, with the balance of trade between the two countries in favor of South Korea. In the course of these events, the two countries have taken the policy of expanding bilateral relations, especially during the last quarter of a century, which have been interrupted by some sanctions against Iran.

Iran’s energy exports to South Korea

South Korea imports 97 percent of its crude oil due to resource constraints; Iran was the largest exporter of oil to South Korea before the sanctions, and South Korea was the largest exporter of automotive equipment to Iran. After sanctions against Iran, South Korea stopped buying oil from the country, and imports from Korea dropped to almost zero. South Korea, the fifth largest oil importer in the world, in November 2018, took a six-month exemption from Washington to continue importing Iranian oil. Korean buyers can import Iran’s most condensate oil at a maximum of 200,000 barrels per day under the Washington exemptions, but must use appropriate methods, including cargo shipment, as well as cargo insurance. Korean banks stopped paying Iran’s oil money on the eve of the start of oil sanctions, but Seoul is still striving to be exempted from Washington’s sanctions against Tehran to receive part of its oil from Iran. South Korea, by far the largest importer of condensate from South Pars, was purchasing 6 million barrels of condensate from Iran in June 2017.

South Korea is one of the main customers of Iranian gas condensate. More than 55 percent of Iran’s gas condensate is exported to the country. According to the official statistics of the Ministry of Oil, the average amount of Iranian gas condensate exports in 2017 was 428 thousand barrels per day. In the first six months of 2018, Hanwha Total Petrochemical, the largest importer of Iranian gas condensate, has imported 15.92 million barrels of gas condensate from Iran, which is a reduction of one third, and imports from Qatar and the United States have increased. In gas production from each phase of South Pars, an average of 40,000 barrels of gas condensate are produced per day. South Korea’s Hanwha Total Petrochemical Company, with the aim of finding an alternative to Iranian oil and gas condensate, has increased the purchase of condensate from the United States and Australia and is seeking to purchase more shipments from Europe. After sanctions Korean refineries and petrochemical companies stopped shipping crude oil and condensate from Iran for the first time in past six years because of fears of US sanctions.

US Oil exports to South Korea

By 2017, the US was the sixth largest supplier of South Korean crude oil, which topped Russia and Iran at that time. The company was also the third largest South Korean LNG supplier, while South Korea was the largest importer of LNG from the United States. South Korea imported  at least 18 million barrels of crude oil and 900 thousand tons of natural gas (LNG) from the United States in January and February 2019. The jump in South Korean oil and gas imports by the United States continues to curb trade deficits with major United States trading partners by selling them more. Oil and LNG exports are a key part of this strategy.

By 2018 the US had doubled its oil exports and was exporting 2 million bpd of crude oil to 42 destinations. The volume of exports to destinations throughout the year changed significantly, with US exports of crude to China dropping compared to other destinations, such as South Korea, Taiwan and Canada. In 2018, Asia was the largest regional destination of US crude exports, followed by Europe, while, as in previous years, Canada was the largest destination for the United States crude oil exports overall. Canada received 378,000 bpd of US crude exports, accounting for 19% of total US crude exports in 2018. South Korea surpassed China to be the second-largest destination for US crude oil exports in 2018, gaining 236,000 barrels a day compared to 228,000 barrels a day in China.

The United States uses energy exports, especially LNG, to expand its relations with its neighbors and allies everywhere in the world. The energy security of the European Union and its strong dependence on Russian gas have led the United States to have a special look at the energy market of the European Union, and with the increase in LNG exports along with the acceleration of the construction of the Southern Corridor, their gas need will require the Union to depend on Russia. Slowly the East Asian market, especially South Korea and Japan, which imports the majority of gas condensate from Iran, is becoming a good opportunity for LNG to play a role in South Korea’s energy security.

Trump’s decision to withdraw the United States from JCPOA has not taken place without considering the opportunity to export more energy resources. US LNG exports have always been the concern of the Trump government, while sanctions may once again reduce Iran’s oil exports by 1 million barrels per day, the US oil and gas sector is unlikely to take on Iran’s share of the market. The subsequent sanctions on Iran’s energy industry have not only reduced Iran’s oil and gas production capacity, but also reduced Iran’s share of the global energy market. The rising risk of investment in the Iranian oil and gas industry is another result of US sanction. Reducing oil production capacity and, consequently, reducing Iran’s oil export potential will force Iran to find loans and facilities from banks and global financial institutions.

That the US exports more oil and LNG to South Korea is not a good point for Iran’s future energy exports to South Korea. If South Korean refineries give themselves to US crude oil, this would mean that Iran would have difficulty recapturing its share of the Korean energy market after sanctions are lifted. Iran will not be able to increase production and increase oil exports without foreign investment and technology. Decrease in foreign exchange earnings will directly affect Iran’s economic situation. Considering developments in the energy market and US sanctions, attracting foreign investment and technology will be harder for the Iranian energy industry. Achieving the objectives of the sixth plan of development is possible only with foreign investment, which requires a reduction of political risk in the country, by reviewing foreign policy and providing other necessary conditions for foreign companies, especially Russian and Chinese companies, to invest capital in Iran. A change of attitude in foreign policy and an attempt to eliminate tension with neighboring countries can be a step toward attracting foreign investors.

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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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Iranian, Saudi Interests Conflict in Iraq’s Energy Market

The lack of infrastructure for supplying electricity makes Iraq a battleground for energy between regional rivals Iran and Saudi Arabia

Energy suppliers are trying to use energy exports as a key factor in shaping foreign policy and their relations with neighbors and other countries. Iran and Saudi Arabia as two key members of the Organization of Petroleum Exporting Countries (OPEC) have their own priorities and interests in the region. Their opposing interests have forced them to support opposing sides in regional tensions, such as in Syria and Yemen. U.S. sanctions against the Iranian energy sector have given an opportunity to OPEC and non-OPEC members to export more oil to the regional and world market to take Iran’s stake in the market.

Presently, Iran exports electricity to neighboring countries and according to Iran’s 20-year development, by 2025 they must prepare all the required infrastructure to become a regional electricity hub. Iraq is the biggest importer of Iranian electricity. Both countries signed an agreement in 2005 to export Iranian electricity to Iraq.

Iraq, with huge oil reserves, has a problem in generating the required electricity and must import from its neighbors. The Iraqi government can only supply 68 percent of its electricity in normal conditions. With increasing temperatures, especially in the summer, this ineffective capacity is severely reduced. Iraq faces a shortage of 5,000 megawatts (MW), although several power plants are under construction, but the electricity demand of the country is increasing by 7 percent annually. Since the first Gulf War in 1990, the power generation infrastructure has been abandoned in Iraq. This situation worsened after the invasion of Iraq in 2003. After the end of the Gulf War, Iraq tried to attract foreign technology and financial capital to recover oil production capacity and construct an electricity grid. The Daesh problem and its negative effect on Iraqi national security is another major factor that has led to Iraq becoming an electricity importer.

Iran and Iraq have signed an agreement over exporting 150 MW of electricity to Iraq annually. This agreement is extended every year. By Feb. 11, 2019, Iran extended electricity to Iraq for one more year. Iraq imports 120-130 MW annually. But due to sanctions and Iraq’s financial problems, Iraq was not able pay for importing electricity. According to Iranian officials, Iraq is interested in paying its debt and is looking for a way to send money to Iran. Homyon Hairi, deputy to the Iranian minister of energy, believes that, “There is a positive outlook in this regard, which is to be followed by joint executive working groups.”

Iran’s gas customers

Iraq and Turkey are Iran’s major natural gas buyers. Iraq began importing gas from Iran in late June 2017, with imports of about 14 million cubic meters per day, with Turkey importing about 30 million cubic meters a day. Iran plans to export 25 million cubic meters of gas daily to Baghdad and to transfer gas to Basra province.

As mentioned earlier, Iraq is unable to pay for electricity and natural gas from Iran. According to the latest statics released by the Iranian Ministry of Oil, Iraq must pay about $2 billion to Iran over natural gas and electricity imports. It is expected to solve this problem during Iranian President Hasan Rouhani’s visit to Iraq. Rouhani has shown interest in exporting more electricity to Iraq; though he has not mentioned the methods they may be able to agree upon in paying the electricity and natural gas debt to Iran. It seems both presidents have not agreed on this issue.

Last summer, Iran cut the electricity flow to Iraq due to high domestic consumption, according to Reza Ardakanian, Iran’s minister of energy. Iran’s neighboring country has a wide range of demands, partly through Iran’s transmission lines, adding: “We are in constant touch with Iraq, and just a few days ago, the Iraqi Minister of Electricity was here and talked to us.” Stopping the export of electricity from Iran has aggravated the problem of electricity in Iraq, causing massive street protests, especially in Shiite cities, against the central government as well as against Iran.

Iran cutting electricity provides an opportunity for Saudi Arabia to use energy investments in Iraq to increase its political influence. According to the spokesman for the Ministry of Electricity, Musab Sari al-Mudaris, Saudi Arabia has agreed to launch a solar power plant with a production capacity of 3,000 MW in northern Saudi Arabia near the Iraqi border, and each megawatt of electricity will be offered to Iraq at $21, which is equal to one-quarter of Iran’s electricity exports to Iraq. Saudi Arabia has not only put electricity prices at a quarter of Iran’s electricity prices but also exported three times more exports than Iran. Saudi Arabia continues to compete with Iran in the economic sphere by building a solar power plant in Iraq and selling electricity to that country.

After Rouhani’s visit to Iraq, Saudi Commerce and Investment Minister Majid bin Abdullah Al Qasabi visited Iraq and met with Iraqi officials. According to an official statement by the Iraqi president, Iraq is interested in establishing a mechanism for joint economic interests with regional countries, especially Saudi Arabia. Last year, the Iraqi government showed interested in developing and boosting its relations with Arab countries. Iraq and Saudi Arabia signed an agreement in 2017 to form a coordinating council.

Saudi Arabia is seriously trying to expand its ties with Iraq with the aim of limiting Iran’s influence in Iraq, with at least a counterbalance to it. Of course, the United States has also contributed to this strengthening of relations between Iraq and Saudi Arabia, especially as the United States, like Saudi Arabia, wants to reduce Iran’s influence in the region. But the point is that all this competition will be beneficial for Iraq.

The Saudi perspective

Saudi Arabia is pursuing its main goal by strengthening its ties with Iraq: First, the decline of Iran’s influence in Iraq, and the other in attracting Iraq to its Gulf-Qatari axis. Saudi Arabia has concluded that the policy that has taken place in Iraq since 2003 is wrong and that Iraq is a fundamental part of the Arab world’s geography.

Saudi Arabia and Iraq have not cooperated for more than 27 years, and Saudi Arabia is rapidly seeking to expand ties. In the sacred city of Najaf in Iraq, Saudi Arabia seeks to establish a consulate and have a rich presence among the Shiites as well. According to Iraqi officials, this consulate will be set up soon. Cooperation between Saudi Arabia and Iraq is at an early stage and in the meantime, meetings have been held at high levels in which Saudi Arabia has pledged a $100 billion investment in Iraq and to rebuild Sunni cities such as Fallujah, Ramadi, Tikrit and Mosul.

The Saudis have focused their efforts in the province of Basra, because this province is considered the richest Iraqi province. With the implementation of large projects in the province, the Saudis hope to compete with the Iranians or even overcome them.

Iraqi officials hope that Saudis will use their money in road construction projects and re-activate the Iraqi oil export pipeline to the

Red Sea, which has been closed since 1990.

A new alliance

For about six months, officials and senior officials from Saudi Arabia and Iraq have been meeting, and there are ongoing efforts to work together and reach a new alliance. Saudi Arabia is using investments in multiple countries’ infrastructure and energy sectors to boost its political influence in the country and also trying to affect foreign policy orientation. Saudi Arabia plans to invest in an area of 1 million hectares in the livestock and poultry industry of Iraq.

The Saudi initiative, described as an opportunity to confront the influence of Iran in Iraq, is the result of efforts by former Iraqi Prime Minister Haider al-Abadi to balance ties with his neighbors. The project was initiated by the Saudi Arabian Cooperation Council and Iraq, which was founded in October 2017.

Saudi Crown Prince Mohammed bin Salman – on his visit to India, Pakistan and China – tried to use investments in these countries’ energy sectors to reduce Iran’s role in these countries’ energy basket and energy security. Iran and Saudi are Shiite and Sunni countries looking to expand their sphere of influence in the region. Iraq with both Sunni and Shiite people is very important for Iran and Saudi perspectives and it seems that in coming years both countries will be using all instruments to increase their presence in Iraq and reduce the influence of other countries in Iraq. Saudi Arabia, with huge financial capability, will be able to play an important role in Iraq post-Daesh. Iraq needs billions of dollars for construction post-Daesh and is an opportunity for Saudi Arabia to increase its influence. Iran never wants to lose its key role in Iraq and in Iraqi Shiite groups. Iran also wants to have a role in Iraq in the post-Daesh period.

Geopolitical competition between Iran and Saudi Arabia will continue in Iraq. Saudi Arabia and other Arab countries are seeking to increase their influence in Iraq, and new U.S. sanctions against the Iranian oil sector could provide such an opportunity. However, coping with Iranian influences from politics to trade is difficult.

//www.dailysabah.com

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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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Oil may extend rally


Opec cuts, US sanctions will continue to impact crude supply in Q2

Oil prices, which gained 30 per cent on average in the first quarter of 2019, are expected to continue the rally in the second quarter and likely to trade mostly around $70 a barrel, according to industry analysts.

The first-quarter gain was the biggest quarterly rise in a decade, driven by the US sanctions on Iran and Venezuela as well as cuts by Opec and non-Opec members that were implemented in early January this year.

On Friday, the Brent rose 48 cents to settle at $67.59 a barrel while US West Texas Intermediate (WTI) futures rose 84 cents, or 1.42 per cent, to $60.14.

The oil price in the second quarter is expected to trade between $64 per barrel to $70 a barrel compared to $60 to $65 per barrel range forecast for the first quarter. Industry executives and analysts have put $67.4 a barrel median range for second quarter and as high as $80.

Oman’s Energy Minister Mohammed bin Hamad Al Rumhy on Saturday emphasised that the Sultante will remain committed to Opec agreement until the end of 2019. He predicted crude prices to trade in the range of $65 and $75 a barrel until the end of 2019.

With oil rig count falling and production remaining stagnate last week in the US while the Opec and non-Opec countries also reluctant to make up for the lost volume, the oil prices will rally further in the coming months. The other factors which will influence the oil price upward will be the US sanctions on Iran and Washington’s consistent pressure on traders to reduce their exposure to Venezuela.

“Oil price trend continued to remain upward during March 2019, showing consistent gains since the start of the year and closing little short of the $70 a barrel mark. However, prices are yet to see the peaks seen during October 2018,” said Faisal Hasan, head of investment research at Kamco. 

World oil demand is projected to rise from 99.02 million barrels per day in Q1 2019 to 99.21 million barrels per day in Q2 2019, keeping the oil prices steadily on the upward trend during second-quarter 2019.

Opec and Russia had cut oil production by 1.2 million barrels per day from January 2019 for an initial six months period, which was one of the main drivers for the surge in prices. Opec members agreed to cut 0.8 million while Russia had 0.4 million bpd cut.

Oil producers are planning to hold an ordinary meeting again in Vienna on June 25 and an extraordinary meeting on April 17-18. Reports said Saudi Arabia was trying to convince Russia to stay much longer in the pact of lower oil production, and Moscow may agree only to a three-month extension.

“Saudi Arabia, if necessary, will further reduce its production to balance oil supply and demand. Opec’s next meeting will be held by April 2019 and if Opec members and Russia agree on reduction oil production it can be expected that oil prices will increase,” said Omid Shokri Kalehsar, a Washington-based senior energy security analyst and visiting research scholar in the Schar, School of Policy and Government at George Mason University.

Kalehsar noted that the US is expected to extend waivers from Iran’s sanctions to several countries to prevent a sharp rise in oil prices. “If there is no major political tension in the oil producing region, a balance can be seen between and supply and demand by Q2 and there will be no major change in oil prices,” he said.

Meanwhile, reports said that the US has instructed oil trading houses and refiners to further cut dealings with Venezuela or face sanctions themselves, even if the trades are not prohibited by published US sanctions.

“With US sanctions taking Iranian and Venezuelan oil off the market, at the same time Opec and non-Opec producers want to see higher prices and are currently reluctant to make up for any lost volume,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

In addition, the US energy firms last week reduced the number of oil rigs operating to their lowest in nearly a year, cutting the most rigs in a quarter in three years.

According to Baker Hughes, the total number of active oil drilling rigs fell by 8 to 816. Canada’s total oil and gas rig count fell by 17 and is now 88, which is 46 fewer rigs than this time last year.

Waheed Abbas/DubaiFiled on March 30, 2019 ,
https://www.khaleejtimes.com

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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.
https://thearabweekly.com

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Sanctions Against Iran and Venezuela Made US Leader in Oil Production – Expert

According to JODI [Joint Organisations Data Initiative], for eleven months now the United States has been the world leader in terms of monthly oil production. According to the organisation, in January 2019, Saudi Arabia’s production amounted to 10.243 million barrels per day.

At the same time, US oil production in January was 11.881 million barrels a day compared to 11.849 million barrels per day in December 2018.

Speaking to Sputnik, Omid Shokri Kalehsar, a Washington-based Iranian independent energy security expert, noted that oil sanctions against Iran and Venezuela will allow the US to appropriate these countries’ share of the world market:

“As a result of the shale revolution, the United States, who had previously imported oil, was able to become self-sustaining in the field of energy, as well as to become one of the largest gas and LNG [liquefied natural gas] suppliers both to neighbouring countries and to its allies, primarily in Europe. The US uses energy exports as a driver in their relations with other countries, and together with the use of such a tool as sanctions, this factor has become decisive in shaping US foreign policy”, the expert said.

Mr Kalehsar also noted that the US has repeatedly imposed sanctions against Iran with the most recent ones being imposed on 4 November 2018 and leading to a significant reduction in Iranian exports.

“If the US continues their sanctions policy and if the exemption from sanctions granted to eight countries that import Iranian oil is not extended in May, Iran’s oil exports are likely to decline even more”, the energy security expert told Sputnik.

Speaking about the policy’s objectives, Omid Shukri Kalehsar said that the United States has become one of the largest oil producers, and oil sanctions against Iran and Venezuela will allow them to appropriate these countries’ share of the world market.

According to the expert, this applies not only to the United States, but also to other oil-producing countries, including members and non-members of OPEC.

“If Iran and Venezuela keep oil production and exports at the same level, no one can take their place; therefore, sanctions against Iran and Venezuela benefit not only the United States, but also OPEC”, Kalehsar concluded.

The views expressed in this article are solely those of Omid Shokri Kalehsar and do not necessarily reflect the official position of Sputnik.
https://sputniknews.com

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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.

www.trtworld.com

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