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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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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Iranian-Indian Energy Relations Under Sanctions

Since it has huge oil and gas reserves and is geographically quite close, Iran is ideally placed to provide energy to India, and thus the country is Iran’s second largest oil market after China. Even at the height of the U.S. sanctions on Iran’s energy sector, India continued to import oil from the country. The relationship between Iran and India has expanded rapidly in recent years. After the 2015 nuclear deal, with the lifting of sanctions in various fields, especially energy, economic and commercial links between Iran and India expanded dramatically.

With new sanctions on the horizon, Iran provided significant discounts to Indian importers last summer. Thus, the volume of August imports was 56 percent higher than the previous August. So far, India is one of the countries exempted from secondary sanctions that the Trump administration is imposing on states doing business with Iran. But oil prices are expected to rise nevertheless, which will adversely affect India as the third largest oil importer in the world.

Although sanctions on banking prevented New Delhi from transferring money from the sale of oil to Iran in time, links were preserved thanks to strategies established during the previous round of sanctions. At that time, 55 percent of the proceeds from the sale of Iranian oil to India were deposited in euros and 45 percent in rupee in UCO Bank, an Indian financial institution, after which most of the money was transferred to Iran. This time around, UCO Bank is reluctant to serve as the conduit for funds, and India has opted to pay Iran in rupees through the Mumbai branch of an Iranian bank.

India has launched a major effort to invest in petrochemicals, chemical fertilizer, and the other upstream industries of its own oil industry. The country’s Oil and Gas Minister Dharmendra Pradhan has announced plans to invest $20 billion in Iranian oil and gas infrastructure. Iran, aiming to gain a competitive edge over other suppliers, has delivered oil at reduced prices to India, offered a longer period of credit to pay for oil purchases, and is transporting the oil almost for free. In addition, many Indian refineries are equipped to match Iranian refineries, so they cannot easily rely on other suppliers. Iran has also offered to cover the insurance for tankers that carry Iranian oil to India in lieu of an exemption from international financial institutions.

The port of Chabahar is the best, the closest, and the least costly route for Iran to reach global markets and promote the development of neighboring countries. India has committed to invest $500 million to develop Chabahar port. Iran and Afghanistan, meanwhile, want to establish an international freight corridor through this port, and several Indian wheat shipments have already gone to Afghanistan through Chabahar. New sanctions against Iran, however, threaten the success of the Chabahar project by not only preventing countries and companies from trading with Iran but also by threatening sanctions on financial institutions that engage with Iran. These sanctions will reduce the flow of capital and business to the port.

On November 7, the United States announced that it would waive sanctions on certain parts of the Chabahar port, along with the Chabahar-Afghanistan railway project and Iranian petroleum exports to Afghanistan. Since Islamabad is not allowing India to use Pakistani territory for direct business with Afghanistan, Chabahar is important for Indian access not only to Iran but to Afghanistan and beyond. The diversification of energy resources is a key pillar of Indian energy policy. If sanctions continue to punish the Iranian energy sector after the U.S. waivers expire, India will reduce oil imports from Iran and increase imports from Iraq and Saudi Arabia.

Indian oil imports from Iran were expected to grow by 31 percent year-on-year, reaching 500,000 barrels per day in the fiscal year beginning April 1, 2018. Iran understands India’s problems in dealing with an unpredictable energy market and will do everything it can to ensure the security of India’s energy supply. India’s relations with Iran are also complicated by the impasse over Indian investment into developing Iran’s Farzad B gas field.

China has been one of the strongest drivers of closer relations between Iran and India. An economic corridor between China and Pakistan and the former’s investments into the port of Gwadar is a common geopolitical challenge for both India and Iran. The economic corridor is designed to limit Indian operations in the western regions of the Indian Ocean and the Oman Sea. An expanded Gwadar port, meanwhile, undermines the potential of the Chabahar port and allows Pakistan to challenge its regional rival, India, in the area of Afghanistan.

www.lobelog.com

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Iran to Export 1mn bdp of Oil Despite US Sanctions

Qatar will withdraw from the Organization of the Petroleum Exporting Countries (OPEC), the Persian Gulf nation’s Energy Minister Saad Sherida al-Kaabi announced.

The decision to quit the bloc of 15 oil-producing countries that account for a significant percentage of the world’s oil production was confirmed by Qatar Petroleum, the state oil company, last Monday.

Following is an interview with Omid Shokri Kalehsar is a Istanbul based Senior Energy Security and Policy Analyst on the issue:

What are the reasons behind Qatar’s decision to withdraw from OPEC? Is it politically and economically right decision?

It seems that Qatar is interested to be more active in LNG market and keeps its place as world’s first LNG producer and exporter. But it is possible for Qatar to export more oil if Qatar withdraw from OPEC. It should be noted that there is a major challenge between Qatar and Saudi Arabia as OPEC major producers and actor. It is possible for Iran’s private sector to buy Iran crude oil from Energy Exchange and sell it to Qatar energy firms and Qatar firms after Qatar withdrawal from OPEC sell it oil to regional and world market.
Is there any relation between Qatar’s decision and the Saudi policy in the organization?

Some analysts believe that Qatar decision to withdraw from OPEC is reaction to Saudi Policy in OPEC. Qatar is against Saudi Policy in the OPEC, Saudi Arabia after Khashoggi was under pressure.  It should be noted that Qatar-Saudi relations faced major challenge after a Saudi-led coalition imposed blockade Qatar.
Any relation between Trump’s anti-OPEC policies and Doha decision?

 Stability in world oil and low price in oil market is in favor of oil consumers and US. US is against any

country or organization which decided to increase oil production or increase oil price. Trump administration can be expected to continue its policy toward OPEC and will ask OPEC member states to produce more oil to keep oil price down.

How do you see the future of the 60 years old organization?

Major OPEC oil producers must solve problems if they want OPEC to be one of the key factor in world oil market. Every country which has more production has a power in OPEC.
Cooperation and coordination between major oil producers and non-major oil producers is required. If OPEC members need to continue their role in world oil market, they require cooperation between themselves. Without cooperation and mutual understanding between all OPEC members, there is no clear future for OPEC and this organization may face serious challenges in the future.

At the present moment which Iran is under US and its regional allies’ pressure such as Saudi Arabia and UAE to cut Iran’s oil export to zero, will Doha withdrawal from OPEC affect the US goals toward Iran?

As I mentioned before in my interviews and papers it is not easy to drop Iran oil export to zero. Iran during sanction era will be able to export average 1000000 bpd and 300000 bpd condensate bpd.  Iran oil export’s drop is in favor of rest major oil exporters and all major exporters are satisfied with new sanctions imposed against Iran oil exports.

How will be possible reaction of Russia and China to Qatar’s withdraw? Will this decision affect China’s One road-One belt project? 

Russia has a plan to be a key player in LNG market. Russia is careful about all major oil and gas producers, Russia wants them to lose their share in world energy market and plans to increase its own share. China as energy costumer has its own strategy toward energy producer countries in the Middle East such as Qatar. China in promotion of its “Going out Strategy” encourages energy companies to invest in Qatar’s energy sector mainly in natural gas fields. Chinese officials have repeatedly stated that China’s common goal from One road One Belt project is to create dialogue, help to bring peace and stability in the Middle East, link East and West Asia and joint development, eliminate obstacles and biases. Arab Countries and Qatar has special position in this project. According to Wang Yi, Foreign Minister of China, Arab countries cooperation in One Road One Belt will bring Peace in the Middle East. China is interested to keep stability in the region to import oil and gas freely from the region. energy security is key factor in China foreign policy. Last September PetroChina inked its biggest Qatar LNG deal as U.S. Trade at Risk and it seems that China will increase its investment in Qatar energy sector to promote Qatari cooperation in One Road One Belt project.

Omid Shokri Kalehsar is a Senior Energy Security and Policy Analyst, Istanbul.

https://en.mehrnews.com

Interview by payman Yazdani

News Code 140293
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Challenges and Opportunities for Russia-Iranian Energy Relations in the Post Sanctions Era

Given several large Russian companies find themselves facing US sanctions they no longer face any further fall-out from working reliably in Iran. Indeed, Russian companies may continue their business in Iran’s oil, gas, and nuclear sectors unimpeded having already adapted to whatever curtailments have been inflicted upon them by US measures.

The purchase of Iranian oil by Russia is a significant aspect of the oil co-operation agreement struck between the two countries. At a meeting convened between Iran’s Oil Minister Bijan Zanganeh and Russia’s Energy Minister, Alexander Novak in late December 2016, Iran agreed that a Russian company would sell Iranian oil, with 50% of profits handed to Russia in cash in Iran, and another 50% spent on purchasing goods and services from Russia to be put into operation in Iran.

Russia evidently desires a place in Iran’s oil industry. As the presidential aide, Yuri Ushakov recently stated, the country’s oil and gas companies are looking to invest in as much as a total of $50 billion to develop Iranian oil and gas fields. In his view, energy is the most promising area for cooperation between Russia and Iran; with leading Russian oil and gas companies such as Gazprom, Gazprom Oil, Rosneft, Zarubenzabad and Tatneft all having shown an active interest.

 

Russian firms’ withdrawal from Iran considering US withdrawal from JCPOA

 

Lukoil has joined others to halt activities in Iran since the departure of the US. The company had signed a mutually agreed partnership for the development of the Ab-Teymor oil field with Denmark’s Mersec, and the Indonesian Petrogas Vitamin Corporation.Regarding the company’s plans for the Iranian gas industry, the Deputy Chairman Gazprom, Alexander Medvedev, stated that “Gazprom is interested in cooperating with Iran from the beginning to the end of the gas value chain and plans to help in exploration, production, gas, LNG production, and gas supply through various pipelines, including those leading to India.”

After the nuclear agreement, Russia’s Zarubzhanov Corporation (with an 80% share), along with Dana Energy (with a 20% shareholding), signed a $742 million contract for the sustainable development of the West and Aban Oil Fields in Ilam province in partnership with the National Iranian Oil Company. The contract is set to stand for 10 years and can be renewed for up to 20. The combined production of these two fields is expected to increase by 67 million barrels over the next 10 years.

While Ali Akbar Velayati , an advisor to the Supreme Leader of the Islamic Republic, has said that Russian companies are ready to invest in the Iranian oil and gas industry by as much as $50 billion, one Kremlin spokesman has denied these statements, and the Russian Energy Minister has claimed that purchasing Iranian oil may have a negative consequence on Russian industries. At present, trade volume between Iran and Russia values just $2.2 billion, however, both countries hold a potential to increase their trade volume. Iran and Russia are both interested in increasing trade to $10 billion dollars in the short term. The question remains, none-the-less, as to whether Russia’s overtures in Iran amount to nothing short of investment.

Oil for food trade

During the last sanctions regime, both countries signed an agreement to sell Iranian oil to Russia in return for goods and technology. By importing 500 000 barrels of oil a day from Iran, Russian not only parted with no money, but were able to sell more of their goods to Iran. Also, since Iran’s oil is not compatible with oil refineries in Europe – or even most within Russia – this oil was most likely transferred from Russia to China, Iran’s largest oil market, other countries in the South or East Asia. In this way, Russia was thus able to expand its own oil relations.

Iran’s strategy of signing contracts for oil development with Russia is not unwise given the absence of any other serious player. Rouhani’s government has been weak in the development of oil fields over the past five years. It is true that his cause should be sought through foreign policy and an attempt to ease the pressure of the United States, but, in any case, its outcome has been detrimental. Russian companies have the technology needed to increase the recovery rate of Iranian oil reservoirs. The Oil Ministry is keen to allow oil companies in Europe, Russia, China, Asia, and even the Americas (Americans are currently barred) to get involved in the development of Iranian oil fields.

Oil exports are the result of production, minus domestic consumption, however, oil production in Iran is gradually decreasing as a result of the decline in the production of the reservoir. The drop in the production of Iranian oil reserves is currently around 8%. The biggest issue regarding Chinese and Russian investment in the Iranian energy industry after the lifting of sanctions would be the terms of the contracts concluded – namely, the duration of these contracts, and the amount of contracts and technology used in these oil and gas fields, not to mention conditions which increase the likelihood of companies to bow to US pressures To abandon Iranian projects.

Considering developments in the energy market more broadly, and the effect US sanctions will have upon it, attracting foreign investment and technology to the Iranian energy industry will be much harder to achieve. Achieving the goals of Iran’s sixth development plan and vision document is possible only through foreign investment, which requires a reduction of political risk in the country through a more engaging foreign policy and greater consideration of legal mechanisms to assure foreign investors.

For the foreseeable future, however, it looks as though talks will remain at the macro level until a deal has been signed. Although details of the $50 billion investment of Russian oil and gas companies in Iran have yet to be determined, this would provide a sigh of relief for the country’s industry. Many insist that such an investment would not equate to dependency on Russia. One expert has stated that “The Iranian oil and gas facilities and resources are so broad that even if $50 billion of capital is from companies Iran’s oil industry is not looking for a mere dependence on a country. The Russians will be brought to Iran; but there will be plenty of work remaining that will capture technology and foreign capital from other countries.

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Washington boosts LNG with Iran in sanctions crosshairs

The shale gas revolution has had a staggering effect on the world energy market, shifting many prior assumptions regarding the geopolitics of energy.
Whereas in 2000 and the first years of the new millennium, shale oil and gas accounted for just one percent of all fossil fuels produced in the United States, the country has now moved towards energy self-sufficiency and is taking on the role of an exporter.

Whereas the Obama administration was a major force in fostering this development as a means of freeing the country from foreign dependency through diversification, in tandem with increased green energy supplies, the Trump administration seems to have sought to focus on energy in a more traditional approach.

The shale gas revolution and consequent US energy boom finally meant that a static fact of world energy geopolitics, – ie: that the US was dependent on oil mainly imported from the Middle East – could be cast aside. The US is now energy self-sufficient and free to export Liquefied Natural Gas to neighbours and allies around the world, and thus has added to Washington’s political flexibility.

The uptick in gas production in the US has already decreased LNG prices in the EU and Asia and thus presents a challenge to the old energy order

Not surprisingly, this turn of events is being monitored closely by other energy exporters.

The US is already using its energy exports to reduce the EU’s dependency on Russian gas, while exerting pressure on its allies to see it as an alternative to Iranian natural gas.

The uptick in gas production in the US has already decreased LNG prices in the EU and Asia and thus presents a challenge to the old energy order. In terms of US national security then, the energy boom can be examined from two perspectives, first, its implications for US energy security and second, its implications for the wider field of international relations and its geopolitics.

 

US withdrawal from the Iranian nuclear deal 

Iran’s economy and energy sector has been devastated by the US and EU sanctions brought against it due to Iran’s former attempt to build a nuclear programme. Sanctions have not only scuppered Iran’s chances of success in achieving its energy goals but also have forced Iran to become more proactive in consolidating regional relations.

Since Washington’s departure from the JCPOA agreement, energy companies who had only just began to consider re-entering Iran have withdrawn in anticipation of further sanctions. Few international banks or financial institutes are willing to participate in energy projects in Iran under such conditions.
The US is interested in reducing Iran’s role in regional and global energy markets, with Washington often declaring a wish to bring Iranian oil production down to zero. It is a fact that American sanctions against Iran’s energy sector have vastly reduced the country’s production capacity. US sanctions have also wrought severe harm in terms of technology and finance.

The US plans to increase LNG exports to countries which depend on Iranian hydrocarbons in an attempt to wean these countries off their reliance. But some analysts believe the US oil and gas sector is unlikely to gain Iran’s share of the market, as technically, Iran’s export oil grades are heavier and sourer than the light, sweet crude exported from the US.

 

Following the US withdrawal from the treaty, the country further cut imports of oil from Iran. Japan now imports 5.5 percent of its oil from Iran, according to the Japanese Ministry of Economy and Trade. In August, Japan was receiving 17,775 barrels per day and bought 3.39 million barrels of crude in one month.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months. Part of Iran’s share of oil is expected to fall victim to an influx of LNG exports and US gas condensate onto Japan’s market. Sanctions against 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 lack of investment in the Iranian oil and gas industry is one particularly immediate result of renewed sanctions.

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 in order to develop its facilities – yet it is clear that new US sanctions will challenge Iran’s ability to retain much of its oil production capacity regardless.

Given the increase in natural gas producers and LNGs on the market, the US energy boom provides a good opportunity for Iran’s rivals – not least the US itself – from moving in on Iran’s share of the regional and global energy market.

The increase in US oil and shale gas production has made Iran more pressured to find new markets, yet the country does not have the capacity to produce LNG, thus competing with the US, and it is unclear when the capital and technology needed to complete its LNG project units will be provided.

The US superiority in terms of advanced technology, research, investment, and diplomatic reach ensure it will retain a high position in the world energy market, while Iran will likely flounder further. If Iran and the US agree on current political and security problems, Iran may gain the foreign capital and technology needed to recover some of its oil and gas production capacity.

Energy continues to play an important role in US foreign policy, with implications not only on relations with designated rivals but also allies across the world.

Energy exports play a key role in US relations with its neighbours and allies, and are a key tool in fostering and furthering relations with others. Energy exports as a means of expanding relations and helping US allies in South Asia and Europe are sure to lead to interesting geopolitical developments, and US LNG exports are most likely to be effective in reducing Iranian oil exports to Japan and South Korea.

Turkey and India


Turkey is a major purchaser of Iranian natural gas. Turkey has huge investments in LNG storage facilities and plans to increase its share of LNG in the domestic energy market. In 2015, Turkey began to import LNG from the US, and is now the second-largest importer of US LNG in Europe.

An increase in US and Qatari LNG – alongside new natural gas transit projects such as TANAP and the Turkish Stream – means that Iran may be largely sidelined by Turkey in the near future. Similarly, India has also signed a 20-year agreement to be supplied with US LNG, also ensuring a reduction of Iranian supplies to the Indian energy market over a similar period.

South Korea 

Seoul is one of the main customers of Iranian gas condensate. More than 55 percent of Iran’s gas condensate is exported to South Korea. According to official statistics from the Ministry of Oil, Iranian gas condensate exports in 2017 numbered 428,000 barrels per day on average.

Since the US withdrawal from the nuclear deal, major Korean companies importing Iranian oil and gas condensate have cut imports from Iran. In the first six months of 2018, the Hanwa Total Petrochemical Company, the largest importer of Iranian gas condensate, imported 15.92 million barrels from Iran, but since August has reduced its imports to one-third, in favour of supplies from Qatar and the United States.


Japan

Japan is another main consumer of Iranian oil in East Asia. According to the Japanese Petroleum Association, in 2017 the country imported 172,216 bpd of oil from Iran, down 24.2 percent from the previous year. Iran’s oil accounted for 5.3 percent of total oil imports to Japan’s refineries in 2017.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months

Following the US withdrawal from the treaty, the country further cut imports of oil from Iran. Japan now imports 5.5 percent of its oil from Iran, according to the Japanese Ministry of Economy and Trade. In August, Japan was receiving 17,775 barrels per day and bought 3.39 million barrels of crude in one month.

Japan called for an exemption from the US embargo on Iran, which was granted by the Trump administration – but only for six months. Part of Iran’s share of oil is expected to fall victim to an influx of LNG exports and US gas condensate onto Japan’s market.

Sanctions against 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 lack of investment in the Iranian oil and gas industry is one particularly immediate result of renewed sanctions.

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 in order to develop its facilities – yet it is clear that new US sanctions will challenge Iran’s ability to retain much of its oil production capacity regardless.

Given the increase in natural gas producers and LNGs on the market, the US energy boom provides a good opportunity for Iran’s rivals – not least the US itself – from moving in on Iran’s share of the regional and global energy market.

The increase in US oil and shale gas production has made Iran more pressured to find new markets, yet the country does not have the capacity to produce LNG, thus competing with the US, and it is unclear when the capital and technology needed to complete its LNG project units will be provided.

The US superiority in terms of advanced technology, research, investment, and diplomatic reach ensure it will retain a high position in the world energy market, while Iran will likely flounder further. If Iran and the US agree on current political and security problems, Iran may gain the foreign capital and technology needed to recover some of its oil and gas production capacity.
Energy continues to play an important role in US foreign policy, with implications not only on relations with designated rivals but also allies across the world.

www.alaraby.co.uk/

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What connects Turkey and Iran? – A look from Washington – EXCLUSIVE

Omid Shokri Kaleshar

Senior Energy Security Analyst, Washington, specifically for Eurasia Diary

Yesterday Turkish President Recep Erdogan negotiated on the regional crisis with the Iranian President Hassan Ruhani and, in particular, a referendum on Syria and Iraq with Iranian officials. Turkey suffered more from the Syrian crisis and presented about 3 million Syrian refugees living there. By October 2017, Turkey donated about $ 30 million to Syrian refugees. Iran and Turkey together with Russia have the potential to solve the Syrian problem, but they also need to cooperate with the US on this issue.

The Iranian and Iraqi forces conducted trainings near the border with the autonomous region of Kurdistan in Iraq, especially after tension raised after the referendum on independence. Last week, the head of the Turkish military headquarters, General Hulusi Akar, visited Tehran for talks with the leading military and political figures of Iran, who are expected to deal with border security and the fight against terrorism, along with regional problems.

 

Turkey and Iran agreed to strengthen military ties after referendum in Iraqi Kurdistan, where more than 90% of population voted for independence. Iran with Iraq and Turkey can expand military cooperation and conduct military exercises near the borders of Iraq in order to effectively counter regional instability.

There is a Kurdish minority lives in both of countries and they want to create a Kurdish state that directly affects national security, and it is expected that they will apply the same policy in this matter. Energy-intensive Turkey imports large volumes of natural gas from Iran. Both countries are seeking to enhance banking and trade ties in order to triple bilateral trade to $ 30 billion a year in the coming years after the lifting of international sanctions against Tehran.

The preferential trade agreement between Turkey and Iran turned out to be a huge disappointment during the first two years, when bilateral trade lagged behind the $ 35 billion target that the deal was supposed to reach. The agreement, which entered into force on January 1, 2015, aimed at reducing tariffs for about 300 products in order to triple the volume of trade. The results, however, were far from ideal, not even reaching one-third of the goal. While the Iranian market caused the appetite of the world’s trading giants, Turkey showed itself in a very favorable position, being the closest neighbor with already existing tariffs. Nevertheless, there were many disappointments. Despite the lifting of sanctions, Turkish-Iranian trade in 2016 was 100 million fewer than in the previous year, which meant the collapse of the preferential trade deal in just two years.

 

Starting from the first year, the deal resulted in an unexpected result: instead of growth, the volume of trade between the two neighbors declined. Turkish-Iranian trade amounted to 9.76 billion dollars at the end of 2015 dollars. Not only at 25 billion dollars smaller than the target, but also by $ 4 billion below the level of 2014 in the amount of 13.7 billion dollars. In 2016, Turkey’s exports to Iran amounted to 4.97 billion dollars. compared with 3.66 billion dollars. in the previous year, while imports from Iran, including natural gas, amounted to 4.7 billion dollars., compared with 6.1 billion dollars. in 2015.

Turkey had a positive balance of trade with Iran for the first time in 16 years. Even if this is a small surplus (only about $ 270 million), the fact that the balance is changing in favor of Turkey is a noteworthy development, the result of a steady trend over the past four years. Considering the instability in Iraq and the referendum in Iraqi Kurdistan, Iran has the potential to supply oil and gas to Turkey.

Iran and Turkey should prepare a joint plan, which take into account their national interests regard to the regional crisis, especially in Iraq and Syria. Instability in the region does not benefit the regional states, and it should be noted that both countries are neighbors. The regional crisis requires regional cooperation, and also with the main actors in the region, no country in itself has the capacity to address the regional crisis.

In summary, Iran and Turkey have their own interests in the region, and in some circumstances there is a clash of interests, but by 2017, after the Syrian crisis and after the referendum in Iraqi Kurdistan, both countries, cooperating with Iraq on the issue of Iraqi Kurdistan, and with Russia, and with the United States in the Syrian crisis, should play a more active role. Instability and chaos in these regions directly affect the stability and security of Iran and Turkey. Regional cooperation and large entities in the region are needed to solve the regional crisis.

http://ednews.net/en/news/interview/196428-what-connects-turkey-and-iran

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Identifying and Explaining Geopolitical Opportunities of Energy (Oil and Gas) as part of a Long-Term Strategy for Iran and Russia

Lifting sanctions in the wake of the Iranian nuclear deal opened large opportunities for resource-rich Iran to bring its long-stagnant industry up to date. Most of the oil fields in Iran are in the second half of their production capabilities, with the productivity of wells decreasing by 8% annually. The result has been a decline in foreign exchange earnings and the gradual loss of Iran’s share in the oil market. According to Iranian officials, Iran needs around $100 billion foreign investment in the oil, gas and petrochemical sectors” to increase its oil efficiency.

 

A major Russian investment in Iran’s energy sector came in the form of Iran’s Bushehr nuclear power plant. Russia has been active in Iranian nuclear power since mid-1990 and has continued cooperation with the country’s nuclear plan despite opposition from the West. Rosatom completed the Bushher Power Plant with some delay, and some analysts believe the cost of completing this power plant was higher than could have been achieved through other companies. Iran and Russia also signed agreements for the construction of a further nuclear power plant. Electricity generated in the Busher Power plant supply just about 2% of Iran’s electricity demands. Nuclear cooperation is thus more so in Russia’s favor.

 

In 2017, Iran and Russia signed an oil-for-food deal with Iran to be will be implemented next month with the purchase of 100 000 barrels of oil a day from Iran. The first oil for food agreement was signed in 2014, in the midst of EU and US sanctions. In Januray  2014, Iran and Russia an oil-for-goods swap worth $1.5 billion per month that would enable Iran to lift oil exports substantially, undermining Western sanctions. Such agreements could come back on the agenda with the likely return of new US sanctions, and causing Russia to once again play a role in the Iranian energy sector.

 

By 2015, Russian firms such as Luk Oil and Gazprom began showing interest in investing in Iran’s energy sector.  On March 2015, Russia’s Zarubezhneft signed agreements with the Iranian Oil Ministry to boost production at two oil fields in the country’s west. Zarubezhneft and Dana Energy, will develop the Aban and Paydar fields in Ilam province near the Iraqi border jointly with a private Iranian company, to boost production from 36 000 to 48 000 barrels of oil per day. The Russian company Zarupozhgft’s share of this contract is 80%, and the share of the National Iranian Oil Company is 20%. The cost of increasing the production efficiency of Aban and Sustainable West oil fields is estimated at $675 million. In addition, $68 million is also expected to cover indirect costs for the project. Part of this money will be spent on the repair of pumps and replacement of worn pumps.

 

After US withdraw nuclear deal major foreign companies withdraw from Iran energy sector. Luk oil official said that they no more consider invest in Iran oil and gas fields. It should be noted that in during past years and last round of US and EU sanctions, Russia had no major investments in Iran’s upstream industry. Russia prefers to invest in oil and gas fields which will pose no threat to its own oil and gas market. Both countries are trying to use their vast hydrocarbon reserves as a political tool to get more gain in their relations with rest of the world. Thus, despite its diplomatic and economic cooperation with Iran, Russia is in favor of any sanctions which decrease Iran’s oil and gas production capacity.

 

Limiting the production capacities of Iranian oil and gas is in favor of Russia and other major oil producers. At present, Iran only exports natural gas to Turkey and has no major plans to export more natural gas for other countries. In terms of natural gas and LNG, Iran is far from posing a threat to the Russian market, but in oil Iran still has potential. US new sanctions aimed at decreasing Iran’s oil exports give an opportunity to Russia to fill the vacuum and take Iran’s would-be share in the regional and global market, especially in Asia and the EU.

 

Russia’s investments in Iran have led to closer coordination in foreign policy, not least with regards to Syria. Last year, and in mid-2018 ,Russian official many times declared their interest in investing  about  50 b$ in Iran’s energy sector. In the first week of July, the Senior Advisor to the Leader of Iran’s Islamic Revolution in International Affairs, Ali Akbar Velayati visited Russia, and after negotiations with Russian officials said that Russia was ready to invest  50 b$ in Iran’s energy sector. The discussion focused on Russo-Iranian cooperation on issues in the region, including developments in Syria. The parties reaffirmed their commitment to the Joint Comprehensive Plan of Action on Iran’s Nuclear Deal (JCPOA), Iran-Russia energy relations after US withdrawal from the JPCOA, thereby utilizing the situation to further bilateral relation with an obvious increase in Russian influence on Iran. In an alternative scenario, Iran could provide an alternative to Russian gas for the EU in the long term.

 

On 23 July , Iranian Oil Minister Bizhan Zanghaneh attended the Gas Exporting Countries Forum (GECF) in Moscow, meeting with Russian Energy Minister Alexander Novak. They discussed bilateral relation, particularly in the field of energy. Last March, Russia and Iran signed a string of cooperation agreements in various fields, including energy. Details of the outcome of these meetings have still not been distributed to the press.

 

The actual question is whether despite the US opting out of the nuclear agreement, whether Russian investments in the country’s natural gas and oil fields will have an impact? This rests on whether the investments will go towards developing infrastructure and technological capacities. If this is the case, then which countries will benefit from purchasing renewed output? How will this renewal impact Iran’s regional relations? Will Russia eye this development closely? The coming months will reveal much on this front.

https://uwidata.com/

 

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