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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Iran-Gulf Energy Relations in the Time of Trump Sanctions

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

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

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

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

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

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

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

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

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

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

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

 

Leveraging energy resources 

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

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

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

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

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

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

/www.alaraby.co.uk

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Iranian-Omani Gas Pipeline: A Link for Iran to the World?

To meet its growing energy needs, Oman is looking to increase its natural gas supply above the current levels of imports brought in from Qatar via the Dolphin pipeline. While Oman also exports significant volumes of natural gas from its liquefied natural gas (LNG) facilities, it has had to devote significant amounts of its own production to domestic demand. What are the prospects for Iranian natural gas to reach Oman and global markets through the anticipated Iranian-Omani gas pipeline project?

 

Iran, which has the second largest natural gas reserves in the world, has plans to increase its exports of natural gas to other countries. At present, despite this major advantage, the country presides over a share of less than 1 percent of the world’s natural gas market. Nevertheless exporting natural gas to its neighbors is one of Iran’s priorities for the future. Iran’s export of oil and gas to its neighbors would help the region’s states resolve their problems and would promote peace and stability in the region. The Iranian-Omani natural gas pipeline would provide Iran a significant opportunity to export gas to Oman, as well as to other countries.

Iranian-Omani Natural Gas Pipeline

Natural gas consumption in the Sultanate of Oman more than doubled in the decade leading up to 2016.

Natural gas consumption in the Sultanate of Oman more than doubled in the decade leading up to 2016. Recognizing Oman’s increasing demand, in 2013, Iran and Oman signed a memorandum of understanding to build a new pipeline to export Iranian natural gas directly through the Gulf to Oman. The $25 billion agreement promised gas supplies to Oman via the construction of a subsea pipeline. While the pipeline construction was subsequently halted, the project now has a new deadline for its hoped-for completion by 2020.

The ultimate anticipated capacity of this new pipeline, called the Iranian-Omani pipeline, is 1.5 billion cubic feet (Bcf) of gas to be pumped into Oman every day. The Iranian-Omani pipeline would deliver some of the gas for processing at the Al-Anjui processing plant to send on to target markets in Oman, while the remaining pipeline capacity would be allocated to future markets in the Gulf.

A portion of the gas to be transported through the pipeline is anticipated to be converted into LNG to be shipped to target markets in East Asia and Europe. The remaining pipeline capacity will be allocated to future markets in the Gulf states. The project, long anticipated, was initially estimated at a cost of $1.2 billion, with initial volumes of 30 million cubic feet (MMcf) per day of natural gas to be transported from Iran’s Kuh Mobarak port to Oman’s port of Sohar.

Iran’s oil minister has stated that the country hopes to export Iranian natural gas to other countries of the region, especially Asian countries, through Oman. After the Joint Comprehensive Plan of Action (“JCPOA”) nuclear agreement was reached in 2015, Iran invited foreign energy firms to invest in Iran’s energy projects, and especially the Iranian-Omani pipeline. In 2017, Iran officially invited Russia to build a gas pipeline to Oman. Ali Karder, the Deputy Oil Minister and CEO of the National Iranian Oil Company, invited Gazprom to lead construction efforts.

In September 2018, Bijan Zanganeh, the oil minister of Iran, met with his Omani counterpart. The result was an agreement to build a natural gas pipeline with a capacity of 1 Bcf per day—equivalent to 28 million cubic meters per day, or 10 billion cubic meters annually from Iran. The monetary value to Iran of this volume would range from around $1.5 million to $2 million.

Due to the United Arab Emirate (UAE)’s opposition to the pipeline crossing through its shallows, the pipeline is now expected to traverse the deeper waters of the Oman Sea, which will increase the cost and time frame for construction. Technology for the construction and installation of a pipeline is also problematic. Iranian companies are not experienced in installing pipeline in waters deeper than 1000 meters, thus making the involvement of an international partner essential for the project’s success.

Initial talks on a joint gas project with Iran were launched in 2004, but because Iran’s gas balance was not positive and consumption outweighed production at the time, negotiations then were hypothetical, at best. But with the arrival of the eleventh government and new phases of the South Pars Fields boosting Iran’s natural gas production, exports to other countries were put back on the agenda, with 92 rounds of rigorous negotiations ending in the signing of a final agreement.

Effect of Sanctions

In first months of 2018, with the benefits of the JCPOA nuclear agreement still formally in place, a joint work plan for the sale of gas to Oman from the Kish Gas Field was signed at the joint meeting of the Iranian oil industry with various ministers from Oman. The volume of the Kish field reserves is estimated at around 48 trillion cubic feet of gas.

Renewed U.S. sanctions against the Iranian energy sector will affect energy projects such as the Iranian-Omani pipeline, and bring along other practical challenges. Oman is banking on U.S. sanctions only applying to Iran’s oil exports and not to exports of natural gas. Oman’s Oil Minister, Mohammed Al-Ramhi, has stated that the country will continue to import gas from Iran, despite sanctions from the U.S. and that the pipeline project will go ahead.

Natural gas is stored in Oman either to fill reserves or to be sent off to target markets. As Oman has sought to diversify its economic prospects in the last few years, following a decline in its natural gas production and a shortage of gas, as well as other economic shortfalls, the proposed pipeline with Iran is part of this strategy.

Iran is expected to add a substantial amount of pipeline infrastructure across the Middle East in the coming years by building 12,698 kilometers (km) of planned pipelines by 2022.

Iran is expected to add a substantial amount of pipeline infrastructure across the Middle East in the coming years by building 12,698 kilometers (km) of planned pipelines by 2022. According to Global, the distance of the route planned for the Iranian-Omani pipeline is 50 percent of Iran’s overall projected pipeline. Second to Iran comes Iraq in terms of planned pipelines, which plans to invest $29.6 billion by 2022 by adding 5,105 km of oil and gas pipelines. Turkey comes in third place with a planned 2,030 km of pipeline at a cost of around $5.8 billion.

Iran needs to diversify its exports to the same degree that Oman needs natural gas imports to offset its energy shortages. As of 2014, Oman imported about 73 Bcf of natural gas from Qatar through the Dolphin pipeline, which runs from Qatar to Oman via the UAE, but it planned to phase out such imports when Phase 1 of the Khazzan tight gas field in Oman, operated by BP, commenced production in 2017. The Khazzan field commenced operations in Q4 2017, but it is still too early to tell how it will impact Oman’s imports in the longer term.

What Does the Future Hold?

While Oman’s economic development is based on energy-dependency, there are also political and geopolitical considerations at play. The gas pipeline between Iran and Oman is the bridge between Iran and the Gulf Cooperation Council (GCC) countries. Because it most certainly will not be limited only to exporting Iranian gas to Oman, Iran will likely export gas to other countries via Oman as an intermediary. If this strategy succeeds, then another line may be built parallel to this pipeline in the long-term.

Trouble may be in store from the GCC countries, naturally suspicious of Iranian products entering their market. On the other hand, Oman has always pursued an independent policy, despite its membership in the Council. Its pipeline construction policy undoubtedly will follow that tradition. By creating a possible opportunity for dialogue between Iran and the United States, Oman may even benefit politically from the move. Oman has always pursued a policy of tolerance and peaceful coexistence with the countries of the region and resolving issues through dialogue and mediation. Although it faces pressure and problems from its neighboring countries, its policy has continued steadfast despite opposition.

In 2017, a number of meetings were convened in which Indian, Iranian, and Omani officials discussed Iranian gas being transported to India via the Iran-Oman pipeline in order to offset the impact of U.S. sanctions and to allow Iran access to one of its key consumers. As of the end of 2018, however, there has been no major progress on the Iranian-Omani pipeline, and thus any talk of further exports to India via the project is at present just a pipe dream.

Although the technology to manufacture and install pipelines in a shallow sea bed is available to Iranian companies, Iran would certainly jump at the chance to use international technology and financial capital to complete the Iranian-Omani pipeline given its inexperience with projects deeper than 1000 meters. LNG exports comprise one of Iran’s main plans to export natural gas to the European Union (EU) market.  

The Iranian-Omani pipeline project would be an ingenious way to realize this goal. Iran requires further financial capital and technology, however, to build the required infrastructure to export natural gas to the EU and to Iran’s other future target energy markets. However, given the sanctions, no major foreign energy firms are likely to provide the financial or other support needed in the short-term.

www,insidearabia.com

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