Iran Eyes Caspian, Central Asian Markets

Lifting of Iran sanctions will help Tehran resume its oil swap transactions with Russia, Turkmenistan, and Kazakhstan. That, in its turn, will enhance Iran’s foreign policy influence in the Caspian region.

In early July this year, a regular round of Iran Nuclear Programme talks between the Six (US, Germany, Great Britain, Russia, France, and China) and the government of Iran were successful.

At that meeting in Vienna, all parties approved a Joint Comprehensive Plan of Action that would put an end to the sanctions imposed on Iran by the West in 2006-2009.

The new document needs yet to be approved by the UN Security Council. In case of a favourable decision, the sanctions can be lifted 90 days after such a decision.

The American sanctions imposed against Iran under the ISLA law have resulted in Iran practically becoming an outcast country that was removed from many energy projects, including Caspian oil exports.

While the new document is still being reviewed in the Security Council, many countries are already considering the new options of cooperation with Iran that will become available should the sanctions be lifted. Such countries include, first of all, the Caspian littoral states of Russia, Kazakhstan, and Turkmenistan.

With the fifth largest proven reserves in the world (99 billion barrels), Iran possesses considerable own oil resources. However, swap transactions make sense to Iran in its effort to provide crude to the northern and central parts of the country, whose oil fields are located mainly in the south. Swap proves to be the most economical way to achieve that.

In addition, it is important that such transactions may contribute to an increased foreign policy weight of Iran in the Caspian region and Central Asia.

It is because of those considerations that Iran has been favouring swap transactions, inviting Azerbaijan, Russia, Turkmenistan and Uzbekistan to cooperate with it. In its time, Iran had spared no expense to build a state-of-the-art terminal in the sea port of Neka that had been specifically designed for swap transactions with the Caspian countries.

For example, oil from Kazakhstan or Turkmenistan was transported in tankers to the Iranian port of Neka and then pumped through pipelines to Teheran and Iranian refineries. Russia joined the SWAP transactions later, bringing in its considerable volumes.

Iran – Russia

In 2002, swap transactions with Iran brought a $167.45 million profit to the Russian company LUKoil. Subsequently, in 2003, LUKoil management began negotiating a long-term contract with the National Iranian Oil Company (NIOC) to increase the annual swap up to 1 million tonnes.

Swap with Iran was opening a new avenue for Russia to increase its oil exports. Russian crude was processed at the Iranian refineries in the north of the country to meet the internal demand. In return, Iran provided the equivalent quantities of its oil to Russia at the Persian Gulf terminals.

Not only did this model helped Russia’s aggressive entry to the international markets, but it also made Russia a major exporter of Caspian oil. With Iran’s help, and without having to create the necessary infrastructure, Russia, represented by LUKoil, had received access to the Asian markets through the terminals of the Persian Gulf.

However, the Iran sanctions closed that opportunity for Russia. According to the experts, in case of a favourable development leading to the lifting of the sanctions, Russia may resume the beneficial swap transactions, especially with the current low oil prices urging the companies to look for new and cheaper ways to export.

Kazakhstan – Iran

It should be noted that, in spite of the sanctions, and maybe not as active as before, the interaction of Astana with Teheran still continued, mainly thanks to the proximity of Kazakhstan’s’ western provinces to the Caspian Sea.

For example, the 2014 foreign trade turnover of the Mangistau province alone (western Kazakhstan) with the Islamic Republic of Iran was $35.7 million, and in January-May this year – $11.6 million. The province has 15 registered joint ventures in transport, food industry, and commerce with Iranian participation.

Interestingly, two weeks after the historic meeting in Vienna, word came that Kazakhstan was considering building its 4th refinery in the Mangistau region with participation of Iran. The local media, with reference to the provincial akimat (mayor’s office – note by author), reported that the local authorities were already discussing the project with the Iranian side.

While the sanction lifting decision is still pending, Kazakhstan is already calculating the economics of resuming swap transactions with Iran, – Kazakhstan’s First Prime-Minister and Minister of Energy Uzakbay Karabalin told New Europe in an interview.

Prior to the sanctions, the two countries used this form of cooperation extensively. According to the official data, the volume of SWAP between Kazakhstan and Iran was 3.5 million tonnes.

It also provided an added benefit to Astana who received an opportunity to enter the Asian markets through the Persian Gulf terminals.

“That was a good move and a good deal,” Karabalin said.

At the same time, according to the vice-minister, no swap transactions can be resumed until a final decision is made on the lifting of the sanctions.

“First, we should take politics into account. We cannot risk our oil and gas industry by getting ourselves into some sorry pickle. We must have a firm business and direction. Second, we should calculate the economic benefits,” Karabalin said.

He explained that, in spite of the equal volumes being exchanged, Iran charged a certain fee for swap. The reason is the quality of Iranian oil. It is very light by its composition, which is highly valued in the world markets. Therefore, it is more expensive than Kazakhstan’s oil.

“The question is what the payment for the SWAP transactions is going to be. It’s true that any business, including the oil and gas one, takes a very pragmatic approach to such questions. Business goes where profit is,” Karabalin said.

Besides, the Caspian Pipeline Consortium is carrying out an expansion project to increase the throughput capacity of the pipeline from 35 million tonnes a year to 67 million tonnes. Already, a lion’s share of Kazakhstan’s crude goes to the export markets through Russia by this pipeline.

“So today the question is what is more beneficial for Kazakhstan: to export its crude through CPC to the Black Sea or to resume SWAP with Iran? To decide that, we need to evaluate the economic expediency of both options,” the vice-minister said.

Now that the question of lifting of Iran sanctions is on the homestretch, Iran perseveres in attempts to offer its territory for exports of Caspian crude, trying to become a member of international energy projects.

Iran – Turkmenistan

Turkmenistan and Iran are neighbours on the Caspian Sea, and they share a long land border. According to Iran’s data, the annual trade turnover between these countries is about five billion dollars, and it may double in the near future.

Recently, the President of Turkmenistan Gurbanguly Berdymuhamedov clearly stated Ashgabat’s stance with respect to Teheran: “In accordance with its neutral state status, and in the interests of global peace, progress and constructive development, Turkmenistan intends to continue partnership with all states, including its nearest neighbours”.

The current potential of the Turkmen-Iranian cooperation is based on the centuries-long traditions of friendship and good neighbourliness. Over the many years of cooperation, a number of major projects have been completed.

Both parties name the Korpedje-Kurt Kui gas pipeline that was put in operation in 1996 as the most important one of those projects, followed by the Dauletabad–Sarakhs–Khangiran gas pipeline. Also, Iran imports Turkmen electricity.

While the sanctions were in force, Iran was not wasting its time. In 2007, Teheran, Ashgabat and Astana signed an agreement on construction of a main rail road, Uzen-Gyzylgaya-Bereket-Etrek-Gorgan. The Kazakh and Turkmen sections of this main railway are already completed, and the Iranian section is near completion. Test cargo runs have been conducted, as well.

The Uzen-Gyzylgaya-Bereket-Etrek-Gorgan main is also an important link of another major project – the North-South transnational transport corridor.

The purpose of the North-South corridor is to provide transit connection through Iran for Northern Europe and Russia with the countries of the Persian Gulf, Indian Ocean, and South-East Asia. The future cargo traffic on the North-South transnational corridor is estimated at 35 to 40 million tonnes a year.

The experts are certain that this project will give rise to a new geo-economic space that will connect Central Asia and the Caspian countries with the Black Sea region and South Caucasus, with further access to the Baltic countries and Europe, and on the other side – to the states of the Persian Gulf and South-East Asia.

http://www.neurope.eu/article/iran-eyes-caspian-central-asian-markets/