MIDDLE EAST AND NORTH AFRICA:
IRAN AND THE GEOPOLITICS BEHIND THE DIFFERENT OPTIONS OF TRANSPORT FOR OIL AND GAS
 Cristian KANOVITS is PhD in International Relations and Energy Security Policies. Since almost 10 years he has been working for the European Commission: in DG Environment, the Secretariat General and presently DG Internal Market, Industry, Entrepreneurship and SMEs supervising the political coordination of the briefings drafted for his Commissioner and Director General. Occasionally he is lecturing at different Universities on topics related to the EU decision making process.
 Leonela LENEȘ is PhD Candidate, National University of Political Studies and Public Administration, Bucharest, researcher on Energy Diplomacy, Energy Security and Critical Infrastructure Protection with the focus on the Caspian Sea and Black Sea region, member of the Board of Black Sea Caspian Sea International Fund, author of several articles and studies on energy security and energy diplomacy.
The present paper analyses the intricate geopolitical game the most influential Organization of the Petroleum Exporting Countries (OPEC) member states are playing in order to maintain their supremacy as agenda - setters in the energy domain. The paper explains as well the links between the different variables of this complex geopolitical equation.
After the sanctions on Iranian oil exports were lift in January 2016, following-up an international hallmarked and cumbersome negotiation process, Iranian oil flows to Europe have begun to recover their former capacity, with a gradual outset. However, there are many obstacles looming in the background of the international stage, for example a limited access to storage in the Middle East and North Africa (MENA) area which is mostly owned by Iran’s main competitors. This twist presently creates on one hand another niche opportunity for cheap Chinese exports of tankers and storage facilities and on the other hand an opportunity for potentially boosting national investment in creation of factories for homemade units.
As set in Iran's 20-Year Vision Plan, Iran is aiming to become by 2025, OPEC’s member state with the highest level of interaction with the international community. In order to achieve this, decision-makers from Tehran need to use their negotiating abilities in relation with their main partners in order to create a projection of Iran’s medium and long term role in the regional and international arena. On short term, it is vital to develop internal infrastructure and switch to modern technology in order to keep up with external commitments. In the quest for explaining the developments of the Iranian energy strategy, the authors of the paper tried to define four Iranian accessible axes in the sight of building or consolidating gas transportation corridors. Ranking and prioritizing those corridors is connected to the interdependency of factors such as regional security environment, political will, firm buyer commitment, infrastructure investment, infrastructure security, and competitive price.
Keywords: Energy geopolitics, Iran post sanctions, MENA energy corridors, Caspian energy, Energy infrastructure, Gas markets, LNG
Not only the commodities markets but all the global segments are approaching a black swan event in the near future. The Talebian era we are currently facing becomes constantly more unpredictable with spikes of abrupt fluctuations which are increasingly difficult to quantify.
The above picture looks gloomy but the number of geopolitical variables can presently be quantified only through “Robo-Advisors” and complex algorithms that are analysing the constantly changing elements of which the energy price for different sources is set around the globe.
Post the lifting of the Iran exports sanctions back in January 2016, after an international hallmarked and cumbersome negotiation process, Iranian oil flows to Europe have begun to pick up from a sluggish start. However, there are many obstacles looming in the background of the international stage like limited access to storage in the MENA area which is mostly owned by Iran’s main competitors. This twist presently creates on one hand another niche opportunity for cheap Chinese exports of tankers and storage facilities and on the other hand an opportunity for potentially boosting national investment in creation of factories for homemade units.
Exports are also hampered by the unwillingness of international credit banks to back-up investments for the government in Tehran, which remains adamant in maintaining strict contract terms for the potential European customers.
The ultimate question we would like to analyse in this paper is the intricate geopolitical game the most influential OPEC member states are playing in order to maintain their supremacy as agenda-setters. If we take the example of the Saudi Arabia or of the United Arab Emirates the paradigm of fixing the rules regarding their production output is generating ripples across the entire world.
We need to understand that the new normal for OPEC is to be able to maintain a stable output while preserving a constant source of income and a general stable and peaceful environment for their population.
Presently, the down fall of oil prices is affecting this fragile equilibrium and we are not talking only about the “who to blink first” dilemma regarding lowering OPEC's threshold production. During the last oil price crisis OPEC was able to adapt its output in order to drive prices higher, while from a technological point of view this option has been rendered unusable by the American unconventional oil and gas revolution. As an experimented master of the ancient Chinese game GO, OPEC is trying to surround the competitor’s position and the capture their pieces, the unconventional energy sources industries are dwindling in number having more and more difficulties maintaining a competitive output reaching almost unsustainable costs and with almost no existing activity in Europe.
We can make a comparative analysis with the Smartphone’s branch; presently some companies are rather willing to sell at a loss their products, or to reduce their profits via a hefty discount rather than to lose their market share. This analogy is also applicable for our situation; however OPEC needs to vector-in also the fact that this strategy can act as a double edge sword. The tenacity and the technological innovation in this field generated as a necessity to survive by the industry should not be ignored.
After presenting all these geopolitical variables, we have to conclude that Iran is becoming increasingly worried by the difficult access to the Egyptian storage tanks from Egyptian port of Sidi Kerir, which is strategically considered a major transport hub giving access to the Mediterranean routs.
Strategically placed storage facilities have become a praised asset during the present oil prices situation.
Iran, OPEC’s third largest producer, has still a long road ahead to regain its former pace. Since the foundation of OPEC, Iran's oil production has varied greatly. Iran averaged production of more than 5.5 million barrels per day (bpd) of oil in 1976 and 1977, with production topping 6.0 million (bpd) for most of the period. Since the 1979 Revolution, however, a combination of war, limited investment, sanctions, and a high rate of natural decline in production of Iran's mature oil fields has prevented a return to such production levels.
The conundrum resides in how fast Iran can find new potential buyers and which of them will switch from the other current OPEC influential members.
Is there a geopolitical “Game of Thrones” that it is played inside OPEC? Only time and transparent data exports sets will tell.
The Iranian Oil Minister, Bijan Namdar ZANGENEH, unveiled on the 25 March 2016 a confidential oil agreement with France's Total Company to develop the infrastructure of the South Azadegan oil field shared by Iran and Iraq with an in-situ potential oil reserve of about 33.2 billion barrels. If compared with the International Energy Agency (IEA)’s proven global reserves of 1,656 billion barrels, OPEC total proven reserves in 2015 was of 1,211 billion barrels, of which Iran has 158 billion barrels. Within this context Iraq and Saudi Arabia should start to make serious back-up plans for their surplus production.
Iran’s rivals inside OPEC will also have to cope with Tehran’s accomplishment regarding the cooperation with the French company. It would also worth mentioning that France was among the first EU Member States to impose an unconventional gas moratorium.
Presently, Iran is OPEC’s fourth-largest crude oil producer and when, OPEC released its Monthly Oil Market Report, on the 14 of March 2016, the data surprisingly depicted that Iran’s crude oil production increased by 187,000 bpd, this being the largest monthly increase since 1997.
The above figure shows the level of Iran production prior and post sanctions which show a tremendous resilience regarding their capacity to make a full recovery compared to the period prior to the sanctions, even overpassing the December 2011 moment.
Iran's come back on the oil market and reaching the target of 4 million bpd becomes a major challenge in the context in which all the other OPEC member states have already proposed the freezing of production to the level of January 2016.
Besides oil, Iran is also challenging the Central Asian gas map. Iran, a bona fide superpower in global gas market is the second-largest proved natural gas reserve holder in the world, behind Russia. It holds 17% of the world's proved natural gas reserves and more than one - third of OPEC’s reserves.
Iran’s participation in the international megaprojects of gas supply generates rivalries with gas exporting neighbours and sets the ground rules for the reconfiguration of the mega-arteries of gas transportation. Iran will try to take advantage of its energy reserves in interaction with its neighbours as well as with other regional and global players.
As set in Iran's 20-Year Vision Plan, Iran is aiming to become by 2025, OPEC’s member state with the highest level of interaction with the international community. In order to achieve this, decision-makers from Tehran need to use their negotiating abilities in relation with their main partners in order to create a projection of Iran’s medium and long term role in the regional and international arena. On the short term, it is vital to develop internal infrastructure and switch to modern technology in order to keep up with external commitments.
Having had all the major infrastructure plans blocked, Iran is eager to strongly re-enter the market and to attract investments and technology. The Islamic Republic of Iran proposes besides the new form of the Iran Petroleum Contract (IPC), compensatory payments to the investors in case of some nationalizations or expropriation, guaranteed interests loss due to some government laws or regulations, a 20 years tax exemption for the foreign investments in the free and special economic areas in Iran.
In the last decade Iran initiated more gas pipelines projects for export. Despite the fact that they signed agreements with foreign neighbouring states the sanctions suspended any major progress. At the beginning of 2016, Iran announced that the country intends to develop 50 major projects worth an estimated US$185 billion. The prepared projects include also the major gas fields’ developments such as the North Pars, Golshan and Ferdowsi.
The question whose answer is being negotiated now is: what markets shall the Iranian gas access and mainly - what transport routes will Iran choose? The regional Iranian aspirations, the local competition’s position and interests, the stiffer need to supply potential clients such as China, India and Pakistan, but mainly the need of maintaining a positive evolution in relation with the West makes the Iranian energy transport options a complex geopolitical dilemma.
The authors of this article tried to define four Iranian accessible axes in the sight of building or consolidating gas transportation corridors. Ranking and prioritizing those corridors is connected to the interdependency of factors as regional security environment, political will, firm buyer commitment, infrastructure investment, infrastructure security, competitive price.
First axis. The South - Eastern direction is the connection of Iranian gas with Afghanistan – Pakistan - India
Iran - Pakistan (Peace Pipeline). Iran has finished construction of its pipeline to the border, while Pakistan delayed the construction during sanctions, but it is now expected to be finalized (being financially supported by China). The pipeline spur would run from Pakistan’s port city of Gwadar, where it has nearly completed its first liquefied natural gas (LNG) intake plant, to Iran’s border, 80 kilometres away. Pakistan has a rapidly growing need for natural gas and is also connecting its gas pipelines network to the supply via TAPI, willing to play an important regional energy role. In the first stages it was planned as IPI, connecting also India, but having the very volatile relations between Pakistan and India, the later did not committed to this project, instead having a separate energy agenda directly with Iran.
Iran - India. The proposed project that would bring Iranian gas to India is a giant one and would export gas to both Oman and India via an undersea pipeline – MEIDP (Middle East to India Deepwater Pipeline). The project is planned to be completed in two years. Iran, which has already started building a pipeline from Turkmenistan to its Chabahar Port, has plans for a gas swap with Turkmenistan and ultimately to export the gas to India via MEIDP. New Delhi has already agreed to finance and develop Chabahar Port in preparation for this arrangement.
Second axis. North - Eastern routes: Turkmenistan. Russia. China.
Looking at the North - Eastern Axis, it is important to mention that post-sanction Iran is to become a member of the Shanghai Cooperation Organization (SCO). At present, the Shanghai Cooperation Organization has six permanent members, including China, Russia, Kazakhstan, Uzbekistan, Tajikistan and Kyrgyzstan. Iran, India, Pakistan, Afghanistan, and Mongolia are observer states of the SCO while Turkey, Sri Lanka, and Belarus are “dialogue partners” of the organization. Both China (Iran’s strategic partner) and Russia are seeking to tighten its relations with Iran and are supporting its SCO membership. Bilateral energy agenda is not yet harmonized. China is a major consumer and one of the few investors which remained in Iran during sanctions and is promoting Iran’s energy infrastructure development. Russia is the main energy competitor when it comes to gas supply to Central Asia, South Caucasus, Turkey and its most important consumer - Europe.
Turkmenistan. The Dovletabat – Sarakhs - Khangiran gas pipeline, a major joint venture by Iran and Turkmenistan, was inaugurated in 2010. The 182-kilometer Turkmen - Iranian pipeline is pumping Turkmen gas, while Tehran is able to free its own gas production in the southern fields for export. The West has tried to find a transport route for Turkmenistan's supplies as an alternative to the Russian gas. With the world's fourth-largest natural gas reserves, Turkmenistan has been searching for greater access to global markets. Turkmenistan traditionally has sold the bulk of its natural gas exports to Russia, but in recent years Ashgabat has focused on selling just over half of its exports to China, splitting the rest nearly evenly between Russia and Iran. Turkmenistan sees potential in expanding exports to growing natural gas markets in Asia, especially China, but faced with limited growth markets in Russia and Iran, Ashgabat has its eye on Western markets as well.
China. Beijing is seeking to add an economic dimension to the relationship with Pakistan and plan an “economic corridor” linking the Pakistani port of Gwadar, which is under Chinese management, to south-western China with road and rail connections. The highly ambitious program, which also includes power-generation projects, carries a price tag of some US$40 billion. The Iran pipeline is not part of the economic corridor but, according to Pakistani officials, will be separately fast-tracked. The strategic position of Pakistan explains China’s long standing interest in the country and its willingness to support the CPEC (China - Pakistan Economic Corridor). For China, the corridor will provide an alternative route to the Gulf region through the Arabian Sea. The cost effective route will make it possible for China to expand its interactions with African, Central Asian and Middle Eastern markets. Moreover, Iran is eyeing as much as US$100 billion worth of energy deals in the near future and Tehran’s abundant oil and gas reserves could find a thriving demand in China too.
Russia. The traditional gas supplier of Europe sees Iran’s giant gas reserves as a threat to its own European monopolistic presence. Therefore, any major energy infrastructure project that would provide a serious alternative for Russian gas supply to Europe has to tackle all the competitive risks rising from the Russian dominant and historic position. Iranian-Russian energy cooperation exists at the level of several oil and gas swap deals proposed in northern Iran.
Third axis. North - Western Route. Azerbaijan – Armenia – Georgia / Iran – Turkey - Europe, Iran – Iraq - Syria – Europe
Currently, Iran is exporting gas to Armenia. Georgia, which is importing gas mainly from Azerbaijan expressed its interest in diversifying its supply and might analyse the possibility to import gas through Armenia (Russian owned infrastructure). Both Georgia and Azerbaijan are connected through Baku – Tbilisi - Erzurum gas corridor and are countries that participate in the Southern Gas Corridor and could provide a transport option for Iranian gas. Azerbaijan will be connected to Europe, as well via TAP gas pipeline. Concerning the regional size of the gas market, for Iran, Georgia is not a scalable market, as it has an agreement until 2025 with Azerbaijan and for the moment, Iran could supply maximum 10% of the Georgian gas demand.
Iran actually has several options to deliver its gas to Europe: through Turkish soil to Greece via the Iran – Turkey - Europe Pipeline, the Interconnector – Turkey – Greece - Italy or via the TANAP (Trans - Anatolian Pipeline) and the TAP (in the expansion capacity), including the Greece - Bulgaria Interconnector and the Ionian - Adriatic Pipeline; to Bulgaria via the former Nabucco - West or the existing interconnectors in Southeast Europe. Azerbaijan’s SOCAR has not excluded the participation of Iran in the TANAP project, as well as bringing Iranian gas into the pipeline.
The construction of the “Friendship Pipeline” (5000 km long, connecting Iran –Iraq - Syria) aiming to bring the Iranian gas to the Mediterranean Sea was suspended because of the instability in Syria and Iraq, but it is still one of the options for connecting the South Pars gas field to the European consumers.
Iran Gas Trunkline 9 or IGAT - 9 starting in Port Assaluyeh (southern of Iran) will transport gas from the South Pars gas field to the city of Bazargan (north-western of Iran) at the border with Turkey, having been launched in 2013. The project is supposed to expand via Turkey to Greece, Italy, Switzerland, Germany, France and Spain but it has been blocked for the moment.
Despite the security, financial and technological challenges, Iran’s participation in the Southern Gas Corridor is becoming much more feasible in the post-sanction era
Fourth axis. Liquefied Natural Gas (LNG)
If building gas pipelines involves so many geopolitical, diplomatic, financial and technological vectors, LNG is probably Iran's best opportunity for exporting gas to Europe in the near future. Europe is having already in place or under construction terminals to receive LNG from North Africa and the Gulf States. An Iranian LNG plant is supposed to become operational in 2018 and has 10.5 million tons (mta) production capacity annually.
Tehran is planning to launch five LNG projects. Some of them were awarded to the Royal Dutch Shell, to Spain’s Repsol and to France’s Total, in order to produce 40 mta of LNG for exports but the three companies abandoned them in 2011 when Iran came under sanctions. This year, the National Iranian Gas Exports Company is negotiating with European companies; including Oslo - and Nasdaq – listed Golar LNG Ltd., to build floating LNG facilities, as well - offshore vessels on which the gas would be liquefied.
A project that could deliver liquefied gas to Europe, the Iran - Oman undersea gas pipeline is also considered. Both countries have signed the agreements and Iran is supposed to export 28 MMcm/d. The 400-kilometer pipeline, stretching from Iran to Oman is defined in two onshore and offshore sections. Land part of the gas pipeline extends for 200 kilometres from Rudan to Mobarak Mount in the Southern Hormozgan province of Iran. The seabed section between Iran and Sohar Port in Oman will stretch for another 200 kilometres. Almost one-third of the gas will be passing through the liquefaction facilities at the Oman’s Qalhat plant, from where it will reach European and Asian markets.
From a financial perspective, this kind of gas transport projects, despite the fact that the slump in oil prices has hit the LNG hard, is capable to attract investments in the near future and could become an energy supply option for many European and Far - East countries. Iran accelerated talks with European counterparts: Belgium, France and Germany on the construction of LNG tankers, including floating LNG units and floating production, storage and offloading units (FPSOs) as the National Iranian Tanker Company was gearing up to enter the LNG market. Therefore it is becoming clearer that in few years we will have a new player in the European gas market.
The geopolitical instability will be an important factor in the future fluctuation of global oil prices, with Iran playing a key role in the stability of this equation. Iran's rapid progress combined with the willingness of international actors such as China, Japan and the EU to gain access to cheaper energy sources could impeach the present second quarter 2016 upside trend for crude prices.
As the past years unconventional energy sources revolution seems to have globally lost its steam, more and more pressure will be put on finding innovative ways to maintain the biggest energy companies afloat in this volatile market environment. The ultimate question is if investors are willing to risk more capital in the Research and Development segment or they will reshuffle their interest towards new area with a cheaper workforce but rich in resources like Iran, finding also new means of transportation that are more efficient and finding alternative transport corridors avoiding the dangerous conflict zones.
In the near future Iran will become a new player on the European gas market. The question whose answer is being negotiated now is: which are the first markets the Iranian gas will access and mainly - what transport routes Iran will choose? The regional Iranian aspirations, the local competition’s position and interests, the stiffer need to supply potential big clients such as China, India and Pakistan, while being in need to maintain a positive evolution in relation with the West make the Iranian energy transport options a complex geopolitical dilemma.
 Middle East and North Africa region is covering a large area extending from Morocco to Iran, including all Middle Eastern and Maghreb countries, synonymous with the term the Greater Middle East.
 Sidi Kerir is mostly under the supervision of SUMED (Arab Petroleum Pipelines Company) and would allow Iran a rapid route compared with Iran's Kharg Island terminal. SUMED is half owned by: Saudi Arabian Oil Co. (SAUDI ARAMCO) - 15%, Kuwait Investment Authority, Kuwait Investment Co. (SAK), Kuwait Metal Pipe Industries Co. -15%, United Arab Emirates International Petroleum Investment Co. IPIC (Abu Dhabi) - 15%, Qatar Petroleum - 5% and the other half by state-run oil company Egyptian General Petroleum Corp. Source: http://www.sumed.org/index.php/2013-04-25-14-16-37/2013-05-07-09-43-50.html.
 TAPI: the Turkmenistan–Afghanistan–Pakistan–India Pipeline.
 IPI: the Iran-Pakistan-India Pipeline.
 MEIDP holds several benefits, including security incentives. For instance, TAPI traverses Afghanistan and Pakistan before reaching India. The current security situation in Afghanistan is not encouraging, especially after the recent clashes between government forces and the Taliban, in addition to the confrontations between the Islamic State and the Taliban and local tribes. This situation has made India feel the need for a more secure route - and the undersea MEIDP is the best option. Moreover, MEIDP bypasses Pakistan, too. Although the TAPI route runs south of the unstable South Waziristan tribal agency in Pakistan, there is no guarantee that Al-Qaeda-affiliated groups and Pakistani Taliban will not attack the pipeline. TAPI also would go through Balochistan province, which has been hit by severe clashes between Pakistani government forces and Balochi nationalist militia ever since Pakistan’s founding in 1947.
 Now decreased due to the sanctions within Russia-Turkey crisis.
 TAP: the Trans-Adriatic Pipeline.
 SOCAR: The State Oil Company of Azerbaijan Republic is a wholly state-owned national oil company headquartered in Baku, Azerbaijan. It is one of the largest fossil fuel corporations in the world.
 Beside regional instability, Critical Infrastructure vulnerabilities as Iran - Turkey pipeline explosions.