Moscow prepares sanctions workaround
By Vladimir Socor
On July 14 in Moscow, Russian Energy Minister Sergei Shmatko and Iranian Oil
Minister Masoud Mirkazemi announced ambitious plans for bilateral cooperation,
short-term and long-term. If implemented, these plans would circumvent two sets
of sanctions imposed (outside the UN Security Council) by the United States and
other Western countries: sanctions against companies that supply gasoline and
other refined oil products to Iran and against those that invest in Iran's
energy sector.
Moscow hosted the Iranian delegation barely two weeks after the enactment of
sanctions by the US, the European Union and other
Western governments against deliveries of oil products (most critically,
gasoline) to Iran. Oil companies Shell, BP, and Total have already stopped such
sales, with other Western companies certain to follow suit.
Shmatko, however, announced the opposite intention at the joint news conference
with Mirkazemi in Moscow: "Russian companies are prepared to perform deliveries
of petroleum products to Iran. ... The sanctions in no way affect cooperation
between Russia and Iran."
These calculated words signal to Washington (as the main interested party) that
Moscow reserves a free hand on this issue. Russia would decide for itself
whether, or when and on what conditions, to comply with this set of sanctions
or not.
Privately owned Lukoil stopped delivering gasoline and other oil products to
Iran in March-April 2010 and withdrew at the same time from a major Iranian
oilfield project, citing both existing and then-pending US sanctions. With
assets and financial operations in the US, thus being potentially exposed to US
sanctions, and with a US company (Conoco-Phillips) among its shareholders,
Lukoil has chosen to play it safe on Iran. However, this does not indicate
Russian government endorsement of the sanctions.
The Kremlin-controlled Rosneft, Gazprom Neft, and Surgutneftegaz could
hypothetically step in and supply refined oil products to Iran, according to a
report in Nezavisimaya Gazeta, whether directly or through intermediaries. Due
to its shortage of refining capacities, Iran imports between one third and 40%
of the gasoline daily consumed in the country. Iran's gasoline import
requirements are roughly estimated at 100,000 barrels per day or 20 million
liters daily, according to Russia's energy ministry and to Mirkazemi,
respectively.
Gazprom Neft, Gazprom's oil subsidiary, is replacing Lukoil in the Anaran
oilfield project in Iran, while Sibur, the Gazprom-controlled petrochemicals
concern, Russia's largest, has also expressed interest in Iranian projects.
Aleksandr Dyukov, chairman and CEO of Gazprom Neft and concurrently chairman of
Sibur participated in the Moscow meetings with Mirkazemi. Dyukov's connections
with Russian Prime Minister Vladimir Putin date back to the 1990s in St
Petersburg.
Iran had already declared its intention to remove Lukoil from the Anaran
project in late 2009, allegedly for failing to meet contractual obligations on
time. In November 2009, prior to Lukoil's withdrawal announcement, Gazprom Neft
and the National Iranian Oil Company (NIOC) signed a memorandum of
understanding on Gazprom Neft's entry into the Anaran project. On July 1, 2010,
Gazprom Neft vice-president Boris Zilbermints confirmed the intention to go
ahead with this project, as part of the company's plan to increase oil
extraction from 60 million tonnes at present to 100 million tonnes per year by
2020. Oil extraction in Cuba forms another part of the same plan.
Anaran was originally a project of Norway's Statoil, with Lukoil as a minority
stakeholder. Statoil withdrew in 2007, deferring to the US-led sanctions. Two
of the project's four blocks, Azar and Shangul, have been explored by Statoil
and are estimated to contain 2 billion barrels of oil.
This project's onshore location, adjacent to Iran's border with Iraq, is of
particular interest to Gazprom Neft. Directly across that border, the same
company plans to develop Iraq's Badrah oil field. There, GazpromNeft leads an
international group that also includes South Korea's Kogas, Turkish Petroleum
(TPAO), and the Malaysia-based Petronas.
Meanwhile, Gazprom Neft's parent company Gazprom is involved in developing the
second and third phases of Iran's South Pars gas deposits. Total of France and
Petronas are also partners with Gazprom in that project. US sanctions, however,
have resulted in freezing South Pars development for the time being.
Gazprom is keenly interested in routing the vast resources of South Pars (more
than 20 phases altogether) away from European markets, so as to prevent Iranian
gas from competing with Gazprom in Europe. Thus, the Russian gas monopoly
encourages the proposed construction of an Iran-Pakistan-India gas pipeline -
again contradicting Washington, which opposes Pakistan's participation in this
project.
Gazprom's policy on this issue is primarily guided by its long-term strategy
for dominance in Europe. Its Asia business is subordinated to its European
strategy. Within this framework, Gazprom's pipeline-construction subsidiary,
StroyTransGaz, offers to build an Iran-Pakistan-India gas pipeline.
At their Moscow meeting, Shmatko and Mirkazemi signed a road-map agreement on
joint oil and gas projects with a 30-year time-frame. The package of documents
had been under discussion since 2008 and was updated during discussions on July
12-14 in Moscow. Again, according to Shmatko, "No sanctions can hinder us in
cooperating in this sphere".
The stated intentions include: joint development of oil and gas fields; sales
of refined oil products and petrochemicals; natural gas transit, swapping, and
marketing; creation of a joint bank, using the respective national currencies
to finance joint ventures; and holding follow-up discussions on
nuclear-generated electrical power. Joint ventures are envisaged both in Iran
and in third countries. A round of talks on specific projects is intended for
the fourth quarter of 2010.
Whether the Russian government and companies under its control would proceed to
breach the US-led sanctions is far from a foregone conclusion (UN sanctions are
a separate matter). For now, Moscow is signaling that it does not recognize
those sanctions, reserving the right to ignore or circumvent them.
Mirkazemi's invitation to Moscow and its timing are designed to catch
Washington's attention and build bargaining leverage. Moscow will probably
handle the issue of oil and gas cooperation with Iran as it handles the
possible delivery of S-300 air defense systems, or its limited cooperation with
Iran's nuclear development program.
It will almost certainly seek US geopolitical quid pro quos in Eurasia in
return for limiting or desisting from oil and gas sector cooperation with Iran.
Vladimir Socor is a senior fellow and long-time senior analyst with the
Jamestown Foundation. He was formerly a senior research analyst with Radio Free
Europe/Radio Liberty in Munich, and is a specialist in the non-Russian former
republics of the USSR, Commonwealth of Independent States affairs and ethnic
conflicts.
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