Russia and Iran increase energy cooperation as a result of war in Ukraine
The situation created as a result of the war in Ukraine allowed Russia and Iran to start work to realize old dreams of cooperation over energy issues, claimed Petrostrategies, a French think-tank specializing in energy issues in un an article published in its World Energy Weekly magazine, quoted by Civil.net.
The oil and gas cooperation between the countries that goes back to early 2000s aims to make the most of the possibilities offered by their respective geographical positions and their complementarities in the energy sector, the article said, adding that the revival of these projects and the addition of new avenues of cooperation was at the core of Vladimir Putin’s visit to Tehran in mid July 2022.
Immediately after the visit, National Iranian Oil Company (NIOC) and Gazprom signed an MoU providing for Russian investments of some $40 billion in Iran’s energy sector, in addition to exchanges of oil, gas and electricity in the form of purchases, barters and swaps.
The two countries have so far compiled an impressive list of cooperation projects. Petrostrategies said it has identified at least eight bundles of projects:
- redevelopment and development of three gas fields and six oil fields in Iran;
- construction of gas pipelines to Pakistan and Oman;
- construction of LNG plants in Iran;
- swaps of crude oil and refined products;
- natural gas swaps;
- construction of power plants;
- electricity swaps;
- and electrification of Iran’s Garmsar-Inche Burun railway.
Benefits for both countries
According to Petrostrategies, the proposed oil and gas swaps would allow Russia to partly circumvent the European embargo against its hydrocarbon exports and Iran would receive Russian oil at Neka in the Caspian Sea.
In exchange, Tehran would supply Russia with condensates in the Gulf. As far as Russian gas is concerned, initial volumes of 6 MMcm/d arriving in Iran via Azerbaijan and 9 MMcm/d via Turkmenistan have been mooted, equivalent to some 5.5 bcm/annum. Turkmenistan would receive Russian gas and would in turn supply Iran with an equivalent volume of gas produced domestically. Iran’s imports would grow, allowing it to increase (or maintain) its gas sales to Turkey and Iraq. They would also allow Iran to solve an old yet recurrent problem: supplying its northern provinces reliably in winter.
Cooperation despite competition
The fact that the growing cooperation between Iran and Russia in oil and gas was decided at a political level, despite the fact that the two countries are competitors in the oil market, especially in Asia, makes it all the more remarkable, Petrostrategies said.
Since the beginning of the war in Ukraine, Russia has increased its oil exports to China and India with large discounts resulting in an “unfair” competition with other exporters such as Iran (and Saudi Arabia).
At present, trade between Russia and Iran mainly involves agricultural products, and represents just over $4 billion/annum ($3.1 billion in Russian exports and $1 billion in Iranian exports). Moscow and Tehran have decided to quickly increase this figure to $10 billion/annum. These exchanges would be denominated in national currencies, and Russian banks would finance planned investments in Iran’s upstream sector.