Natural Gas Explains Why Russia Will Never Abandon Iran

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Natural Gas Explains Why Russia Will Never Abandon Iran

Anwar Al Taqi – Esam Aziz

Following Rouhani’s visit to Moscow on March 26, a source in the European energy world told us that the most important achievement of the official visit was to reach a deal to launch total Russian control over Iran’s future natural gas exports.
“Russia will decide how much oil and gas any field Russian companies are involved in, where it is sold, and at what price. It is a total and a profound shift in Iran’s traditional policies. It is also a central step for Russia’s control over global natural gas markets,” the source said.

But maybe the Russians will not be involved in many major Iranian fields? Maybe it is just a partial concession from Iran in return for Russian help to accomplish its own geostrategic plans? Wrong.
There was another protocol signed by the two presidents that gives only Russian companies the exclusive right to develop Iran’s major gas field. “The protocol even names the fields, not only the existing ones, but also the future ones as well. It specifies that any new-found field that exceeds a certain level of reserves will be given automatically to Russian companies to develop,” according to the source.
This means a lot in terms of oil and gas geostrategic games. It means that Iran has finally settled to go east, rather than west. It means that the role of Turkey in the Russian energy exports routs will be reduced. And it means that a long term, more crude conflict will start between the US and Russia in countries like Afghanistan and Azerbaijan.
While the US has enormous leverage with Iran in the case of Russian energy exports, it is up to the EU to play hardball with Moscow. However, on the current energy map, the EU has little, if any, room for maneuvering. EU exports of natural gas from Russia are expected to rise steadily until 2030.
In the case of US-Iran, Iran is cornered by the US dollar dominating US financial markets. All attempts to break free of the dollar chains, so to speak, have failed. Tehran expected Hillary Clinton, once president, to honor Obama’s promises that deals in the global financial world would be made easier by gradually lifting the financial sanctions and restrictions on its transactions. Well, Hillary did not make it into office.
We can almost predict what Iran and Russia will do next. The only window opened for the Iranians now, and to a lesser degree to Russia as well, is to promote the Euro as a substitute to the US dollar. The Europeans, or at least some of them, think that such a step will benefit them. One European expert recently wrote that a step in that direction will certainly help the two sides.
However, the US will resist this tooth and nail. And most probably, it will succeed. A new market platform starts weak, and in this weakness, its adversaries find an ally to suffocate the newborn regime. Russia is not as enthusiastic as Iran, though. It knows that taking this bold step will further reduce global investments and close many markets. Currently, it is not ready for to pay that price.
Now, some people, in Moscow and Tehran, must be very busy trying to devise a new strategy for natural gas markets based on the recent agreement. Ultimately, any non-dollar commodity market platform is naturally the objective. But until this achieved, lesser steps will be taken.
We can easily expect that processed energy swaps will be a central step in this transitional period. Cross-border electricity grids and exchanges of natural gas according to geographic locations of sources and needs will certainly see a boom in the first phase. So, too, will use of Russian technology and use of services. This will develop into a larger exchange of goods and services. Then, it may even take the form of serving each other’s clients and settling the accounts through a joint clearing house.
One important front that both sides may re-explore is Turkey as a provider of services — not oil well services, but service rendered to monetize the flows between the two countries, Iran and Russia, and between them and others. Turkey is well situated to make the physical exchange easier, particularly between the two countries and others, in direct sale-buy relations or on of the two countries on behalf of the other. It can also provide valuable contribution through its financial infrastructure, which is more advanced than that of Russia or Iran.
This is why the question concerning what will Russia do with Erdogan, or rather what will he do with Russia, is a central question in this regard. Despite the fact that Russia and Iran can do it alone, their new ties will gain substantial depth if they succeed in enlisting Ankara as well.
Attempts to pull in Ankara will come as an important second step to what Putin and Rouhani achieved a few weeks ago.
Anwar Al Taqi – Esam Aziz