Status Check on Russia–Iran Energy Relations

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Status Check on Russia–Iran Energy Relations

Anwar Altaqi – Esam Aziz

Few observers noticed that, last month, Iranian Oil Minister Bijan Zanganeh was not present at an energy forum in Moscow, though he was scheduled to attend, due to “unforeseen circumstances.” This might have been related to Russia’s agreement with OPEC to boost oil production in order to compensate for lost Iranian oil in the market, as a result of U.S. sanctions.

Few days after Zanganeh’s no show in Moscow, President Vladimir Putin called publicly for all “foreign” forces to leave Syria. The Russian president did not add the usual note of excluding forces invited officially by Damascus. Russia still insists that pro-Iran militias remain 80-100 kilometers away from Syrian-Israeli borders. 

Russia understands well the strategic weight of Iran as an oil and gas producer. But why the rush? Tehran has isolated itself regionally and globally to the extent that Moscow does not see any urgent reason compelling it to give Tehran any concessions, at least for the time being.

Furthermore, Russia succeeded in making good friends among the Arabs. It must strike a delicate balance between an ally, which has little maneuvering space, and the real weight of global oil production, represented by the rest of the OPEC members.

It is not a tough choice. In essence, Iran and Russia have differing objectives in the very files over which they cooperate. In Syria, the ousting of the Islamic State seems to have underscored important differences in the goals and tactics of Putin and Iran’s Ayatollah Ali Khamenei. Moscow’s ultimate objectives include preventing regime change in Damascus, promoting Russian influence in the Middle East, and expanding its military bases in Syria. Bashar al-Assad, as an individual, is not a central issue for Moscow. Moscow encouraged the rumors about his fate after spreading the news that he will “retire” and give the presidential palace to his son. 

The Iranians, by contrast, consider Assad’s departure a redline and believe that keeping the Syrian leader in power remains central to its ability to supply Hezbollah with weapons, while building a corridor from Iran to the Mediterranean. Iran also believes that its presence in Syria is critical to its ability to pressure Israel.

Last summer there was a heated debate in the Iranian media about the future of Iranian-Russian relations. The Helsinki summit between Presidents Trump and Putin caused a deep panic in Tehran. Both leaders praised Israel and vowed to cooperate in Syria. This might explain Putin’s willingness to host a high-profile meeting on the eve of the Helsinki summit with Ali Akbar Velayati, the special envoy of Iran’s supreme leader. The meeting was meant to send a reassuring message to Tehran.

According to most experts, Russia and Iran can never achieve an optimal strategic partnership because of a complex mix of both convergent and divergent interests. Therefore, Iran’s Russia policy must be based on its own short-term national interests. But it must also be in tune with the flow of Russian foreign policy, given Putin’s priority of economic growth and détente with the West. Yet, under the conditions of the current Iranian isolation from the world, Russia and Iran have definitely moved beyond a marriage of convenience to a tactical alliance and are locked in a quasi-alliance relationship for the foreseeable future. What will happen when Iran and the world reach the second nuclear deal remains unknown. In other words, we see now the evolution of Iran-Russia ties in the space between tactical alliance and a quasi-strategic alliance, though it is difficult to assume that the two countries will ever reach a full strategic alliance.  

In the energy realm, no one is certain that the promised Russian mega-projects ($50 billion) will ever materialize. True, Iran badly needs investments in its energy sector, but the road to those investments is not easy. Russia has certain criteria for offering such a huge amount of capital. Moscow considers Tehran a rival both geopolitically, with the two countries trying to increase their influence in the Middle East, and in the energy market, as both are seeking out gas markets in southwest and east Asia. Moscow will provide the investments that fit its grand game in the global energy market. And it is not certain yet that Tehran is ready to go within Russia’s flow of policies. How ties will develop is a guessing game.

The difference between the two countries in the oil arena became clear in the meeting between Putin and President Hassan Rouhani at the Shanghai Cooperation Organization summit in China last June. While Rouhani raised his country’s need for investment, Putin talked about the need for Iran to abide by the OPEC-non-OPEC deal to cut production. Iran’s oil officials later refused to abide by the deal, while Putin offered some questionable memorandums of understanding (MOUs) to invest this large amount of money in Iran. The two presidents were speaking different languages. 

Since 2012, Russia has signed 10 oil exploration and production agreements with Iran — more than any other country. Estimates of the value of the deals range from Russia’s figure of $20 billion to Iran’s figure of $50 billion. But only one of the deals is binding, and this one has not yet materialized. Russian companies were hesitant to take advantage of the competition. The reason is clear: there is no deal to incorporate future Iranian output within Russia’s geostrategic objectives. That is not to say that Russia does not have its game set and clear. But Iran does not yet fit within this game so long as the two countries still have different outlooks over their respective roles in the global energy market. Russians see Iran and Turkmenistan as a potential competitor in the central and south Asian market.

However, Moscow considers Iran an important partner in its energy security strategy. Hence, the Kremlin is trying calmly to have a decisive influence over Iran’s energy sector in order to enhance Russia’s own leverage over the global energy market. But the moment to reach that objective is not here yet, though Moscow is working patiently to get to it as soon as possible.