According to Peter Kierman, Iran is looking toward Asian energy-consuming nations after several European firms decided to pull out of lucrative deals with Iran.
Earlier this month, Royal Dutch Shell and Spain’s Repsol pulled out of a proposed Iranian natural gas development project that was estimated to be worth over $10 billion. The decision by the two European energy firms to pull out of phase 13 of the South Pars project was seen as a setback for Iran’s efforts to court foreign interest in its energy sector at a time when the Bush administration is actively trying to discourage it.
Shell and Repsol executives did not publicly comment on their reasons for pulling out of South Pars. But whether it was due to concerns about the deal’s financial viability or the result of U.S. political pressure, or both, the decision would have been welcomed by the Bush administration. This is particularly so given that a string of recent natural gas deals involving Iran has raised eyebrows in Washington, including a substantial supply agreement with Switzerland and two other deals involving Malaysia and Oman.
In addition to having the second-largest oil reserves in the world, Iran also has the second largest quantity of natural gas in the world (behind only Russia), with an estimated 15 percent of global reserves. As Iranian gas reserves are relatively undeveloped, the country has much potential to become a major global supplier.
Iran’s potential as a natural gas player has considerable geopolitical implications given the state of its relationship with the United States. Iran’s huge natural gas reserves are getting greater attention from Asian energy-consuming nations, and this poses a dilemma for the American strategy to economically isolate Iran as part of a larger effort to pressure Tehran to cease its nuclear activities.
A case in point is the proposed Iran-Pakistan-India (IPI) pipeline, a controversial project that has involved a struggle for influence over India’s foreign energy interests between Washington and Tehran. Plans to construct a pipeline from Iran to Pakistan and India go back as far as the mid 1990s, but financing, pricing and political issues (between Pakistan and India) have prevented this project from coming to light.
When the U.S. and India signed the Civil Nuclear Agreement in March 2006 (the agreement is still to be ratified by either country), there was some hope in Washington that assistance with the development of India’s civil nuclear program may lessen New Delhi’s interest in acquiring Iranian natural gas.
Although proliferation concerns rather than India’s energy relations with Iran were the main American motivation for pursuing the nuclear agreement, a decision by New Delhi to forego participation in the IPI project would have put the icing on the cake for Washington.
Yet India’s projected energy needs are substantial, and while New Delhi — to the chagrin of Tehran — voted for referral of Iran’s nuclear file to the UNSC at an IAEA Board of Governor’s meeting, it still maintains an interest in securing supplies of Iranian natural gas. As far as India is concerned, its nuclear negotiations with the U.S. and its attempts to secure Iranian energy supplies are two separate issues.
A visit to Pakistan and India by Iranian President Mahmoud Ahmadinejad in April put the IPI back in the spotlight after a several-months hiatus. Following the brief visit to Islamabad, Iranian and Pakistani officials claimed that the two sides had reached agreement on outstanding issues concerning the pipeline, but the Iranian president’s visit to India was greeted with much greater fanfare.
After talks with Iran, Indian officials agreed to resume attending trilateral meetings on the pipeline. India had stopped attending the meetings last year after pipeline talks had broken down over transit fee issues between India and Pakistan, and over pricing issues between Iran and India.
Despite Iranian optimism after Ahmadinejad’s South Asian trip that construction of the IPI pipeline will soon begin, the project still has a long way to go. Financing, transit fee and pricing issues remain to be addressed. If the IPI project does not go forward, it likely will have more to do with these financial issues than with American political pressure.
Meanwhile, the United States is backing an alternative pipeline route that would supply India with natural gas, but not from Iran. A framework agreement has been signed by Turkmenistan, Afghanistan, Pakistan and India for development of the TAPI (an acronym for the countries involved) pipeline with the financial backing of the Asian Development Bank.
Yet the TAPI pipeline proposal has several hurdles of its own to overcome, including the fact that the route traverses through unstable Afghanistan and that there are questions about available natural gas reserves in Turkmenistan.
Furthermore, while the United States may see an Indian commitment to TAPI as a victory over the Iran pipeline proposal, New Delhi does not see the TAPI and IPI pipeline projects as mutually exclusive options.
Royal Dutch Shell and Repsol pulling out of the substantial South Pars natural gas project was a setback for Tehran, but given the energy appetites of Asia’s developing economies, Iran has other options with energy firms and national governments to its east. This was evident from rumors circulating after the Shell-Repsol decision that Chinese and Indian energy interests might step in. Even Russia’s natural gas giant, Gazprom, was mooted as a possible participant.
Energy-hungry powers in Asia, such as India, have decided to play the tricky balancing act of pursuing energy diplomacy with Iran while seeking to avoid alienating the United States. As such, Iran will increasingly look to its east to get around efforts by the United States and its European allies to keep Iranian oil and gas beneath the ground.
Irancove @ June 2, 2008