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Russian oil companies are to undertake a slew of new investments to development Iran’s huge oil and gas reserves, according to recent comments from the Islamic Republic’s Petroleum Minister, Javad Owji. Given the size of crude oil and natural gas reserves held by the two countries, the news of closer cooperation between the two countries might be considered concerning for the U.S. and its allies. Iran has the third largest oil reserves in the world, having seen the total increase recently to around 209 billion barrels. Due to long-running sanctions of one sort or another, its production has been kept lower than would otherwise have been the case, currently at just over 3 million barrels per day (bpd). As large as its oil reserves are, its gas reserves are even bigger – at about 1,200 trillion cubic feet (tcf), making them the second biggest in the world. The biggest gas reserves are held in Russia – at around 1,688 tcf. Its crude oil reserves rank only eighth globally, but they produce the second biggest daily production in the world, at slightly over 10 million bpd when OPEC-related cuts are not in place. Nevertheless, according to a senior legal source who works closely with the U.S.’s energy sanctions complex, Washington remains “unfazed” by the news of greater cooperation between these two energy powers.
The basis of this extensive cooperation was already in place before Iran signed the Joint Comprehensive Plan of Action (JCPOA, or colloquially the ‘nuclear deal’) in 2015, with several Russian companies already operating on the ground in Iran at that point. Initial field exploration and development agreements had been signed by Gazpromneft for the Changouleh and Cheshmeh-Khosh oilfields, Zarubezhneft for the Aban and Paydar Gharb fields, and Tatneft for the Dehloran field. These had been additional to those contained in previous memoranda of understanding (MoU) signed by Lukoil and the National Iranian Oil Company (NIOC) centred on studies of the Ab Teymour and Mansouri oil fields. As problems arose in the deal and led to the U.S.’s unilateral withdrawal from it in May 2018, as analysed in full in my new book on the new global oil market order, Moscow pushed more of its companies to fill the gaps left as U.S. and European firms gradually withdrew from key Iranian projects. Even more significant had been the concomitant signing of a 22-point MoU by Iran’s then-deputy petroleum minister, Amir-Hossein Zamaninia, and his then-Russian counterpart, Kirill Molodtsov. These points had included not just the plans for exploration and extraction of oil but also for the transfer of gas, petrochemical swap operations, and the manufacture of oil equipment with local Iranian engineering firms. They had also included the transfer of technology in the refinery sector. Even then, there had been the prospect of greater military cooperation between the two countries, with discussions underway for the dual use of Iranian seaports and airports by Russia for both civilian and military purposes, according to a senior source close to Iran’s Petroleum Ministry at the time exclusively spoken to by OilPrice.com. Related: US West Coast Refiners Swap Expensive Iraqi Crude for Cheap Canadian Oil
Following Russia’s invasion of Ukraine on 24 February 2022, June of that year saw a series of meetings between Russia’s veteran foreign minister, Sergei Lavrov, and Iran’s senior political and military figures, including the late President, Ebrahim Raisi. At these meetings, Lavrov and Raisi discussed expanding cooperation across all fields, in line with the original 22-point MoU. These discussions further advanced the idea raised at the earlier meeting on 19 January 2022 between President Vladimir Putin and President Raisi that Russia would finally provide Iran with the long-promised S-400 missile defence system and Sukhoi Su-35 fighter jets. The bulk of Iran’s payments for these items were to be made through favourable oil and gas sector deals given to Russian companies that were also working in Iranian energy fields. At that point, according to the Iran source, Russia had reiterated the link between these military hardware requests from Iran to its own security concerns across the Middle East, with Syria, in particular, an area that the Kremlin had long thought it should have a more detailed and decisive working arrangement.
Just a month later, a US$40 billion MoU was signed between Russia’s flagship gas giant, Gazprom, and the National Iranian Oil Company (NIOC). This was seen by the Kremlin as a significant step towards enabling Russia and Iran to implement their long-held plan to be the core participants in a global cartel for gas suppliers in the same style as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers. With its foundation in the current Gulf Exporting Countries Forum (GECF), this ‘Gas OPEC’ would allow for the coordination of an extraordinary proportion of the world’s gas reserves and control over gas prices in the coming years. Together, Russia, Iran, and Qatar account for just under 60 percent of the world’s gas reserves, and they were the three countries instrumental in the founding of the GECF, whose 11 members control over 71 percent of global gas reserves, 44 percent of its marketed production, 53 percent of its gas pipelines, and 57 percent of its LNG exports. The agreement also signalled that the new Russia-Iran gas alliance was aimed at controlling as much of the two key elements in the global supply matrix as possible – gas supplied over land via pipelines and gas supplied via ships in liquefied natural gas (LNG) form. According to a statement at that time from Hamid Hosseini, chairman of Iran’s Oil, Gas and Petrochemical Products Exporters’ Union, in Tehran: “There is no room left for gas competition [between Russia and Iran] â¦If Iran and Russia can reduce the influence of the United States in the oil, gas and product markets by working together, it will benefit both countries.”
So why is the U.S. so unmoved by an even greater expansion in cooperation between the two countries? First, according to the Washington source, any increase in linkages between the two countries across the oil and gas, transport, communications, banking, finance, and military and intelligence sectors – including in the nuclear sphere – makes it easier for the U.S. to manage its resources in monitoring these areas of interest. It also allows for efficiency and quality gains to be made in collating and assessing intelligence gleaned, due to greater cooperation between departments, which produces improved outcomes. Second, the Washington source added, is that experience shows that the more Russia and Iran are isolated and are forced to act in concert, the less well-considered their decisions become, and this should continue to drive a wedge between these two countries and China, with which the U.S. believes an increasingly positive relationship can be structured over the coming decades. This more beneficial relationship has been seen recently in Beijing’s efforts to deter an escalation in the activities of the Iran-backed Houthis in their actions in and around the vital oil transport routes in and around the Red Sea. Recent sanctions imposed on China, and threats of more to come, are part of the strategy by the U.S. and its allies to widen this divide between China on the one hand, and an increasingly isolated mini-bloc of Russia, Iran, and North Korea on the other. And third, any new oil coming out of Iran – however it is produced – will go to satiating part of the global demand for the product, which will have a dampening effect on prices, which is what the U.S. and its allies (and China as well) want.
By Simon Watkins for Oilprice.com
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