Iran and Armenia Propose Gas Transit to Georgia

A state visit by Armenian Prime Minister Nikol Pashinyan to Iran has resulted in an agreement between the two countries to cooperate on the potential transiting of Iranian gas through Armenia to Georgia.

If implemented, the agreement promises to be controversial, not least because it would involve Armenia challenging Russian control of its gas distribution sector, and potentially pitching both Armenia and Georgia into conflict with the United States, which last November re-imposed its stringent sanctions against Iran. 

The suggestion for the transit deal appears to have come from Iranian President Hassan Rouhani, who brought up the issue in a Tehran press conference following his February 27 meeting with Pashinyan.

"As to cooperation in the field of gas supply, we expressed the Iranian side’s readiness to step up supplies,” Rouhani said. “We are likewise prepared to launch tripartite cooperation to export gas to Georgia."

Pashinyan said he was amenable. "Armenia is ready to cooperate with Iran and become a transit country for Iranian gas,” he said following Rouhani’s remarks. “The establishment of an energy corridor is also of great importance both in terms of bilateral and regional dimensions and in broader terms."

Neither commented on whether Georgia has yet been involved in discussions on the possible trade and an Armenian foreign ministry spokesperson was unable to confirm to Eurasianet whether Georgia had been consulted.

The possible export of Iranian gas to Georgia was first raised in 2016 with the National Iranian Gas Company (NIGC) making successive claims of a deal with both the Georgian state and an unnamed private sector company.

However, these reports were subsequently denied by Tbilisi, which has yet to confirm any form of gas agreement with Iran.

If implemented, the plan would introduce some competition into the Georgian gas market. Georgia is currently supplied entirely from Azerbaijan.

Transit of gas from Iran through Armenia to Georgia is technically possible, as pipelines with sufficient spare capacity linking the three countries already exist. But there are a number of technical and political hurdles that would have to be overcome to make it work.  

The line linking Georgia and Armenia is part of a Soviet-era pipeline that currently delivers Russian gas to Armenia. Exporting Iranian gas to Georgia through this line would require its flow to be reversed, and for Armenia to halt its imports of Russian gas. That in turn would require Armenia to replace that gas with increased imports from its only other source of supply, Iran.

That, then, could see the volume of gas needed to supply both Armenia and Georgia exceed the current capacity of the Iran-Armenia pipeline, requiring the line to be expanded, a move which would be both expensive and time consuming.

In theory, gas trade between Iran and Georgia could also be managed by a swap deal, under which Russia would supply a given volume of gas to Georgia, and Iran would supply the same volume to Armenia in exchange.

This would not require the flow through the Georgia-Armenia pipeline to be reversed, and would see Armenia only reducing, and not ending, its gas imports from Russia.

Both options are technically possible but would require support from both Moscow and Washington, either of which could block gas trade between Iran and Georgia or at the very least make it difficult to realize. 

Yerevan is already at loggerheads with Gazprom, which owns Armenia's gas distribution network and controls around 80 percent of the country's gas market, after the company hiked gas prices for Armenia at the start of the year.

Gazprom would be unlikely to welcome further competition in the Armenian market, although the possibility of increased Iranian gas exports to Armenia could persuade the Russians back to the negotiating table.

Ultimately, though, the final decision on whether an Iran-Georgia gas trade could go ahead appears to lie with Washington and the terms of its re-imposed sanctions regime against Iran.

The situation regarding Iran's gas exports is "not so straightforward,” Erika Olson, economic counsellor at the U.S. embassy in Ankara, said February 16 at a regional energy conference in Istanbul.

While Iran's gas exports are currently exempt from sanctions, financial transactions to pay for the gas are sanctioned, Olson said. Payments for gas are to be deposited into a local bank account where it can be used only in payment for the exports of sanctions-exempt goods back to Iran.

As such, Armenia's gas imports from Iran under the existing barter agreement are exempt from U.S. sanctions, and swap deals for Georgian gas could also be ruled exempt.

However, Olson also cautioned that the situation for any new gas deals involving Iran could face uncertain prospects depending on a number of “variables.”

Photo Credit: Press Office of the Government of Armenia

Iraq Gets US Sanctions Break to Keep the Lights On

Iraq has won an exemption allowing it to buy Iranian electricity despite US sanctions, as the country plagued by chronic power shortages walks a tightrope between rivals Washington and Tehran.

With US measures imposed Monday taking aim at Iran's banking and energy industries, there were concerns Iraq—which heavily relies on its eastern neighbor for electricity and consumer goods—would be caught in the crossfire.

But Baghdad has managed to secure an exception.

"We granted Iraq a waiver to allow it to continue to pay for its electricity imports from Iran," Brian Hook, the State Department's representative on Iran, announced Wednesday.

Iraq would be expected to show the US how it would wean itself off Iranian gas, a well-informed source told AFP.

"The US gave us 45 days to give them a plan on how we will gradually stop using Iranian gas and oil," the source said.

"We told them it may take us up to four years to either become self-sufficient or find another alternative."

The exemption came after talks between Iraqi and US officials, including from the White House and Treasury, the source said.

Iraqi government representatives have shuffled between American and Iranian officials for months in a bid to insulate their fragile economy from escalating tensions.

This week, Prime Minister Adel Abdel-Mahdi said Baghdad was in talks with both sides to protect its interests.

“Iraq is not a part of the sanctions regime. It talks to everyone, and does not want to get involved in a conflict that it's not a part of," he told reporters Tuesday.

Baghdad has a strong relationship with the United States, coordinating on security, politics, and governance.

But its economy is profoundly intertwined with that of Iran.

Keeping the Lights On

Gutted by the international embargo of the 1990s and the US-led invasion of 2003, Iraq's industries produce little.

Instead, its markets are flooded with Iranian goods—from canned food and yoghurt to carpets and cars.

These non-hydrocarbon imports amounted to some USD 6 billion (five billion euros) in 2017, making Iran the second-largest source of imported goods in Iraq.

Perhaps most consequential for Iraq's 39 million people is their dependency on Iran for electricity.

Chronic cuts, which often leave homes powerless for up to 20 hours a day, were a key driving factor behind weeks of massive protests in Iraq this summer.

To cope with shortages, Baghdad pipes in natural gas from Tehran for its plants and also directly buys 1,300 MW of Iranian-generated electricity.

That reliance is uncomfortable for the US, whose quest to diminish Tehran's influence prompted it to reimpose sanctions on Iranian financial institutions, shipping lines, energy, and petroleum products on Monday.

Eight countries would be temporarily allowed to import Iranian crude oil.

Iraq's special exemption appears to have come with a condition that it lay out how it would stop using Iranian electricity, said Nussaibah Younes, a senior adviser for the European Institute of Peace.

"In order to get this exemption, the Iraqis had given some sort of roadmap idea," Younes told AFP.

One way would be capturing the gas set alight when Iraq extracts oil, which according to the World Bank represents an annual loss of about USD 2.5 billion—enough to fill the gap in Iraq's gas-based power generation.

Appeasing Iran

American firms may help fill the vacuum left by Iran.

In January, Iraq signed a memorandum of understanding with US energy company Orion on gas exploits at a southern oil field.

And in October, Iraq signed a memo with the US's General Electric to revamp the electricity sector, after signing a similar agreement with Germany's Siemens.

The source told AFP that GE was among several US companies proposed to Baghdad during negotiations with the US.

But Iraq has had to simultaneously reassure Iran, in part by granting it an outlet to circumvent US sanctions.

"The focus for the Iranians is informal sanctions-busting activity in Iraq, including accessing hard currency through Iraqi exchanges and through smuggling operations," said Younes.

Baghdad, she expected, would likely "turn a blind eye".

Iraq has simultaneously been granting Iranian officials more time for face-to-face meetings, including its ambassador in Baghdad, Araj Masjadi.

He met with new Finance Minister Fuad Hussein and Electricity Minister Luay al-Khateeb on Wednesday, pledging close cooperation on the power sector in the future.

For Masjadi, the meetings appeared to be a reminder of Tehran's entrenched role in Iraq.

"We need Iraq the way Iraq needs us," said Masjadi.

Photo Credit: MAPNA

Iran Offers Discount Oil to Asia

Iran is selling oil and gas at a discount to Asian customers as it prepares for the return of US sanctions, state news agency IRNA reported on Monday. 

The "informed source" in Iran's oil ministry did not give details of the discount, but sought to downplay the move as common industry practice. 

"Discount is part of the nature of the global markets being offered by all oil exporters," the source told IRNA. 

Bloomberg reported on Friday that the state-run National Iranian Oil Company was reducing official prices for September sales to Asia to their lowest level in 14 years, compared with Saudi crude. 

The United States will seek to block Iran's international oil sales from November 5, when the second phase of sanctions are reimposed as part of Washington's withdrawal from the 2015 nuclear deal. 

Several key buyers, including China and India, who account for roughly half of Iran's sales, have said they are not willing to make significant cuts to their energy purchases from Iran. 

But analysts predict Iran could still see its oil sales drop by around 700,000 barrels per day from their current level of around 2.3 million. 

Much will depend on the European Union, which has vowed to resist US sanctions on Iran, but whose companies and financial institutions are more vulnerable to US financial pressure than their Asian counterparts. 

French energy giant Total has already said it is pulling out of its multi-billion-dollar investment project in the South Pars oil field in southern Iran as a result of the renewed sanctions.

Photo Credit: IRNA

OPEC Rift Deepens as Iran Walks Out of Key Meeting

Iran's oil minister walked out of a key meeting with OPEC peers on Thursday, as a rift deepened with regional rival Saudi over its push to ramp up the cartel's oil output.

"I do not think we can reach an agreement," Bijan Namdar Zanganeh told reporters at his Vienna hotel after storming out of talks with a group of ministers on the eve of a crucial OPEC meet.

The talks were meant to lay the groundwork for Friday's gathering of the 14-nation Organization of Petroleum Exporting Countries (OPEC), when the cartel will discuss easing a supply-cut deal with 10 partner countries that has cleared a global oil supply glut and pushed crude prices to multi-year highs.

The output curbs have been in place since January 2017 but Saudi Arabia, backed by non-member Russia, is now pushing to raise production again in order to meet growing demand in the second half of 2018.

But the proposal has run into resistance from Iran, Iraq and Venezuela, who would struggle to immediately raise output and fear losing market share and revenues if other countries open the spigots.

Iran is particularly vocal about its objections as it braces for the impact of fresh US sanctions on its oil exports after President Donald Trump quit the international nuclear agreement.

But Riyadh, which cheered Washington's exit from the nuclear pact, is under pressure from Trump to boost output in order to lower oil prices ahead of November's midterm elections. 

Saudi Energy Minister Khalid al-Falih had earlier signaled a compromise could be in the works.

He acknowledged that a big production hike might be "politically unacceptable" to some OPEC countries and said it was important to be "sensitive" to those concerns.

The 24 nations in the pact, known as OPEC+, initially agreed to trim production by 1.8 million barrels a day but they have actually been keeping more than two million bpd off the market.

Observers believe a face-saving deal could be brokered if members simply stopped over-complying with the current pact, and agreed to stick to the original reduction quotas -- which would bring several hundred thousand more barrels to the market each day.

But that is easier said than done since much of the shortfall has come from Venezuela, where an economic crisis has savaged the nation's petroleum production.

Output has also plummeted in Libya, where fighting between rival factions has damaged key oil infrastructure.

Photo Credit: 

OPEC Braces for Tough Vienna Talks on Hiking Oil Output

OPEC ministers arrived in Vienna Tuesday for crunch talks on whether to reverse a landmark pact curbing oil output, with Iran pushing back against Saudi and Russian calls to ramp up production again.

The upcoming June 22-23 meetings of OPEC and non-OPEC energy ministers are set to be the most contentious in a while, with several countries bristling at the thought of reversing a deal that has been in place for 18 months and helped lift oil prices to multi-year highs.

Resistance is being led by Iran, deeply wary of any move by regional rival Saudi Arabia that could push down oil prices at a time when Tehran faces renewed sanctions following US President Donald Trump's decision to quit its international nuclear deal, which is likely to impact the country's oil exports.

However Riyadh, which cheered Washington's exit from the nuclear deal, is under pressure from its US ally to boost output as Trump hopes to keep pump prices low ahead of November's mid-term elections.

"You're dealing with a very political situation," analyst Amrita Sen of Energy Aspects told AFP.

Upon arriving at his Vienna hotel, Iran's oil minister said his country wouldn't back down, and lashed out at Trump for trying to politicize OPEC.

"I don't believe in this meeting we can reach agreement," Bijan Namdar Zanganeh told reporters. 

He said Trump was partly to blame for the higher oil prices, saying the US leader had "created difficulty for the oil market" by imposing sanctions on Venezuela and Iran. 

"And now he expects OPEC to change something for better prices," Zanganeh said. "This is not fair... OPEC is not part of the Department of Energy of the United States."

Geopolitical Tensions

The 14-nation OPEC cartel and its 10 non-member partner nations, including Russia, together account for more than 50 percent of the world's oil supply, giving them huge sway over the global market.

The so-called OPEC+ group agreed a milestone deal to trim production from January 2017 by 1.8 million barrels a day to clear a global oil glut and shore up low prices.

The strategy paid off, with prices jumping from below $30 a barrel in early 2016 to more than $70 in the second quarter of 2018. The pact was meant to run until the end of this year.

But a collapse in oil production in crisis-hit Venezuela and the prospect of fresh Iranian sanctions have raised fears of a supply crunch that could send prices spiking.

As recently as April however, Saudi Energy Minister Khaled al-Faleh had voiced support for the oil cut deal, saying the market had the capacity to absorb higher prices. But Trump made it clear he disagrees.

"Oil prices are too high, OPEC is at it again. Not good!" he tweeted last week. Observers believe Trump is dialling up the pressure on Riyadh because he wants to offset the expected drop in Iranian production.

In Russia meanwhile, private oil companies are finding it increasingly difficult to justify the cutbacks to shareholders eager to cash in on the higher prices.

For technical reasons, any decision to ramp up output also has to be timed not to coincide with Russia's harsh winter, meaning the next OPEC meeting in November would come too late.

Russia's Energy Minister Alexander Novak pleaded in favor of unwinding the supply-cut pact on Tuesday, citing growing global demand in the months ahead.

"In the third quarter the demand for oil is the highest, so one can expect a shortage in the market if measures are not taken,"  Novak told Russian news agencies before leaving for Vienna.

To Raise or Not to Raise

Iran is not alone in its battle against output hikes, with Iraq and Venezuela also objecting.

"They stand to lose if production is increased," said SEB bank analyst Bjarne Schieldrop.

According to the International Energy Agency, only a handful of countries in the OPEC+ alliance are realistically able to boost production in the short term.

That includes top supplier Saudi Arabia, its Gulf allies Kuwait and the United Arab Emirates, and Russia.

For most of the others it would make more sense to stick to the restrictions and sell their limited supply at a higher price.

Since OPEC operates on the principle of unanimity, analysts expect some sort of compromise agreement to be thrashed out by Saturday.

"War is war, business is business," said Sen, noting that OPEC ministers have proved before that they are able to set aside geopolitical differences.

Photo Credit: IRNA

Iran Says China Group Ready to Replace Total on Gas Deal

Chinese state-owned oil company CNPC will replace Total on a major gas field project in Iran if the French energy giant pulls out over renewed US sanctions against Tehran, Iran's oil minister has said.

"Total has said that if it doesn't get an exemption from the United States to continue its work, it will begin to pull out of the deal," Bijan Namdar Zanganeh was quoted as saying by his ministry's Shana news service. 

"If that happens, the Chinese firm CNPC will replace Total."

Total started the USD 4.8-billion South Pars 11 project in July 2017, two years after Western powers signed a nuclear deal with Tehran prompting the return of many businesses to Iran.

But earlier this month, US President Donald Trump announced his withdrawal from the deal, and warned companies that they face sanctions if they do business with Iran.

The French group said Wednesday it has USD 10 billion of capital employed in its US assets, and US banks are involved in 90 percent of its financing operations, making Total highly vulnerable if targeted by any US actions.

By contrast, Total said it had spent less than EUR 40 million euros on the Iranian project, which it runs with its partner Petrochina and which is dedicated to the supply of domestic gas inside Iran. 

Zanganeh said on Wednesday that were CNPC, which was part of the Total deal, unable to carry out the work in South Pars due to US sanctions it would fall to Iran's Petropars. 

Iran possesses the second-largest gas reserves on the planet, after Russia, and the fourth largest oil supplies. 

Photo Credit: IRNA