Archive for the 'Energy' Category

Refined Petroleum Sanctions Pass the Senate

Published on January 28, 2010 in Energy. 2 Comments

sanctions

In what seems like a calculated follow-on from Obama’s warnings to Iran in last night’s State of the Union, the U. S. Senate passed a broad sanctions bill (by unanimous voice vote)  aimed at businesses that supply Iran with gasoline.  The House has already passed similar legislation, and the two will have to be reconciled in conference before becoming law.

It is impossible to tell how biting the sanctions will actually be until the final text is in hand since very minor changes in wording can make a big difference.  The administration has been seeking a greater degree of flexibility in how these sanctions are enforced and the procedures for granting exceptions to them.

The image above is from today’s Dunya-ye Eghtesad (World of Economics) with the main headline “American private sector against sanctions ” — a reference to the recent letter (PDF) signed by several American business and trade groups protesting that the sanctions are overly vague and:

could prohibit any U.S. company from transacting routine business with critical partners from around the globe even if these transactions have no bearing on business with Iran. These provisions could encompass a very large portion of the global trade community with consequences that in our view have not been adequately assessed. The proposals could have a large impact on the U.S. Export-Import Bank, precluding it from partnering with counterpart agencies abroad to co-finance U.S. exports that have no relation to Iran’s energy sector.

Meanwhile, the National Iranian-American Council has been making the case that gasoline sanctions would put undue pressure on the people of Iran (and less so on the intended target of the regime) and I’ve argued elsewhere that another overlooked drawback to the sanctions is the potentially destabilizing effects they could have on the region by encouraging smuggling of heavily subsidized gasoline from the GCC states.

At present its still too early to tell how “crippling” these sanctions will be, but it seems few of the bill’s opponents were prepared for it to sail through quite this fast.   -WW

Erdogan's Tehran Visit Yeilds Energy Deals

Published on October 30, 2009 in Energy, Natural Gas, Politics, Security and Trade. 0 Comments

Iran’s Oil and Energy Information Network has a story (Persian) on two energy deals that Turkish Prime Minister Erdogan concluded on his recent visit to Tehran. Under the headline “Conditions for Transfer of Iranian Gas to Europe have been Met,” the piece quotes Ahmadinejad’s Vice President Mohammadreza Rahimi praising “brotherly” relations with Turkey and the signing of trade initiatives that would eventually total $30B.

Rahimi mentions two specific initiatives, one to cooperate towards developing an additional 6,000 MW of power generation capacity in the two countries. Second is an an agreement for Iran to supply gas to Europe via Turkey (presumably through the planned Nabucco pipeline) and also to act as a transhipment route for Turkmen gas en route to Europe.

Using Iranian gas to fill Nabucco has been discussed before, but this marks a step closer towards making it a reality. The deal, and Erdogan’s high profile visit to Tehran, are no doubt ruffling feathers in DC, but there has been little official reaction to the visit so far. This seems like another example of the “’sleeping with your friends’ enemies” argument that Bryan Early advances here. In sum, friends of a sanctioning state are in fact more likely to flout sanctions and trade restrictions because of security afforded by the alliance with the sanctioning state. Turkey’s alliance with the U.S. by virtue of NATO membership means that the U.S. is likely to be less able to compel it to adopt its Iran-isolating agenda.

-WW

Iran’s Arrest of Kuwaiti Fishermen Highlights Gas Dispute, Gulf Sensitivities

Published on October 29, 2009 in Energy, Natural Gas, Politics and Security. 0 Comments

Last week, Iran’s Revolutionary Guard-affiliated Tabnak website ran a commentary (Persian) on Iran’s recent arrest of five Kuwaiti fishermen (along with one Qatari and an Egyptian) who had strayed into Iranian territorial waters. Press accounts state that the fishermen were taken to Abadan for questioning and shortly released. The reports differ, however, on exactly where the stop took place – and understandable ambiguity given the myriad maritime boundary disputes in the region.

The Tabnak piece goes on to connect this incident to a long-running Iranian dispute with Kuwait over a gas field known to Iranians as Arash and Arabs as al-Durra. The piece (a translated snip follows) gives a good sense of an Iranian nationalist point of view in which the Islamic Republic’s territory throughout the Gulf is under Arab assault. This incident and similar ones, like the 2007 arrest of British sailors in the Gulf, show how the combination of undemarcated borders and the not altogether historically unjustified Iran-under-assault worldview can be dangerous indeed. In the absence of a firm settlement, these disputes look set to heat up in coming years as demand for Gulf oil and gas grows.

- WW

Under the pretext of Iran’s rightful arrest of Kuwaiti citizens who had illegally entered Iranian maritime territory, Kuwait and its state media have recently asserted their ownership over large parts of Iranian territory in the northern Persian Gulf.

This comes at a time when the Kuwaitis, by highlighting part of our ambassador’s interview with a Kuwaiti newspaper, have [falsely] claimed that Iran was prepared to enter negotiations over the three islands [disputed with the UAE]. Unfortunately, Iran has responded to Kuwait’s aggressive claims with an inexplicable silence.

In light of this report, and based on existing agreements and the [1963] IMINOCO maritime boundary, the Iranian continental shelf in the northern Persian Gulf is Iranian property, just like the Arash gas field [marked in this map as Dorra]. The point that Iranian media have overlooked, is that because of Arab propaganda against Iran’s eternal ownership of the three islands, now Iranian gas fields like Arash and Soroush oil field, both located within Iran’s maritime exploration and production limits, are now subject to territorial claims from Arab sheikhdoms like Kuwait!

It is interesting that, by changing the name of the gas field to al-Durra, Kuwait has claimed its ownership over Iranian maritime territory, and it justifies its claim using the fanciful boundary that the anti-Iranian and anti-Persian Gulf British company Shell has drawn for them, with the Arash field lying just inside Kuwaiti territory.

More background on the Arash/ Durra field follows from the EIA:

Another large non-associated offshore natural gas field, Dorra (Durra), is located offshore near Khafji oil field in the Saudi-Kuwaiti Neutral Zone. Dorra development has been controversial since the late 1960s, however, because 70 percent is also claimed by Iran (called Arash). In addition, the maritime border between Kuwait and Iran remains un-demarcated. Saudi Arabia reached an agreement with Kuwait in July 2000 to share Dorra output equally, although the Kuwaitis are reportedly trying to purchase the Saudi share. According to Saudi Aramco, the field is estimated to contain non-associated gas reserves of between 35 and 60 Tcf of natural gas, and is under seismic study. The Kuwaiti Ministry of Oil has reported that the goal is to produce initially 600 MMcf/d from Dorra. Kuwait and Iran have intermittently discussed jointly developing the field, although production plans remain undisclosed.

Catching Up

Published on October 26, 2009 in Energy, Politics and Trade. 0 Comments

Apologies for the lack of posting in recent weeks – was in the middle of relocating to Washington and juggling other projects. We are also in the process of re-launching the blog, so stay tuned for the new URL. Here are a few links as we get back into the swing of things:

-WW

1. Flynt and Hillary Mann Leverett have launched The Race for Iran, a new blog on Iran’s geopolitics. Also be sure to read their recent monograph on Iran-China relations.

2. Fereidun Fesharaki’s excellent talk at CSIS on world energy markets, with emphasis on Iran and China. A key takeaway is that China’s investments in Iran’s upstream oil and gas production are running at a loss, which underlines the Leveretts’ point that Chinese interest in Iran is more about building a long term strategic relationship than filling immediate energy needs.

3. I came across the following story about cargoes of Indian basmati rice, originally destined for Iran, that are now flooding the Emirati rice market. A timely reminder of how closely the region’s economies are interlinked:

“Boats filled with basmati have been lying idle in Dubai and at Sharjah Cornice. Iran used to be a good market for UAE re-exporters and the fall in demand there will definitely hurt the UAE market.”

He said prices of many premium basmati rice varieties have fallen by 30 per cent to 40 per cent.

An official at Dubai Municipality’s Food Safety Department told Emirates Business: “The Iranian Government’s decision to ban Indian and Pakistani basmati is an erratic decision based on wrong interpretation of a speech by an Indian minister appealing to farmers to stop cultivating basmati in some areas. The Iranian buyers panicked and stopped importing Indian basmati. The rice coming to the UAE is regularly checked at the port of entry for food safety.”

Can Iran Really Shut Down Hormuz?

Published on September 9, 2009 in Energy, Security, Shipping and Trade. 0 Comments

There is an interesting piece in Foreign Policy, in which Eugene Ghloz takes on conventional wisdom about Iran’s ability to disrupt oil shipping through the Straits of Hormuz. How hard would be for Iran to shut down the straits?

The answer turns out to be: very hard. Iran would have to disable many of the 20 tankers that traverse the strait each day — and then sustain the effort. Iran cannot rely on the psychological effects of a few hits. Historically, after a short panic, commercial shippers adapt rather than give up lucrative trips, even against much more effective blockades than Iran could muster today. Shippers didn’t stop trying during World War I. Nor did the oil trade in the Gulf seize up during the 1980s Tanker War, when both Iraq and Iran targeted oil exports.

Instead, tankers tend to move around dangers. The strait is deep enough that even laden supertankers can pass safely through a 20-mile width of good water, not just the 4-mile-wide official channel. Tankers already take other routes when it is convenient; during a conflict, they would surely scatter, as they did in the 1980s. Although the strait is narrow compared with the open ocean, it is still broad enough to complicate Iran’s effort to identify targets for suicide and missile attacks. The area is too large to cover with a field of modern mines dense enough to disable a substantial number of tankers, especially given Iran’s limited stockpile.

Gholz also questions the ability of anti-ship missiles or small craft warfare to disable craft:

Over five years of the Iran-Iraq War, 150 large oil tankers were hit with antiship cruise missiles, but only about a quarter were disabled.

But surely ship insurers would want higher premiums if silkworm missiles are being lobbed at their tankers. And surely any type of military conflict in Hormuz – even if it does not end up taking out a large number of tankers – would be enough excuse for traders to bid up oil prices. The real question, which Gholz is right to point out, is the question of how long Iran could sustain such a military effort in the face of the inevitable U.S. response. My own sense is that an attack on shipping in Hormuz would produce an immediate and severe spike in oil prices, but one that would subside fairly quickly.

-WW

Luft on Iran’s Gas Industry

Published on August 25, 2009 in Energy, Natural Gas and Politics. 0 Comments

Building on our recent discussion of the Iran gasoline sanctions debate, I wanted to flag two recent pieces by Gal Luft of the Institute for the Analysis of Global Security. The first is from Foreign Affairs earlier in the month in which Luft makes two arguments:

  1. Sanctions on Iranian gasoline imports will not hit hard because the country has taken steps to beef up refinery capacity and is reducing its gasoline consumption by encouraging substitute fuels. Luft cites a 25% reliance on imported gas, in contrast to the 40% figure that is regularly cited in the press.
  2. The better way to hurt Iran would be to thwart its plans to export gas to Pakistan (then possibly on to India) and Turkmenistan (and then possibly on to Europe).

This article parallels a longer piece Luft published in the Journal of Energy Security in June, in which he fleshes out the potential implications of Iran developing its gas markets to the east. Luft asserts that Russia is keen to get Iran’s gas exports focused eastward so it can continue to dominate Europe’s energy scene, and warns that Iranian gas pipelines to Pakistan could give Tehran energy leverage over the subcontinent similar to that which Russia exercises over Europe.

While Luft’s contrary view on Iran’s gasoline import dependence is interesting and the second piece does a good job of gaming-out geopolitical possibilities of the Iran-Pakistan pipeline (read it all here), my concern is about the underlying sanctions logic:

Across both articles, Luft implies that thwarting Iran’s Pakistan pipeline scheme will force Tehran to rethink its nuclear ambitions. Yet Iran is hardly out of options when it comes to using its gas: It could re-inject gas into its aging oilfields to boost production, explore export options to Europe, make a dash for LNG technology, or continue to orient towards domestic use. So rather than capitulate on the nuclear program — a key security and energy priority (not to mention point of national pride) — Iran is likely to pursue its gas plan B ( and C, D, and E) first.

-WW

Will Europe be Buying Gas from Tehran in 2020?

Published on August 11, 2009 in Energy and Natural Gas. 0 Comments
nabucco plan

Planned Nabucco Route (Wikipedia)

Yesterday’s Iran Economist featured an interview with Seyyed Reza Kasaizadeh, director of the National Iranian Gas Export Company, discussing Iran’s desire to export natural gas to Europe, both through the planned “Persian Pipe” project and to supply feedstock to the Nabucco Pipeline. A few translated excerpts:

Compared with other gas export projects, Iran prefers to deliver its gas to the Greek, then European markets once the “Persian Pipe” project is completed.

Iran’s position in international affairs is sacrosanct because the planned route of the Nabucco Pipeline requires Iranian participation. Iran will not lose its international position because it is one of the most important gas suppliers and has the second largest gas reserves in the region.

Plans for the Nabucco pipeline and other similar projects will not be executed without Iranian participation….If European countries want to pipe Asian gas to Europe, they will need to include Iran in their plans because the countries party to pipeline agreements like Nabucco do not have the necessary feedstock to fill the pipelines.

The parties to the Nabucco pipeline have only reached an agreement over the path of the pipe, not the volume of gas to fill it. The question is whether or not countries can ensure the necessary gas for their pipeline – this question will decide if the project is economically viable or not, and this is where talks with Iran become necessary.

Iran, as holder of the world’s second largest gas reserves, must organize its future projects such that it raises its share of world gas exports from one to sixteen percent

In the near term, it is unlikely that Iranian gas will be included in Nabucco due to the harsh and potentially tightening sanctions environment. Yet Iran has been aggressively trying to expand its gas export business, beginning exports to Armenia in May, and recently announcing a deal to build an export pipeline to Pakistan. It has also explored deals with UAE’s Dana Gas, although negotiations are currently deadlocked over price. The planned Persian Pipeline will use Turkey and Arab countries as intermediaries in the hopes of allaying sanctions risk to European energy companies of doing business with Iran directly.q

Looking at the 10 year and beyond horizon, it becomes harder to see how the sanctions regime against Iran can withstand the tide of growing energy demand and rising oil prices, which make gas comparatively more attractive. Kasaizadeh has a point about Iran’s huge (and easily produced) gas reserves. In the absence of a US-Iran deal, a point is coming where the profits to be made from Iranian gas transport will exceed the costs of American sanctions. How soon depends on your outlook for world growth and energy prices.

-WW

The GCC Gas Gap

Published on May 26, 2009 in Energy and Natural Gas. 0 Comments

Andrew England has an article in the FT today on the widening gas shortfall expected in the GCC countries, felt most acutely in the UAE. Essentially, heavy industry and the desalinization plants necessary to serve the region’s growing populations are creating a boom in demand for gas. Yet the two most logical gas sellers Iran and Qatar (who have the world’s second and third largest gas reserves respectively ) are not in a selling mood. Qatar has a moratorium on expanding its North Field until 2013 at the earliest while it completes a geological survey and Iran is playing hardball in its lengthy pricing negotiations over gas sales to the UAE’s Crescent Petroleum.

This story is hardly new; GCC states have been seeking to make up for lost time on gas infrastructure — largely a consequence of focusing on oil production — for years with initiatives like the Dolphin Project (PDF). The problem now is that the credit crunch has made it harder to for states to make the investments in domestic gas production needed to make up the shortfall. This could end up giving Tehran the upper hand in gas price negotiations. But it also provides powerful incentives to put political squabbles aside and explore more cooperative ways to develop the huge fields straddling Gulf maritime boundaries. -WW

Notable: NYT Article on Oman-Iran Relationship

Published on May 24, 2009 in Energy, Ports, Trade and Uncategorized. 0 Comments

For a bit of overdue color on the contemporary Oman-Iran relationship, see Michael Slackman’s article (Oman Navigates Between Iran and Arab Nations, NYT, May 23, 2009) “The quietly influential Sultanate of Oman has accelerated its cooperation with Tehran, nurturing an alliance that helps empower Iran while highlighting the deep divisions among Arab capitals”.

Slackman’s piece supports points we’ve been making for some time, i.e., 1.) There are clear limits to the pressure the Arab states are willing and/or able to exert on their Northern neighbor (as well as limits to the pressure they’re willing to take from the West) 2.) There are many in the region who feel Iran’s acquisition of nuclear weapons is not the paramount to threat to security in the region [see Chorin's article "US Unwise to Deny Iran's Role in the Gulf" in the FT last year] and 3.) It’s largely about trade–the farther east one goes within the Gulf, the more dependent local economies are (and will be) on Iran for future energy needs and economic growth. See previous postings for details on the history of Iran-Oman trade since 2006. –EDC

Iran and Oman: Shared Interests Fuel Increased Cooperation

Published on May 15, 2009 in Energy, Natural Gas, Natural Resources, Ports and Uncategorized. 0 Comments

Pan Arab Asharq Al Awsat on May 14 carried an interesting a piece entitled “Larijani in Mascat: Iran’s power is for the benefit of the all of the countries in the region…and we do not pose either a threat or intend to create an empire.” The comments, made by Iran’s Leader of Parliament, came on an official visit to the Sultanate this past week.

During the visit, Larijani and senior Omani officials praised expanded Omani-Iranian political, cultural and economic cooperation, in particular the Iran-Omani “Kish field” gas deal. The agreement, signed in December of 2008, would in its first phase deliver 1 b. cubic feet of natural gas per day to Oman, through a pipeline linking the underwater field to Oman’s Musandam Peninsula. An extension would carry gas on to the city of Sohar, on Oman’s Batinah coast, West of Muscat. In its final phase, the pipeline is expected to deliver 3 b. cubic feet per day. If Iranian gas were to be re-exported, neighboring countries experiencing severe energy shortages would stand to benefit.

Oman agreed to cover the entire 12 billion US development cost, but has been having some difficulties raising the required capital. An anonymous source told Reuters last week that the global economic crisis would delay completion by a year, to 2013. Larijani’s trip coincided with an official visit to the Sultanate by the head of Hamas’ political directorate Khaled Mishal.The ex-“Enriched Iranium” blog detailed Oman’s growing ties with Iran 2007-2008, including agreements to trade Omani investment in newly-privatized Iranian companies for technical assistance and investment in Omani ports. –EDC