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Russia turns to Iran for oil
exports
By Hooman Peimani
As
stated late last month by LUKoil spokesman Dimitri
Dolgov, Russia has taken steps to increase its crude-oil
exports via Iran through swap deals with that country.
The Russians, who began such exports in November, are
working toward signing a long-term contract with the
National Iranian Oil Co (NIOC) to increase the volume of
their annual swap deals with Iran to 1 million tons
beginning next month.
In his reference to the
ongoing negotiations between LUKoil and NIOC, Dolgov
stated, "We are going to supply oil to Iran," a clear
indication of confidence that the two sides will finally
sign an agreement to that effect. Among others, LUKoil's
success in increasing the amount of oil supplies to Iran
to 45,000 barrels per day (bpd) in December when it made
a swap deal of US$167.45 million with NIOC should have
been a major reason for his confidence.
For
Russia, swap deals with Iran are a new way to increase
its oil exports and decrease its costs, while
diversifying its methods. In this case, Russian crude
oil will be used in Iran's northern refineries for
domestic consumption in return for an equivalent amount
of Iranian oil delivered to Russia's designated buyers
at Iran's Persian Gulf oil terminals. This arrangement
will make Russian oil available to non-European buyers
at a competitive price by sharply decreasing the cost of
exports currently done by oil tankers loaded at Russia's
Black Sea ports, such as Novorossisk.
For all
Russian swap deals with Iran, Russian crude oil produced
by LUKoil's subsidiary, Nizhnevolzhskneft, will be
shipped from the Russian Caspian ports of Astrakhan and
Volgagrad to the Iranian Caspian port of Neka to be
carried farther down into Iran through the 16-inch
Neka-Sari pipeline. A Chinese consortium led by China
Petroleum and Chemical Corp and China National Petroleum
Corp built the pipeline last year.
Having a
recently enlarged oil terminal, Neka has been the
destination for swap deals for other Caspian countries,
mainly Kazakhstan and Turkmenistan. These countries
transfer their oil by small sea tankers to Neka to be
used in the northern part of Iran. Neka is already
connected to Tehran via an old pipeline with the
capacity of 40,000 bpd, which limits the amount of
transferable oil. To remove this barrier, the Chinese
consortium is building another pipeline with a much
larger capacity.
The Neka-Sari pipeline is the
first phase of the three-phase Neka-Tehran pipeline (392
kilometers) to connect Neka's oil terminal to Tehran's
oil refinery in the southern part of the capital in the
municipality of Ray. By next month, the Neka-Sari
pipeline's capacity will reach 50,000 bpd, as announced
in December by Ali Reza Baba-i, NIOC's person in charge
of transferring Caspian oil from Neka. The second phase,
the 32-inch Sari-Veresk pipeline, will add about 115,000
bpd to that capacity to be increased further by 270,000
bpd when the last phase, the 32-inch Veresk-Ray
pipeline, is online.
According to NIOC, the
total capacity of the Neka-Tehran pipeline will reach
about 500,000 bpd through the construction of additional
pumping stations. Thus, once the pipeline is fully
operational, Iran will be able to increase significantly
swap deals with the Central Asian oil exporters
(Kazakhstan, Turkmenistan and Uzbekistan).
Oil
is not the main attraction of swap deals for Iran, a
country with the fifth-largest proven oil reserves
(about 99 billion barrels). In fact, its reserves may
well be far larger than that, as indicated by new oil
discoveries over the past few years, such as those in
the central part of the country. However, swap deals
make sense for Iran, whose main operating oil wells are
in its southern regions. To supply their northern and
central oil refineries and petrochemical complexes, the
Iranians have to transfer oil from south to north via
pipelines and land oil tankers. Swap deals enable them
to supply these facilities at a much lower expense,
while generating income for handling swap operations.
Moreover, such operations increase their regional and
international political influence.
Having these
considerations in mind, Iran began swap deals with the
Caucasian (Azerbaijan) and Central Asian (Kazakhstan,
Turkmenistan and Uzbekistan) countries in the mid-1990s
when those land-locked states with no direct access to
international oil markets sought to find alternatives to
Russian pipelines for their oil exports. In particular,
US opposition to any major Iranian involvement in
Caspian oil exports excluded Iran as a major export
route and made limited swap deals the only available
means for the Iranians to play a role in such exports.
Prior to the initiation of the Russian-Iranian swap
deals, the domination of US oil companies on the Caspian
oil industry excluding that of Russia left a small
amount of crude oil available for swap deals. Being the
product of non-US development projects, their annual
volume ranged between 200,000 and 300,000 bpd.
Russia's swap deals with Iran are a major
development for both sides. Not only will they help the
Russians expand their share of international oil markets
significantly, they will enable Iran to turn itself into
a major player in Caspian oil exports, as Russia has
decided to increase substantially the amount of its oil
exports via Iran. This development demonstrates that
country's efforts to consolidate its position as a major
global oil exporter by diversifying and expanding its
export routes and means.
Its existing westward
oil pipelines and its Black Sea oil terminals put Russia
in a suitable position to supply European markets, while
making its exports to the growing Asian markets
complicated and costly. The Iranian Persian Gulf oil
terminals address this problem by facilitating Russian
oil exports to those markets without requiring a heavy
investment in Russia's oil-export infrastructure.
Russia's growing ties with Iran in the oil
field, as reflected in its 1-million-ton swap deal,
indicate the Russians' determination to follow their
national interests despite US efforts to weaken Iran
economically and politically. Such ties also reveal
Iran's attempts to establish itself as a major transit
route for all Caspian oil exporters, including Russia,
its strategic ally.
Dr Hooman Peimani
works as an independent consultant with international
organizations in Geneva and does research in
international relations.
(©2003 Asia Times
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