THE ROVING EYE Iran takes
over Pipelineistan By Pepe
Escobar
TEHRAN - The black
chador-clad secretaries behind rows of flat
computer monitors at the Petroleum Ministry
building in central Tehran are all smiles. Not to
mention their bosses. No wonder. According to the
ministry's latest estimates in August, Iran will
export at least US$60 billion in oil in 2005 -
more than $10 billion more than the June estimate.
And with oil hovering about $70 a barrel, it could
be even more.
Internal turbulence, though,
was the norm during the first days of the
presidency of Mahmud Ahmadinejad. His appointed
oil minister, close friend, tea and carper trader
and former acting mayor of Tehran, Ali Saeedlou,
was rejected at parliamentary hearings, shown
nationwide on live TV. Ahmadinejad had pledged to
rid the country of what he called "oil mafias" and
vowed to better distribute Iran's oil wealth. So
he appointed an outsider, Saeedlou - who was
revealed to be too much of an outsider: he got his
geology degree only in 2003 from one Hartford University,
a
virtual, Internet operation.
Saeedlou was
expected to "purge" the state-run National Iranian
Oil Co (NIOC), the fourth-largest oil company in
the world, but somewhat inefficient and riddled
with bureaucracy. After Saeedlou's rejection,
Ahmadinejad hinted he would be the acting oil
minister, only to nominate a caretaker, Karem
Vaziri-Hamaneh - a former deputy oil minister,
member of the NIOC board and thus an industry
insider all over again. Ahmadinejad has up to
three months to come up with another name to be
ratified by the majlis (parliament).
Get me to an oilfield on time
As far as both oil and gas are concerned,
Iran has everything going for it: 13% of the
world's total fossil fuel reserves (132 billion
barrels of crude oil and gas liquids, 27.4
trillion cubic meters of gas), which makes it the
second-largest oil-and-gas rich country in the
world and second-largest Organization of Petroleum
Exporting Country (OPEC) producer, behind Saudi
Arabia.
According to the ministry's own
estimates, Iranian oil will last from 70 to a
maximum of 86 years, while gas may last longer
than 200 years. But internal consumption of oil
products and gas is growing at a rate of 5.2% a
year. The country is already forced to import
refined products. That's one of the key reasons,
Tehran argues, for its civilian nuclear program.
If the current trends persist, Iran will
be forced to suspend its oil exports before 2020.
This stunning paradox is caused by a multitude of
factors: lack of investment in the maintenance of
oil and gas installations; lack of rebuilding of
installations destroyed during the 1980s Iran-Iraq
war; years of non-relations with foreign
companies; terrible management; and crucially,
American sanctions.
Iran is currently
producing 4.3 million barrels of oil a day. It
used to be 6 million in 1978, immediately before
the Islamic revolution. According to OPEC's
current quota system, Iran will only reach this
level again in 2025. The Petroleum Ministry for
its part argues that Iran will be producing 7
million barrels a day by 2015.
To increase
production and efficiency, estimates by the Office
for Planning at the Petroleum Ministry have
projected an annual investment of at least $4
billion until 2012. Where will all this money come
from? Ahmadinejad has pledged to favor domestic
investors in the oil industry (there are not many,
apart from NIOC). But every player in the industry
at large knows the key for Iran is to be able to
attract much-needed foreign investment.
As
far as the optimistic Petroleum Ministry is
concerned, "The stage has been set for as much
exploration as possible for oil and gas in the
Persian Gulf and Caspian Sea." This means
"introduction of exportable onshore and offshore
blocs for the discovery of new oil and gas
resources through attraction of foreign capital".
Global Big Oil just can't wait to get access to
the giant Yadavaran and Azadegan oilfields.
(Azadegan, with 36 billion barrels of proven
reserves, is the largest discovered oilfield in
Iran for the past 50 years.)
The axis
of oil Just as top officials from
Azerbaijan, Georgia and Turkey were opening the
much-hyped, American-supported Baku-Tbilisi-Ceyhan
(BTC) pipeline, Iran started to advertise its
counterpunch: an oil pipeline between Iran, Iraq
and Syria. True, they are substantially different.
BTC will carry Caspian Sea crude to Europe, while
the Iranian route would initially carry Caspian
Sea crude to Asia.
But Iran has a
tremendous potential to supply Europe as well - as
France's TotalFinaElf, Italy's ENI and Anglo-Dutch
Royal Dutch Shell know more than anyone. The
Iran-Iraq-Syria pipeline arriving at the Syrian
port of Ladicia perfectly fits the bill. Iran thus
can swap Caspian Sea crude to be refined in the
country and then deliver the final product to the
Mediterranean. The killer argument: as far as both
Asian and European customers are concerned, the
cost of using this pipeline route is way lower
than using BTC - something that even American oil
industry insiders recognized long ago.
As
much as the Bush administration may recoil in
horror, regarding this pipeline as an oil version
of the axis of evil (or an evil version of the
axis of oil), negotiations are ongoing. The
pipeline was seriously discussed during Iraqi
prime minister Ibrahim Jaafari's visit to former
president Mohammad Khatami. And it was again
seriously discussed during Syrian President Bashar
Assad's recent visit to the just-elected
Ahmadinejad. Iran and Iraq had been negotiating
for months the construction of a pipeline between
Abadan and Basra, which are practically neighbors.
Now they have signed an agreement, and the
pipeline is a given.
Iraq will send crude
from Basra to be refined in Abadan, and in
exchange will get oil derivatives. Iraq's
refineries remain in a disastrous state. The
country has to import $300 million of oil
derivatives a month. Jaafari's government had no
problems agreeing to Iran investing in its
petrochemical industry. Tehran insists that
despite the Iraqi chaos and the avalanche of
pipeline sabotage by the Sunni Arab guerrilla
movement, it is fully committed to revitalizing
Iraq's petrochemical industry. An oil swap deal
between them is practically inevitable: this way,
Iran gets Iraqi crude in Abadan and delivers the
same amount to Iraq at its oil terminal on the
island of Kharg.
Caspian Pipelineistan
Iran has been swapping oil with
Turkmenistan since early 2000 after the Turkmens -
against cries of horror from Washington - built a
small pipeline to northern Iran. The next
inevitable step was to swap with Kazakhstan -
negotiations had been going on for years. For this
purpose, Iran built a new terminal at the Caspian
port of Neka and a new pipeline to Tehran, as well
as two new refineries capable of processing
500,000 barrels of Kazakh crude a day.
Pipelineistan's greatest hit in the
Caspian, from Iran's point of view, starts in
Kazakhstan along the eastern Caspian shore,
through Turkmenistan, crossing to eastern Iran,
and down to Bandar Abbas. Any official at the
Petroleum Ministry or NIOC will recite the same
mantra: Iran can get Caspian crude to any market
at a fraction of the price of BTC. And there's
absolutely nothing the Bush administration can do
about it. As Mahmood Khagani, a former Iranian
director for Caspian affairs used to say, "The
'golden gate' from the Caspian Sea to the Persian
Gulf is now open."
Iran has its eyes set
on Asia. It's not only the much-hyped multibillion
dollar deal with China. Iran is also extremely
active in the South Asian front. Bush
administration pressure notwithstanding, Iran,
India and Pakistan are starting trilateral
negotiations before November on the mammoth $7.2
billion Iran-Indian pipeline. The project could
start by April 2006. India is considering three
proposed pipelines - from Iran, Qatar and
Turkmenistan, but its deal with Iran is a
certainty, according to India's Petroleum Minister
Mani Shankar Aiyar. Iran, Pakistan and India have
to decide whether they launch separate consortiums
or a joint consortium. This pipeline should run
1,115 kilometers in Iran, 705 kilometers in
Pakistan and 850 kilometers in India.
A
clear worry in New Delhi is to make sure that
Pakistan will not be able to disrupt the flow of
oil from Iran - considering the South Asia
neighbors' turbulent and sometimes torrid
relationship. India wants the pipeline secured by
World Trade Organization rules on freedom of
transit.
It's a gas, gas,
gas The pillar of Iran's gas program is the
gigantic offshore South Pars field - on the
Persian Gulf, 300 kilometers from Bushehr and 580
kilometers from Bandar Abbas - which by itself
contains no less than 9% of the world's proven
reserves. A substantial part of its production
will be exported as liquefied natural gas (LNG),
which will convert Iran in one of the world's top
exporters of LNG. Tehran wants the Pars Special
Econo-Energy Zone, established in 1998, to become
"one of the most important industrial energy poles
of the Middle East".
Turkey for the moment
is the only importer of Iranian gas, according to
the International Affairs bureau at the Petroleum
Ministry. This is about to change - and radically.
Iran's gas exports to Europe - estimated to be 300
billion cubic meters annually - will start most
probably in 2009. A gas pipeline to Greece via
Turkey is already in construction, but Iran can
also use a different route through Bulgaria and
Romania. As the need for Iranian gas is more than
pressing, the list of Western European buyers is
inevitably huge.
Turkey wants to buy gas
from Iran and sell it to Europe. But Iran wants to
skip the middleman. So the Iranian option is to go
through Ukraine. A cooperation agreement has
already been signed between Tehran and Kiev. They
are now discussing the volume of gas to be
exported. A crucial meeting between Iran, Ukraine,
Armenia, Georgia and Russia is to be held this
month. According to deputy Oil Minister for
International Affairs Mohammad-Hadi
Nejad-Hosseinian, Russia's approval of the project
will get things going fast. Ukraine has proposed
two pipeline routes to Iran: number one is
Iran-Armenia-Georgia-Russia-Ukraine-Europe, and
number two Iran-Armenia-Georgia-Black
Sea-Ukraine-Europe.
Win-win
situation Whatever happens to the
Petroleum Ministry as well as NIOC, Iran's energy
policy under the Ahmadinejad presidency will
remain substantially the same. This means in
practice the full support by Supreme Leader Ali
Khamenei - Ahmadinejad's protector and the
ultimate decision-maker - to any policies that
lead to Iran becoming a big economic power. And
this of course implies ample foreign investment in
Iran's oil and gas industry.
Geopolitically, as a key energy supplier
to China as well as India's major supplier, Iran
will be in a more than enviable position. Its
political relations with both China and India are
excellent. Its trans-Caspian alliance with Russia
is iron-clad, as both countries are dead-set, in
diplomatic language, not to allow "other great
foreign powers" to penetrate the Caspian. And
Tehran will do all it takes to position itself,
long term, as a key supplier to Western Europe as
well. This means a peaceful, non-confrontational
solution to the nuclear issue will be in the
interest of all players involved. But not
necessarily in the interest of Washington.
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