M K Bhadrakumar: Energized Iran builds more bridges

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May 6, 2008, 10:32:32 AM5/6/08
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Energized Iran builds more bridges
By M K Bhadrakumar 

The spin could be given that at its latest meeting in London on Friday, the "Iran Six" - the five permanent members of the United Security Council and Germany - in grappling with the Iran nuclear problem, advanced in unison the demand for the cessation of uranium-enrichment activities by Tehran. But this would be an untruth. The reality is that the "Iran Six" process looks tired and repetitive. The reality is also that the "Iran Six" is "to try to lure Iran into nuke talks", as the Associated Press reported. The six's other members are the United States, Britain, France, Russia and China. 

British Foreign Secretary David Miliband said the proposal to offer Iran incentives to stop its enrichment program is designed to show Tehran "the benefits of cooperating with the international community". But even as the proposal is yet to be conveyed to Tehran, the Iranian side dictated its contents. Foreign Minister Manouchehr Mottaki said in Tehran on Saturday: "At [our] recent meeting in Kuwait with Foreign Secretary David Miliband, he told me the Iran Six intends to send us a letter after the May 2 London meeting. I told him in response: 'You know very well which word is forbidden in Iran. Be careful in your proposals to avoid crossing the forbidden line'." 

It is obvious Iran's hectic diplomatic activity has put the "Iran Six" on the defensive. Tehran's nuclear standoff with the West is fast losing momentum. As Moscow expert Igor Tomberg of the elite Institute of World Economy and International Relations put it, at the back of it all lies the realization that "Iran has added energy to the quiver of its military and political arrows. Its advance to the global gas market could disrupt the current balance of interests there." 

Switzerland leads the way 
If a marker is to be put down, the turning point came on March 17 when Iran and Switzerland signed a 25-year gas deal. According to the Swiss government, the deal between Elektrizitats-Gesselschaft Laufenburg and the National Iranian Gas Export Company is worth US$42 billion. It is the first of its kind in the recent past in which a European energy company has actually signed a firm contract with Iran. So far, the practice has been to sign non-binding memorandum of understandings (MoUs). 

In terms of the agreement with Switzerland, Iran will deliver 5.5 billion cubic meters (bmc) of gas per year to Europe, starting from 2010 via a pipeline under construction. That the deal signified a watershed in the geopolitics of energy security was apparent from the presence of Mottaki and visiting Swiss Foreign Minister Micheline Calmy-Rey at the signing ceremony in Tehran. Indeed, Calmy-Rey acknowledged that Switzerland has a "strategic interest to secure our gas supplies and diversify our gas suppliers". She pointed out that the gas deal with Iran would reduce Europe's dependence on energy supplies from Russia. "We are decreasing our dependence, and the dependence of Europe, on Russian gas," she stressed in Mottaki's presence. 

Washington is likely angry. The Financial Times of London reported Washington hinted at terminating the arrangement of the US Interest Sections being located in the Swiss embassies in Tehran and Havana. But Swiss officials maintained no international sanctions prevented foreign investment in the Iranian energy sector and that the March 17 gas deal, in fact, was intended to "alleviate" energy shortages in Italy. Looking ahead, the Financial Times added, "Following the [Swiss-Iranian] deal, some European leaders have voiced concern about new investment in liquefied natural gas (LNG), the sector in which groups such as Total, Royal Dutch Shell and Austria's OMV have struck preliminary agreements [with Iran] but have yet to sign formal contracts. Iran has warned such companies they need to conclude deals by June or it will look elsewhere for investment." 

Iran's Swiss deal has alerted world capitals. China has speeded up negotiations over its $16 billion gas deal over Iran's North Pars gas field. China's National Offshore Oil Corporation (CNOOC) signed a memorandum last year to expand the gas reserves of the North Pars field and also purchase LNG from the output for a 25-year period, but was holding back from signing a contract, given the US-Iran nuclear standoff. 

It will be China's second big energy deal, with the Chinese oil refinery Sinopec having signed in early March a $2 billion deal to develop Iran's Yadavaran oil field. Defending the CNOOC, Foreign Ministry spokesman Liu Jianchao said in Beijing recently, "Cooperation between CNOOC and Iran is a business act between enterprises. We believe that the actions to address this [nuclear] problem should not undermine normal trade and economic cooperation with Iran." 

India, too, has begun underscoring that the Iran-Pakistan-Iran gas pipeline project is "doable". In comparison with China, though, India's decision-making is haphazard. A powerful pro-US lobby also weighs against India dealing with the Iranian regime. The Indian government couldn't take optimal advantage of the recent stopover in New Delhi by Iranian President Mahmud Ahmadinejad. The Iranian media reported Ahmadinejad did not make any commitments to the Indian side on the pending $25.6 billion LNG deal that India has been negotiating for almost eight years or on the gas pipeline deal. 

According to the official Iranian news agency, "With the Indo-US nuclear deal slipping into limbo, the Manmohan Singh government [in Delhi] has shrewdly sensed the importance of reaffirming its ties with Iran, both as a placatory gesture towards its leftist allies opposing the nuclear deal and as a pragmatic alternative source of energy for the country's growing economy." 

Russia's grandiose plans 
Tehran is unlikely to be in a hurry to respond until the European energy companies' June deadline passes. The Iranians have multiple choices from the East and West. Principal among them is Russia's Gazprom. To be sure, Moscow has speeded up its energy dialogue with Iran in recent weeks. On April 23, the Iranian government and Gazprom signed a memorandum of understanding "to cooperate in the development of oil and gas fields, as well as investment and exploratory studies". 

Gazprom's bid is to secure the rights to develop several sites at Iran's South Pars gas field in the Persian Gulf and the North Azadegan oil deposit in southern Iran. Gazprom is already participating in the development of the South Pars' second and third stages jointly with France's TotalElf and Malaysia's Petronas. The project is operating in design mode to produce and process 20 bcm of gas annually. South Pars holds 60% of Iran's gas reserves, equivalent to 10% of the known global gas reserves. It forms part of the North Dome deposit, which is regarded as the world's largest non-associated gas field, located partly in Iran and partly in Qatar. 

Moscow is playing for high stakes. On April 24, the day after Gazprom signed the MoU with Iran, its chief executive officer, Alexei Miller, traveled to Berlin for a "working meeting" with a dignitary who was visiting Germany - Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabir al-Thani. A Gazprom press release said, "The two sides discussed the possibilities for Gazprom and Qatar Petroleum to implement joint investment projects." Qatar holds the world's third-largest gas reserves after Russia and Iran. The three countries together hold about 55% of the world's total gas reserves. The implications of the Russian-Iranian-Qatari collaboration are profound, to say the least. 

It was against this background that Russia and Iran held consultations in Tehran within the framework of the Gas Producing Countries' forum on April 28. The consultations related primarily to finalization of a charter for forming a cartel of gas producing countries. On the same day, the acting head of Russia's National Security Council, Valentin Sobolev, also arrived in Tehran on a three-day visit for wide-ranging talks on bilateral relations. 

Sobolev's Iranian counterpart, Saeed Jalili, said the talks were "positive and constructive". Sobolev brought a letter from Russian President Vladimir Putin to Ahmadinejad assuring the latter Moscow "confirms the principled position in its relations with Iran, and that its policy does not depend on who is in power at any moment". Ahmadinejad responded, "Iran and Russia are two major powerful countries, and cooperation between our states in settling various problems will serve the interests of the Iranian and Russian nations as well as regional and international security". He said the two countries could play "an efficient role in establishing a new model of international relations". 

However, Sobolev's consultations did not quite proceed the way Moscow expected. The gas cartel idea has run into difficulties. The Russian media reported that the ministerial meeting of the Gas Exporting Countries' forum, which was scheduled to be held in Moscow on June 24, stood postponed. Moscow wants engagement with Iran within a loosely held gas alliance and is unwilling to commit itself to "excessive obligations", as Russian newspaper Nezavisimaya Gazeta reported on the April 28 meeting in Tehran. 

To quote the daily, "Iran insists on the soonest possible formation of the new cartel [so as] to resolve its political problems ... [On the other hand], Russia, which is the largest gas supplier to Europe, builds its relations with EU [European Union] countries on the basis of long-term agreements and prices tied to world oil prices. It has no intention of changing its export scheme or coordinating its gas prices with other participants in the cartel." 

Iran has its own plans
Iran pitches for a gas cartel with regulatory mechanisms on quota production and pricing, whereas Russia prefers a networking by gas producing countries with the accent on market sharing and transit routes. Evidently, Moscow is nervous that Iranian gas could revive the Nabucco gas pipeline supported by the European Union, just when, thanks to its deft maneuverings over the past year by projecting the rival South Stream, it thought it had all but killed the US-backed project. Again, the Iran-Switzerland gas deal means the early commissioning of the Trans-Adriatic Pipeline (TAP), a joint project between Swiss company EGL and Norway's StatoilHydro. In short, Iranian gas could find its way to Europe through these two pipelines in the near future - Nabucco and TAP. 

Moscow would not like such a turn of events. As Tomberg put it, "Tehran has been pursuing a more energetic gas policy, indicating its readiness to cooperate with the European Union ... This can be interpreted as the struggle for the vast - some say inexhaustible - European gas market ... Competition on the gas market will soon affect prices ... Meanwhile, Iran is playing on the EU's desire to ease its dependence on Russia and save money." Tomberg concludes, "Iran and Russia should probably not compete against each other but join hands on the gas market ... Moreover, there could be an agreement under which Russia will continue to supply gas to Europe, while Iran will export its gas to the East." 

But will the Iranians heed such advice? It is the million-dollar question. The Iranians want to keep all options open. In any case, why should they stay out of the European market? Energy exports would be the bridge that facilitated Iran's all-round integration with the Western world. The Iranian elites know that the "East" will not and could not compensate Iran for forgoing the European option. 

Equally, Tehran is frustrated with the presumptuousness that underlines the thinking behind these potential eastern partners, who opt for selective engagement of Iran rather than having the willingness to offer comprehensive strategic cooperation with Iran based on shared concerns and interests in a multipolar world. 

Sobolev tried to inject some much-needed vitality into Russian-Iranian relations by discussing "military-technical cooperation" and by giving a clean chit to Iran's nuclear program. But that may not be enough. Meanwhile, the negative stance by Russia and China with regard to Iran's application for full membership of the Shanghai Cooperation Organization (SCO) threatens to become an irritant. 

The Russian dilemma is that it does not want to go the whole hog with Iran, as that would complicate Russia-US relations. Interestingly, on Friday, apart from the "Iran Six" foreign ministers, London also hosted consultations involving Russia and the US over Kosovo and the Middle East situation. Meanwhile, Russia-US consultations over the US's missile defense deployment in central Europe are continuing and new tensions have appeared in Russia-Georgia relations with the North Atlantic Treaty Organization openly backing Tbilisi. Moscow is also carefully marking time until a new administration settles into Washington next year. 

Nonetheless, the competing energy security interests of the EU, Russia and China were reflected at the London meeting of the "Iran Six" last Friday. Plainly put, no one wants confrontation with Iran. Mottaki said Iran would soon have its own "package of proposals" to resolve all regional and international problems, including its nuclear program. In essence, after having thwarted the US's campaign to isolate it, Iran is now shifting diplomatic gear to ensure that its integration with the international community becomes irreversible. It looks beyond the lame-duck George W Bush administration and is judging the mood in the US correctly. 

According to a major survey released in Washington last Wednesday by the prestigious Foreign Affairs journal (see Economic woes take US center stage Asia Times Online, May 2, 2008) , energy costs are the number one foreign policy concern for seven out of 10 American respondents; the economy has pushed "terrorism" into second place. A large plurality of opinion favors effective American diplomacy to try to establish better relations with Iran. Energy security outpaced all other concerns by a long shot. The survey underscored that American opinion is connecting energy policy to national security issues in an unprecedented way. 

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India's ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). 

Copyright 2008 Asia Times Online Ltd. All rights reserved.


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