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.
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.
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.