02.01.2017 Author: Dmitry Bokarev

Russia-Iran Relations Reach New Heights

345234234234It is common knowledge that the Russian Federation and the Islamic Republic of Iran are among the most influential members of the global hydrocarbon market. Cooperation between such giants can be expected to have a considerable impact on the world economy, while opening up huge opportunities for the two countries.

Iran has approximately 18% of world reserves of oil and 9% of gas. During the period of the international sanctions imposed on Iran over its nuclear program, the country’s level of oil production and export fell by almost half. Now however, after the lifting of most of the sanctions, the country is rapidly catching up.

It should be recalled that on November 30, 2016, Vienna, there was a meeting of the Organization of Petroleum Exporting Countries (OPEC), in which a resolution was agreed upon allowing Iran to be the only country that would receive the green light to increase its oil production. Iran achieved this by using the damage its economy suffered under the sanctions regime as its primary point of argument.

In order for Iran to quickly restore its oil industry to the same level as in its heydays, and for this oil giant to regain its place on the international market, the country needs the help of foreign partners. Iran’s oil industry needs foreign investment. To do this, the country’s leadership has put in place a number of measures to make its oil and gas industry more attractive to foreign companies. In the summer of 2016, a new form of an oil contract with foreign companies was approved in Iran. According to the new contract, foreign companies will be allowed to explore, extract and process energy. The Iranian authorities are hoping that the new opportunities being availed to foreign investors will provide the country with a large influx of the much-needed foreign investment and trigger a bounce-back on the Iranian market of all the companies that were forced to cease their activities in the country after the imposition of sanctions. According to experts, in order to restore the oil industries that were affected by the sanctions, Iran needs investments upwards of $ 200 billion. Another innovation is the possibility of establishing joint ventures between the Iranian National Oil Company and foreign companies.

Many companies from Asia and the West have already expressed interest in cooperation. In this light, an agreement totaling $4.8 billion was signed in November 2016, between Iran and the French company Total, which will facilitate the development of South Parnassus, the largest deposit in Iran. At the end of 2016, widespread interest in accessing Iranian oil and gas has already led to 50 foreign companies submitting applications for participation in the tender as per the provisions of the new contract referred to above, to be concluded in February 2017

On the other hand, Iran is enjoying a special relationship with the countries that supported it during the sanctions regime, primarily China and Russia. Even in the most difficult period, despite pressure from Western countries, China has continued buying large volumes of Iranian oil, while Russia has been helping Iran develop its peaceful nuclear energy.

Russia and Iran’s mutual interest to cooperate in the oil and gas industry has long been common knowledge. Up to the end of 2016, Russian companies – Gazprom, Gazprom Neft, Zarubezhneft, Lukoil and Tatneft – have been expressing their desire to start cooperating with Iran. It should be remembered that companies like Gazprom Neft, Lukoil and Tatneft have already worked in Iran before the pressure of sanctions was intensified on the country a few years ago. Today, Iran’s Lavan special economic zone, with its multitude of oil refineries, is expressing considerable interest in companies from Russia.

On December 12, 2016, Russia and Iran signed a memorandum of cooperation in the oil and energy sector in Tehran. Both countries pledged to jointly engage in the exploration and development of deposits (including offshore), and in the delivery of products and the production of equipment for the oil industry. The document also stipulated the conditions of the swap transactions. The signing of the document was attended by Russian Deputy Minister of Energy, Kirill Molodtsov, and his Iranian counterpart, Amir Hossein Zamani-Nia. After the signing, the latter expressed his hopes for the further development in the near future of Russian-Iranian relations, which, in his opinion, have great potential. Iranian Oil Minister, Bijan Zanganeh, later also made a statement, in which he expressed his expectations for a large contribution from Russian specialists to the study of Iranian deposits. He also expressed his admiration of Russia’s reasonable position on the oil market.

The next day, on December 13, the Intergovernmental Commission held a meeting on the economic cooperation between Russia and Iran, with participation of Russian Energy Minister, Alexander Novak, and Iranian Communication Minister, Mahmoud Vaezi. It was discussed expanding cooperation between Russia and Iran in the fields of industry, agriculture, energy, education, and even space exploration. The same day, the media reported on the conclusion of an agreement between the Russian company Gazprom Neft and the National Iranian Oil Company, on the joint development of the Iranian fields of Changule and Cheshmehush.

After this, B. Zanganeh expressed his support for the activities of Russian companies on his country’s market. In turn, Alexander Novak remarked that Iran is a good neighbor and an important partner for Russia. Around the same time the same day, on December 13, Tehran hosted a Russia-Iran business forum.

All these developments clearly demonstrate that Russia and Iran are developing a close and beneficial partnership. At the same time, both countries have great future prospects for development. In spite of what the two powers have already achieved, much of the Russian-Iranian cooperation may eventually reach heights unparalleled in history. In this light, starting December 2015, the two countries are prepared to begin negotiations on a free trade area (FTA) between Iran and the Eurasian Economic Union, which Russia is going to chair. Nevertheless, even without a free trade area, in 2016 alone, Russian-Iranian trade turnover has already increased by almost 80%.

On November 30, 2016, the Council of the Eurasian Economic Commission convened a session at which representatives of all the Member States of the Union approved starting these negotiations at the Supreme Eurasian Economic Council scheduled for December 26, 2016.

Such a strong growth of economic cooperation will inevitably be followed by political and strategic cooperation. Russia and Iran have long cooperated in the fight against terrorism in the Middle East. In this regards, discussions are already underway on the prospects of Iran’s accession to the CSTO. Undoubtedly, by combining their forces, Russia and Iran can have a big impact on global politics.

Dmitry Bokarev, political analyst, exclusively for the online magazine “New Eastern Outlook”