U.S. and EU fail to isolate Iran

China, Russia, India and Turkey move into the lucrative void left by U.S. and EU sanctions that aim to halt Iran's nuclear program.
August 08, 2010|By Paul Richter, Los Angeles Times

Reporting from Washington — Efforts by the United States and its European allies to build a united front to halt Iran's nuclear program are facing increasingly bold resistance from China, Russia, India and Turkey, which are rushing to boost their economies by seizing investment opportunities in defiance of sanctions imposed by the West.

The Obama administration and the European Union opted to try to toughen United Nations sanctions against Iran with their own unilateral restrictions on foreign companies that do business with Tehran's energy sector, hoping that squeezing the country's most lucrative industry can force the Islamist government to bend on its nuclear program.

But the four countries condemned the additional sanctions, and in recent weeks went further: Since the new U.S. sanctions took effect July 1, all four have moved ahead with trade and investment deals that violate the sanctions or threaten to do so in the future.

The countries say they will honor the weaker set of sanctions imposed on Iran in June by the U.N. Security Council, but are under no obligation to follow the more stringent rules that the United States and European Union tacked on in July.

The U.S. sanctions prohibit petroleum-related sales to Iran, yet China and Turkey have sold huge cargoes of gasoline to Tehran, and Russian officials say they will begin shipping gasoline as well later this month, according to industry officials. The four countries also have signed deals or opened talks on investments worth billions of dollars in Iran's oil and gas fields, petrochemical plants and pipelines.

The countries "are making it very clear they are not going to go along with the new American and European efforts to ratchet up pressure on Iran," said Ben Rhode, an analyst with the International Institute for Strategic Studies in London.

Although China's economic ties with Iran have been growing for 15 years, the recent expansion of its business "has been amazing," said a senior European official, who asked to remain unidentified because of the diplomatic sensitivity of the issue.

"Sanctions will not hinder us in our joint cooperation," Sergei Shmatko, Russia's energy minister, declared last month in Moscow after signing an agreement for a long-term energy partnership with his Iranian counterpart.


Obama administration officials boast that the new sanctions already have begun to damage Iran's economy. European energy companies that have been key partners have canceled deals with Iran, and gasoline imports — badly needed because of Iran's limited refining capacity — have slumped.

Yet the U.S. dilemma is clear: If Iran can meet its needs with these eager partners, the sanctions lose much of their bite.

And if European companies see that the new rules simply shift Iran's lucrative business to competitors, they will pressure their governments to jettison the sanctions in hopes they can get back into the Iranian market.

U.S. and European officials acknowledge the danger of other countries snapping up this business, and are pressuring the governments not to allow their companies to do so.

President Obama has personally urged Chinese President Hu Jintao not to allow his country's energy companies to fill the vacuum, U.S. officials say. A high-level U.S. delegation, headed by the State Department's top nonproliferation official, Robert Einhorn, is traveling to Beijing this month to appeal to Chinese officials.

Einhorn told a House panel late last month that China is of special concern because "it has backfilled when a number of responsible countries have distanced themselves from Iran. We need to speak to the Chinese.…"

The United States and its allies are pressing Iran to give up its nuclear development program because they believe Tehran wants its own nuclear weapons. Iran insists its nuclear program is for civilian energy purposes.

The four countries say they don't want Iran to develop a nuclear weapon, but don't see why they shouldn't make money off Iran's vast resources. China and India are also eager to lock up energy supplies for their fast-growing economies.

The U.S. sanctions seek to punish companies that sell refined petroleum products to Iran, or help Iran refine them. The U.S. government can fine foreign companies, but the biggest weapon is its ability to cut off companies' access to the U.S. market — a powerful threat to most international concerns.

The European Union sanctions don't target refined petroleum sales, but penalize companies for investing in the energy industry, as well as banking, shipping, insurance, transportation and nuclear-related industries.

Russia and China say they were surprised and disappointed that the Americans and Europeans, after pressing them to support U.N. sanctions on Iran for months, then adopted tougher sets of unilateral sanctions.

In recent days, senior officials of both countries have rejected calls from Washington to back off their business with Iran.

Chinese Vice Premier Li Keqiang told the visiting Iranian oil minister on Friday that China remained firmly committed to joint projects, calling Iran "an important trade partner."

Obama signed the sanctions bill July 1, but the move did not derail a number of deals between Asian nations and Iran.

Days later, Chinese energy firms China International United Petroleum & Chemicals Co., also known as Unipec, and PetroChina International Co., or Chinaoil, sold four tanker cargoes of gasoline to Iran, while four others were sold by the Turkish refiner Tupras, said an oil industry official who asked to remain unidentified because he was speaking about an unannounced deal.

China and Iran also have continued talks over the last month regarding oil and gas field development, petrochemicals, refineries and pipeline projects, which have raised China's total investment to $40 billion, Iran's deputy oil minister, Hossein Noghrekar Shirazi, said last month. He said China has proposed to build seven new refineries in Iran.

Also in July, India opened new talks with Iran over a $7.4-billion pipeline that would deliver natural gas to India and Pakistan. A Turkish company, Som Petrol, signed a $1.3-billion deal to build a 410-mile section of pipeline carrying natural gas from Iran to Europe.

Russian and Iranian energy officials, after a meeting in Moscow, issued a statement saying they were "developing and widening" their joint efforts in the oil, gas and petrochemical sector.

The Russian Foreign Ministry has warned the United States against trying to punish Russian firms for expanding business in Iran.

Energy industry experts say China and other countries may continue signing deals with Iran, but before sinking money into the projects they will probably wait to see how strongly the United States and Europe will enforce the sanctions.

But it remains unclear how tough the Obama administration will be in punishing foreign companies, since doing so risks enraging major powers and complicating relations.

In 1998, for example, the Clinton administration considered sanctions against France's Total, Russia's Gazprom and Malaysia's Petronas under an earlier law punishing foreign companies that invested in Iran. But to the dismay of some in Congress, President Clinton waived the punishments after loud protests from the three governments.

This month, the Obama administration may reveal whether it is willing to give the new sanctions teeth. The administration is considering sanctions against 10 foreign companies and may announce its decision in the next few days. It has not disclosed where the companies are based.


Mark Dubowitz, a supporter of sanctions at the Foundation for Defense of Democracies, said large fines or other strong action "would send a ripple of fear through the entire energy industry."

If the response is mild "it would send a message of business as usual, and all the companies that have left would come back in," he said.

Some members of Congress remain nervous that the administration, during a period of tense relations with China, Russia and Turkey, might be tempted to set aside the punishments. At the House hearing on July 29, members of Congress complained repeatedly about past administrations' habit of waiving punishments for companies doing business in Iran, and urged the administration not to let China and Russia off the hook.

But Edward Chow, a former energy industry executive at the Center for Strategic and International Studies, noted that the countries the White House might enrage if it hands out stiff punishments are also ones whose cooperation the United States needs in its efforts to persuade Iran to give up its nuclear ambitions.

"This has kind of painted the president into a corner," he said.

http://articles.latimes.com/2010/aug/08/world/la-fg-iran-sanctions-20100809/4

Iran’s Natural Gas Riches: US Knife to the Heart of World Future Energy


By Finian Cunningham

Global Research, March 18, 2010

The scheduled start of drilling this month by China National Petroleum Company (CNPC) in Iran’s South Pars gas field could be both a harbinger and explanation of much wider geopolitical developments.

First of all, the $5 billion project – signed last year after years of foot dragging by western energy giants Total and Shell under the shadow of US-led sanctions – reveals the main arterial system for future world energy supply and demand.

Critics have long suspected that the real reason for US and other western military involvement in Iraq and Afghanistan is to control the Central Asian energy corridor. So far, the focus seems to be mainly on oil. For example, there have been claims that a planned oil pipeline from the Caspian Sea via Afghanistan and Pakistan to the Arabian Sea is the main prize behind the US’s seemingly futile military campaign in those countries.

But what the CNPC-Iranian partnership shows is that natural gas is the bigger prize that will be pivotal to the world economy, and specifically the dual flow of this fuel westwards and eastwards from Central Asia to Europe and China.

Michael Economides, editor of the Houston-based Energy Tribune, is one of a growing number of industry observers who is convinced that natural gas will supplant oil as the primary energy source, not only in the coming decades but over the next several centuries.

He points to the recent forecast by the International Energy Agency (IEA), based in Paris, which has dramatically revised its estimates of recoverable global natural gas reserves by 100 per cent. Economides ascribes this huge upgrade to rapid technological improvements in tapping hitherto inaccessible gas fields. He says that the IEA estimates of natural gas amount to 300 years of supply at current world demand. "If one only just fantasises any future contributions from the orders-of-magnitude larger resource in the form of natural gas hydrates, it is easy to see how natural gas is almost certainly to evolve into the premier fuel of the world economy," he adds.

The rising importance of natural gas as an energy source has been steady and inexorable over many years. Between 1973 and 2007, oil’s contribution to world energy supply dropped from 46.1 per cent to 34.0 per cent, with the increasing use of natural gas accounting for that decline, according to the IEA. Other sources, such as the US-based Energy Information Administration (EIA), predict that global natural gas consumption will treble between 1980 and 2030, by which date it will mostly likely become the primary energy source of choice for industrial and public needs.

There are sound scientific reasons why natural gas (methane) is becoming the kingpin of fossil fuels. Firstly, it has a much greater calorific value than either oil or coal. That is, more heat is produced per unit of fuel. Secondly, it is a cleaner fuel, emitting 30 per cent less carbon dioxide when burned compared with oil and 45 per cent less compared with coal. Thirdly, gas is more efficient for transport, both as a raw material in compressed form along land-based pipelines, and as a fuel to drive transport.

All energy industry agencies recognize that far and above the premier sources of future natural gas are the Middle East and Eurasia, including Russia. The US-based EIA puts the natural gas reserves in these regions as nine and seven times those of North America’s total – the latter itself being one of the world’s top sources for that fuel.

Within the Middle East, Iran is the undisputed top holder of gas reserves. Its South Pars gas field is the world’s largest. If converted to barrel-of-oil equivalents, Iran’s South Pars would dwarf the reserves of Saudi Arabia’s giant Ghawar oilfield. The latter is the world’s largest oilfield and since it came into operation in 1948, Ghawar has effectively been the world’s beating heart for raw energy supply. In the soon-to-come era of natural gas dominance over oil, Iran will oust Saudi Arabia as the world’s beating heart for energy.

Both Europe and China stand to be arterial routes for Iranian and Central Asian gas generally. Already, the infrastructure is shaping up to reflect this. The Nabucco pipeline is planned to supply gas from Iran (and Azerbaijan) via Turkey and Bulgaria all the way to Western Europe (signaling an end to Russian dominance). Iran also exports gas via pipelines separately to Turkey and Armenia and it is also following up export deals with other Gulf countries, including the United Arab Emirates and Oman. Another major arterial route is the so-called peace pipeline from Iran to Pakistan and on to India, through which Iran will export this fuel to two of the region’s most populous countries. But perhaps the most tantalizing prospect for Iran is the 1,865-kilometre pipeline that supplies natural gas from Turkmenistan through Uzbekistan and Kazakhstan into China and is due to operate at full capacity in 2012. Turkmenistan shares a 300-kilometre border with Iran to its south and already has a gas export deal with Tehran. If the Iranian-Chinese South Pars gas field development can be incorporated into the above transnational pipelines that would confirm Iran as the beating heart of a world economy in which gas is the primary energy source. This is amplified further by rapidly growing demand for gas by China which the EIA predicts could be dependent on imports for over a third of its natural gas consumption by 2030.

In this context of a major realignment in the world’s energy economy – one where there will be a continuing diminished role for the US – Washington’s blustering rhetoric about democracy and peace and war on terror or alleged Iranian nuclear weapons can be seen as a desperate attempt to conceal its fear that it stands to be a big loser. Encircling Iran with wars and threatening gas supplies to possibly the world’s top future gas customer – China – is the real deal. US actions are more accurately seen as putting a knife to the energy arteries of a world economy that it will no longer be able to dominate.

A further twist in this tale is the position of Russia. With its own vast reserves of natural gas, it can be seen as a competitor to Iran. Arguably less well positioned than Iran to supply both Europe and China, Russia is nevertheless a major player and has been assiduously courting China with an export deal since 2006. However, as Economides observes, "negotiations between the two countries have been on and off and, especially, the pipeline construction has been painfully slow".

But Russia’s ambitions to expand its natural gas exports may explain why it has shown itself to be such a mercurial ally to Iran. Moscow’s ambivalent position towards US-led sanctions against Iran, suggests that Russia has its own agenda for hampering the Islamic republic as a regional energy rival.

Finian.cunningham@gmail.com

www.globalresearch.ca/PrintArticle.php?articleId=18176

Russia, China, Iran redraw energy map
By M K Bhadrakumar

The inauguration of the Dauletabad-Sarakhs-Khangiran pipeline on Wednesday connecting Iran's northern Caspian region with Turkmenistan's vast gas field may go unnoticed amid the Western media cacophony that it is "apocalypse now" for the Islamic regime in Tehran.

The event sends strong messages for regional security. Within the space of three weeks, Turkmenistan has committed its entire gas exports to China, Russia and Iran. It has no urgent need of the pipelines that the United States and the European Union have been advancing. Are we hearing the faint notes of a Russia-China-Iran symphony?

The 182-kilometer Turkmen-Iranian pipeline starts modestly with the pumping of 8 billion cubic meters (bcm) of Turkmen gas. But its annual capacity is 20bcm, and that would meet the energy requirements of Iran's Caspian region and enable Tehran to free its own gas production in the southern fields for export. The mutual interest is perfect: Ashgabat gets an assured market next door; northern Iran can consume without fear of winter shortages; Tehran can generate more surplus for exports; Turkmenistan can seek transportation routes to the world market via Iran; and Iran can aspire to take advantage of its excellent geographical location as a hub for the Turkmen exports.

We are witnessing a new pattern of energy cooperation at the regional level that dispenses with Big Oil. Russia traditionally takes the lead. China and Iran follow the example. Russia, Iran and Turkmenistan hold respectively the world's largest, second-largest and fourth-largest gas reserves. And China will be consumer par excellence in this century. The matter is of profound consequence to the US global strategy.



The Turkmen-Iranian pipeline mocks the US's Iran policy. The US is threatening Iran with new sanctions and claims Tehran is "increasingly isolated". But Mahmud Ahmadinejad's presidential jet winds its way through a Central Asian tour and lands in Ashgabat for a red-carpet welcome by his Turkmen counterpart, Gurbanguly Berdymukhammedov, and a new economic axis emerges. Washington's coercive diplomacy hasn't worked. Turkmenistan, with a gross domestic product of US$18.3 billion, defied the sole superpower (GDP of $14.2 trillion) - and, worse still, made it look routine.

There are subplots, too. Tehran claims to have a deal with Ankara to transport Turkmen gas to Turkey via the existing 2,577km pipeline connecting Tabriz in northwestern Iran with Ankara. Indeed, Turkish diplomacy has an independent foreign-policy orientation. Turkey also aspires to be a hub for Europe's energy supplies. Europe may be losing the battle for establishing direct access to the Caspian.

Second, Russia does not seem perturbed by China tapping into Central Asian energy. Europe's need for Russian energy imports has dropped and Central Asian energy-producing countries are tapping China's market. From the Russian point of view, China's imports should not deprive it of energy (for its domestic consumption or exports). Russia has established deep enough presence in the Central Asian and Caspian energy sector to ensure it faces no energy shortage.

What matters most to Russia is that its dominant role as Europe's No 1 energy provider is not eroded. So long as the Central Asian countries have no pressing need for new US-backed trans-Caspian pipelines, Russia is satisfied.

During his recent visit to Ashgabat, Russian President Dmitry Medvedev normalized Russian-Turkmen energy ties. The restoration of ties with Turkmenistan is a major breakthrough for both countries. One, a frozen relationship is being resumed substantially, whereby Turkmenistan will maintain an annual supply of 30bcm to Russia. Two, to quote Medvedev, "For the first time in the history of Russian-Turkmen relations, gas supplies will be carried out based on a price formula that is absolutely in line with European gas market conditions." Russian commentators say Gazprom will find it unprofitable to buy Turkmen gas and if Moscow has chosen to pay a high price, that is primarily because of its resolve not to leave gas that could be used in alternative pipelines, above all in the US-backed Nabucco project.




Third, contrary to Western propaganda, Ashgabat does not see the Chinese pipeline as a substitute for Gazprom. Russia's pricing policy ensures that Ashgabat views Gazprom as an irreplaceable customer. The export price of the Turkmen gas to be sold to China is still under negotiation and the agreed price simply cannot match the Russian offer.

Fourth, Russia and Turkmenistan reiterated their commitment to the Caspian Coastal Pipeline (which will run along the Caspian's east coast toward Russia) with a capacity of 30bcm. Evidently, Russia hopes to cluster additional Central Asian gas from Turkmenistan (and Kazakhstan).

Fifth, Moscow and Ashgabat agreed to build jointly an east-west pipeline connecting all Turkmen gas fields to a single network so that the pipelines leading toward Russia, Iran and China can draw from any of the fields.

Indeed, against the backdrop of the intensification of the US push toward Central Asia, Medvedev's visit to Ashgabat impacted on regional security. At the joint press conference with Medvedev, Berdymukhammedov said the views of Turkmenistan and Russia on the regional processes, particularly in Central Asia and the Caspian region, were generally the same. He underlined that the two countries were of the view that the security of one cannot be achieved at the expense of the other. Medvedev agreed that there was similarity or unanimity between the two countries on issues related to security and confirmed their readiness to work together.
The United States' pipeline diplomacy in the Caspian, which strove to bypass Russia, elbow out China and isolate Iran, has foundered. Russia is now planning to double its intake of Azerbaijani gas, which further cuts into the Western efforts to engage Baku as a supplier for Nabucco. In tandem with Russia, Iran is also emerging as a consumer of Azerbaijani gas. In December, Azerbaijan inked an agreement to deliver gas to Iran through the 1,400km Kazi-Magomed-Astara pipeline.

The "big picture" is that Russia's South Stream and North Stream, which will supply gas to northern and southern Europe, have gained irreversible momentum. The stumbling blocks for North Stream have been cleared as Denmark (in October), Finland and Sweden (in November) and Germany (in December) approved the project from the environmental angle. The pipeline's construction will commence in the spring.

The $12-billion pipeline built jointly by Gazprom, Germany's E.ON Ruhrgas and BASF-Wintershall, and the Dutch gas transportation firm Gasunie bypasses the Soviet-era transit routes via Ukraine, Poland and Belarus and runs from the northwestern Russian port of Vyborg to the German port of Greifswald along a 1,220km route under the Baltic Sea. The first leg of the project with a carrying capacity of 27.5bcm annually will be completed next year and the capacity will double by 2012. North Stream will profoundly affect the geopolitics of Eurasia, trans-Atlantic equations and Russia's ties with Europe.

To be sure, 2009 proved to be a momentous year for the "energy war". The Chinese pipeline inaugurated by President Hu Jintao on December 14; the oil terminal near the port city of Nakhodka in Russia's far east inaugurated by Prime Minister Vladimir Putin on December 27 (which will be served by the mammoth $22-billion oil pipeline from the new fields in eastern Siberia leading to China and the Asia-Pacific markets); and the Iranian pipeline inaugurated by Ahmadinejad on January 6 - the energy map of Eurasia and the Caspian has been virtually redrawn.

The year 2010 begins on a fascinating new note: will Russia, China and Iran coordinate future moves or at least harmonize their competing interests?

http://www.atimes.com/atimes/Central_Asia/LA08Ag01.html

Russia-Iran Energy Road Map: Is Moscow Trying to Sit on Two Chairs?

Russian and Iranian energy ministers Sergei I. Shmatko and Massoud Mir-Kazemi, signed a “roadmap” to future economic cooperation in the oil, gas, and petrochemical industries, according to ITAR-TASS, a Russian news-wire.

Just weeks after Russia supported United Nations sanctions against Iran for developing a rogue nuclear program, and just as President Dmitry Medvedev demanded that Iran explains its nuclear program, the Russian Ministry of Energy stated that “sanctions will not hinder us in our joint cooperation” with Iran.

On Monday, Russian President Medvedev said that Iran is approaching the point where it would have the means to build a nuclear bomb, a statement that seems to demonstrate Russia’s grudging acceptance of American and Israeli intelligence, and which was rebuked by the Iranian government.
The Russians have yet to cancel their sale of the destabilizing S-300 anti-aircraft long-range missiles. While the recent U.N. sanctions prohibit weapons sales to Iran, the Obama Administration granted Russians an exception to sell Iran “defensive weapons,” namely the controversial S-300. Medvedev has not yet cancelled the missile deal, according to a top Russian military official.

The energy road map may be a Russian compensation to Iran, since Russo-Iranian relations have suffered somewhat since the beginning of the U.S.-Russian “reset.”

Evolution of the Russian position on Iran may be providing a window into the works of Russian intelligence. The Russian government is beginning to realize that the American, European, and Israeli assessment of Iranian nuclear ambitions is correct.

At the same time, the recent failures of Russian agents in America and the Russian foreign intelligence SVR’s inability to gather information on Iranian developments, such as the uncovering of the Qom nuclear facility in 2009, may be encouraging the Kremlin to trust Western intelligence more than its counterparts in Tehran.

Nevertheless, Russia will not just abandon an old ally like Iran—especially one that has bought billions of dollars of weapons and nuclear technology, and kept Russian weapons manufacturers afloat.

Iran is a notoriously unreliable business partner, particularly with regard to its oil and gas industries. Russia’s Gazprom is competing with Chinese state-owned companies for access to the massive Pars and Azar gas fields; Iran and Russia’s relationship continues to grow, at least in part, because of their shared perception of America as the adversary.

And Russia, which does not perceive of Iran as a critical strategic threat, like the United States does, may not be ready to sacrifice its economic interests for the common good—at least not yet.

Moscow Uses Anti-Iran Sanctions as Bargaining Leverage on Washington

Publication: Eurasia Daily Monitor Volume: 7 Issue: 140July 21, 2010 10:55 AM Age: 18 daysCategory: Eurasia Daily Monitor, Vlad’s Corner, Russia, Iran, Home Page, Foreign Policy, Military/Security, Energy, Europe By: Vladimir Socor
Russian President Dmitry Medvedev and Iranian President Mahmoud Ahmadinejad
To hinder Iran’s uranium-enrichment program, the US has introduced sanctions that bar deliveries of gasoline and other refined oil products to Iran. The European Union is following the US lead in this case. Russia’s initial response is calculated to suggest that it does not consider itself bound –either by these sanctions, or by the earlier US sanctions against companies that invest more than $20 million in any given year in Iran’s energy sector (Moscow-Tehran Oil and Gas Road-map to Circumvent Sanctions on Iran, EDM, July 20).

Moscow’s message is an opening gambit. It has been delivered from Russia’s Energy Ministry and Gazprom to Tehran, not from the top state and government level to the US and supportive governments. Energy Minister, Sergei Shmatko, and Gazprom Neft must have cleared their move with Prime Minister, Vladimir Putin. However, Russia is not necessarily committed to the course of action announced by Shmatko. Moscow is positioning itself for future maneuvering between Washington and Tehran on this issue as on other sanctions-related issues.

Moscow may or may not comply, de facto, with the US-led sanctions, imposed outside the UN Security Council. The Russian government does not legally recognize such “unilateral” sanctions. Russia only recognizes sanctions approved by UN Security Council resolutions (in practice, if approved by Russia itself and in the form acceptable to it within the Security Council).

At the concluding news conference with the Iranians in Moscow, Shmatko did reflect his government’s position in maintaining that “the advancement of cooperation between Russia and Iran does not contravene the UN Security Council sanctions” (Interfax, July 14). The clear implication is that such cooperation does not contravene US or other unilateral sanctions and can proceed legally (discouraged only by possible damage to Russian companies from US sanctions).

The latest round of UN Security Council sanctions includes, inter alia, a ban on the delivery of eight types of heavy weaponry to Iran (UN News Center, June 9). Moscow is not taking a clear position on whether the ban applies also to the S-300 air defense systems or not. Russian officials have made a number of ambiguous statements and also some mutually contradictory statements on this issue. The S-300’s are deemed critical to deterring air strikes against Iran’s nuclear-enrichment sites.

Foreign Minister, Sergei Lavrov, has defused the issue provisionally by declaring (most recently on July 15, while in Israel) that President, Dmitry Medvedev, would issue a decree listing the banned weapons. According to Lavrov, “the presidential decree is the mechanism for practical implementation of the Security Council resolution” (Interfax, July 15).

Thus, the Obama administration (as well as Israel) is being exposed yet again to a textbook case of Russian negotiating tactics. First, Moscow approved the sanctions resolution after almost two years of procrastination, watering it down and leaving the S-300 issue ambiguous. During this time, the Obama administration saw its leeway in Eurasia constrained by the quest for Russian support against Iran. In the next stage (now), implementation turns out to be subject to a Russian “mechanism” yet to be defined (to be negotiated). Classically, Russia makes a deal cashing in a quid-pro-quo, only to start negotiating again for the deal’s implementation, subject to some other quid-pro-quo. In the third stage, it will be up to Russia’s president to list the sanctions-banned weapons, and by the same token to omit certain items, leaving Russia free to deliver these to Iran. Thus, the Kremlin will ultimately interpret the UN Security Council resolution on the S-300’s and not only on this issue.

None of that means that Russia will deliver its S-300 missiles to Iran. On the contrary, Moscow has kept Tehran equally anxious. The delivery contract has been “frozen” for at least two years and remains so. Thus, Russia is demonstrating a semblance of restraint while converting this into bargaining leverage vis-à-vis Washington, through constant linkages with unrelated issues. Using a negotiating method that Tehran would understand if not approve, Moscow is selling the same carpet (its “freeze” on the S-300’s) continually, multiple times.

Similar tactics are at play regarding the US-led, non-UN sanctions on Iran’s energy sector. Whether the Russian government and companies under its control would proceed to breach these sanctions, as just hinted, is far from a foregone conclusion. For now, Moscow is signaling that it does not recognize those sanctions, reserving the right to ignore or circumvent them.

Iranian Oil Minister, Masoud Mirkazemi’s, invitation to Moscow and its timing were designed to catch Washington’s attention and build bargaining leverage. Moscow will probably handle the issue of oil and gas cooperation with Iran as it handles the S-300 issue, or its limited cooperation with Iran’s nuclear development program. It will almost certainly seek US geopolitical quid-pro-quos in Eurasia, in return for limiting or desisting from oil and gas sector cooperation with Iran.


http://blog.heritage.org/2010/07/16/russia-iran-energy-road-map-is-moscow-trying-to-sit-on-two-chairs/

Obama Turns to China, Mideast to Bid to Get Iran Sanctions `Globalized'

By Viola Gienger - Jul 29, 2010

The Obama administration will urge China and other governments in Asia, the Middle East and South America to impose sanctions on Iran in a widening effort to persuade the regime to abandon any pursuit of nuclear weapons.

Deputy Assistant Secretary of the Treasury Daniel Glaser told the House Oversight and Government Reform Committee in Washington today that he and other U.S. officials will travel to these regions to ensure sanctions against Iran are “globalized.”

China will be a key focus, said Robert Einhorn, a special adviser at the State Department. He said he and Glaser will visit Beijing to speak with officials there at the end of August, and that the issue is being raised at the highest levels.

“We need to speak with the Chinese,” Einhorn told the committee. “We need for them to enforce” United Nations sanctions “conscientiously” and stop coming to Iran’s aid when companies from other countries end their business with the regime, he said.

While European companies identified by the U.S. as investing in Iran’s energy sector have responded, oil and gas services suppliers in China, Russia, India and South Korea haven’t commented, Joseph Christoff, international affairs director at the Government Accountability Office, told the panel.

Skirting Sanctions

The United Arab Emirates must be targeted more aggressively for its role as a transshipment point for supplies to Iran from companies seeking to skirt sanctions, Christoff said.

The U.S. has ramped up sanctions on Iran and companies doing business with the regime after diplomatic efforts last year failed to halt the country’s uranium enrichment, a process that can be used to produce fuel or make a nuclear bomb.

A new round of UN sanctions was followed earlier this month by intensified U.S. penalties.

The sanctions pressure is critical to prevent an escalation of the threat from Iran, Einhorn and several committee members said.

“A nuclear-armed Iran would severely threaten the security and stability of a part of the world crucial to our interests and to the health of the global economy,” Einhorn told the panel.

No Waivers

Congress should make sure the administration doesn’t waive the U.S. sanctions as presidents have in the past to protect alliances with countries where violating companies are based, several lawmakers said.

“If we don’t do that, in my opinion, I think we are on the precipice of a war which could threaten the economy of the United States, not just the Middle East” because of the U.S. dependence on oil and gas from the region, said Representative Dan Burton, an Indiana Republican.

Officials of Repsol YPF SA of Spain have met with the GAO twice in past three months since the agency issued a list of 41 companies that have commercial activity in Iranian oil, gas or petrochemicals, Christoff said.

Repsol provided a letter that it had submitted to Iran saying it’s pulling out of a $10 billion liquefied natural gas project in which it had a 25 percent stake, he told the panel.

‘Pulling Out’

“They just met with us again on Monday and said that they had informed their partner Shell that they were officially pulling out after July 31,” he said, referring to Royal Dutch Shell Plc, Europe’s largest oil company. Christoff said Shell has a 50 percent stake in a $10 billion project.

Shell is among companies that have said they’re still considering whether to continue their investments, he said. New sanctions adopted this month by the European Union probably will accelerate Shell’s decision, he said.

European energy companies including Shell and Repsol have postponed gas accords in Iran amid U.S. pressure over the nuclear issue. Shell and Repsol discussed developing two blocks of the South Pars field and building what would be Iran’s first liquefied natural gas plant. Iran has the world’s second-largest gas reserves after Russia.

Gasoline Deliveries

Three Russian state-controlled oil companies, including OAO Rosneft and OAO Gazprom Neft, may begin delivering gasoline to Iran in a month, said the head of the Iran Commission of the Moscow Chamber of Commerce & Industry.

Talks are being held on a “working level” and the first delivery may take place in late August or September, Rajab Safarov said in an interview in Moscow today.

Glaser, a deputy assistant secretary for terrorist financing and financial crimes, and Einhorn, who advises on the spread of nuclear weapons and arms control, also will visit Seoul and Tokyo next week to discuss sanctions on Iran and North Korea.

Einhorn praised the European Union for its decision this week to impose its toughest sanctions yet, including a ban on new investment in Iran’s oil and gas industries, restrictions on export-credit guarantees and closer monitoring of banks that do business with the country.

“It set some very high standards for sanctions,” Einhorn said. Next week’s trip is intended “to see if Japan and South Korea could come up to that mark.”

In China, the two will press officials to “enforce the letter of” the latest UN Security Council resolution, he said. They’ll also urge the Chinese to “take strong steps against” entities that are assisting Iran’s missile programs in any way, Einhorn told the committee.

“The Chinese will argue that they have important energy security needs,” he said. “In our view, they are overachieving in terms of their energy security needs. We think they have to kind of rebalance their priorities.”

To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net.

http://www.bloomberg.com/news/2010-07-29/obama-turns-to-china-mideast-to-bid-to-get-iran-sanctions-globalized-.html

Sanctions Open Iran to Russian, Chinese Firms

Shayan Ghajar

As Western nations wait to see if sanctions are having the desired effects on Iran’s economy and foreign policy, India’s Petroleum Secretary S. Sundareshan announced that recent U.S. sanctions would hamper state-controlled Indian firms’ attempts to invest in Iranian energy projects.

Sanctions, thus far, have complicated the economic dealings of many U.S. allies or friendly nations, even some of those which voted against Iran in the U.N. Security Council. Many nations in Asia and elsewhere are beginning efforts to circumvent sanctions to invest in Iran’s energy sector–especially three of the four members of BRIC, namely India, China, and Russia.

Mr. Sundareshan told the Wall Stree Journal that India has much to gain with investing in Iran, and much to lose should it fail: “There are unexplored frontiers in gas, which provide immense opportunities for [India]. We would certainly like to utilize these opportunities without sanctions.” India’s Foreign Minister has also complained about American sanctions publicly, saying they would endanger India’s “energy security and our attempts to meet the development needs of our people.”

India relies on Iran for about 14% of its crude oil imports, which would not be affected by sanctions, according to the WSJ. However, India also has plans to link itself to Iran via a pipeline through Pakistan. Discussions on pricing and construction will resume soon, the two nations say. Sanctions regarding the pipeline do not seem to concern any of the nations involved, despite the billions of dollars involved in such a project. India’s ever-expanding economy requires increasing energy imports to sustain itself, and Iran, with the world’s second largest natural gas reserves and geographical proximity to India, is the nation’s best option. While sanctions have given Indian companies pause in committing to investments, they have not affected India’s multi-billion dollar future dealings with Iran’s energy sector, as India seems more worried about its energy security than potential friction with the United States over Iran.

China, too, may undercut Western efforts at economically alienating Iran. China only agreed to U.N. sanctions, apparently, when language restricting deals with Iran’s energy sector were excised. Consequently, China has no legal obligations to avoid large-scale investments or cooperation in Iran’s energy industry. Coupled with new restrictions on Western companies resulting from American, European, and a multitude of unilateral sanctions from nations such as Australia and Canada, Iran’s market is invitingly open to Chinese business free of Western competition. The L.A. Times quotes an anonymous American diplomat as saying China “has given no commitment not to take up the slack” when these sanctions-wary companies back out of Iran. Even non-Western nations aligned with the United States and Europe on Iran, such as Japan, have seen the vacuums left by their corporate pullouts filled by Chinese firms.

China may utilize other methods to engage in lucrative business deals with Iran, according to the article, such as laundering petroleum exports to Iran by rerouting them through other nations in the Persian Gulf. At the same time, many Chinese firms have no need to be circumspect in their deals with Iran, as they do no business whatsoever in the United States and would not be subject to American sanctions. Chinese trade with Iran, Tehran estimates, will reach $50 billion within the next few years, a process accelerated, no doubt, by the lack of Western competition.

China’s conditional support for U.N. sanctions indicates their awareness of the economic advantages Iran’s isolation would provide Beijing.

Russia, too, is showing signs of undermining American sanctions efforts. According to the New York Times, Russia’s Energy Minister announced a plan of broad cooperation with Iran’s energy industry. Russia has been vocally opposed to unilateral sanctions beyond the scope of the Security Council’s restrictions on economic involvement in Iran, with its latest invitation to Russian companies to invest in Iran’s oil industry overtly flouting the Obama administration’s recent sanctions bill. Russia has spoken of forming bi-national banks and energy conglomerates with Iran, though the timetable for such projects has yet to be established.

The Times article cites Russia’s opposition to any measures increasing Iran’s internal political turmoil by affecting the population economically as one of its reasons for ignoring American sanctions. If true, Russia would be intentionally shoring up the Iranian government economically to help it withstand the domestic threat posed by the Green Movement–a serious breach with American and E.U. foreign policy efforts.

Iran itself is engaging in a variety of strategies to evade the obstacles posed by recent sanctions. The Wall Street Journal reports that a bank in the European Union, EIH, based in Hamburg, acts as a go-between for the Iranian government in Europe. The bank has done over a billion dollars of business with Iranian companies involved in defense contracts ranging from conventional military purchases to ballistic missile testing programs. The bank evades E.U. sanctions by virtue of its non-inclusion on the list of blacklisted companies.

Iran also uses less conventional methods to evade sanctions. According to the BBC, the Islamic Republic of Iran’s shipping line has registered ships with the Isle of Man, a British dependency, to skirt around potential searches and seizures of Iranian vessels. The ships, under the Isle of Man’s flag, would not be subject to U.N. restrictions on Iranian trade and shipping.

Sanctions, it seems, are making Iran’s economic transactions inconvenient but by no means impossible. While Iran may need to pay higher prices to its BRIC supporters for energy imports, it is clear that sanctions have not driven businesses away from Iran. On the contrary, nations that supported limited sanctions may have done so precisely because it would open greater markets for them in Iran’s energy sector by driving away competitors.

http://www.insideiran.org/critical-comments/sanctions-open-iran-to-russian-chinese-firms/

US tells China not to exploit sanctions on Iran
By Christian Oliver in Seoul

Published: August 2 2010 13:55 | Last updated: August 2 2010 18:37

Washington has told China to stop taking advantage of the UN sanctions regime against Iran by seizing opportunities left by departing European companies.

China last month condemned moves by the European Union to ratchet up sanctions against Tehran’s nuclear programme by hitting transport, energy and finance. Iran is the third biggest oil supplier to China, and Beijing is investing heavily in the Islamic republic’s energy fields and refineries.

“We want China to be a responsible stakeholder in the international system and that means co-operating with UN Security Council resolutions,” Robert Einhorn, US special adviser for non-proliferation and arms control, said on Monday on a trip to Seoul. “It means not backfilling, not taking advantage of the responsible self-restraint of other countries.”

Mr Einhorn conceded China had a “large and genuine” need for energy security, but said a priority of his visit to Beijing later this month would be to persuade the country to pull out of Iran because of sanctions.

“One concern that a number of countries expressed when approached to take measures against Iran is that ‘if we practise restraint, China will fill in behind, China will take advantage of our restraint’,” Mr Einhorn told reporters in Seoul.

China is already a crucial partner for Iran as European companies have quit major projects, particularly the massive South Pars gas field beneath the waters of the Gulf. Royal Dutch Shell, Repsol, OMV and Total had pursued projects there but the only foreign investor remaining is China National Petroleum Corporation.

The South Pars gas field had been particularly prized because of the lucrative potential of converting it into liquefied natural gas. Foreign oil companies say they were ultimately deterred from investing not only by sanctions but also by poor contractual terms and the purging of technocrats from Iran’s state energy companies.

The US has targeted gasoline imports as Tehran’s Achilles heel. While western companies have cut off their exports to Iran, Beijing not only ships petrol to Iran but is also committed to help expand refinery capacity. Iran is the second biggest crude oil producer in the Opec oil cartel but it lacks refinery capacity. Hossein Noghrehkar, a deputy oil minister, said last week that Chinese investment in the energy sector totalled $40bn and that Tehran and Beijing were considering constructing seven refineries.

http://www.ft.com/cms/s/0/0253d046-9e28-11df-b377-00144feab49a.html

Moscow-Tehran Oil and Gas Roadmap to Circumvent Sanctions on Iran
Publication: Eurasia Daily Monitor Volume: 7 Issue: 139July 20, 2010 12:08 PM Age: 19 daysCategory: Eurasia Daily Monitor, Featured, Home Page, Energy, Foreign Policy, Middle East, Iran, Russia By: Vladimir Socor
Russian Energy Minister Sergei Shmatko, and Iranian Oil Minister Masoud Mirkazemi meet in Moscow on July 14th.
On July 14 in Moscow, Russian Energy Minister, Sergei Shmatko, and Iran’s Oil Minister, Masoud Mirkazemi, announced ambitious plans for bilateral cooperation, short-term and long-term. If implemented, these would circumvent two sets of sanctions imposed (outside the UN Security Council) by the United States and other Western countries: sanctions against companies that supply gasoline and other refined oil products to Iran and against those that invest in Iran’s energy sector.

Moscow hosted the Iranian delegation barely two weeks after the enactment of sanctions by the US, EU, and other Western governments against deliveries of oil products (most critically, gasoline) to Iran. The companies Shell, BP, and Total have already stopped such sales, with other Western companies certain to follow suit.

Shmatko, however, announced the opposite intention at the joint news conference with Mirkazemi in Moscow: “Russian companies are prepared to perform deliveries of petroleum products to Iran….The sanctions in no way affect cooperation between Russia and Iran” (Interfax, July 14).

These calculated words signal to Washington (as the main interested party) that Moscow reserves a free hand on this issue. Russia would decide for itself whether, or when and on what conditions, to comply with this set of sanctions or not.

The privately-owned Lukoil stopped delivering gasoline and other oil products to Iran in March-April 2010; and withdrew at the same time from a major Iranian oilfield project (see below), citing both existing and then-pending US sanctions (Dow-Jones, March 24). With assets and financial operations in the US, thus potentially exposed to US sanctions, and with a US company (Conoco-Phillips) among its shareholders, Lukoil has chosen to play it safe on Iran. However, this does not indicate Russian government endorsement of the sanctions.

The Kremlin-controlled Rosneft, Gazprom Neft, and Surgutneftegaz could hypothetically step in and supply refined oil products to Iran (Nezavisimaya Gazeta, July 15), whether directly or through intermediaries. Due to its shortage of refining capacities, Iran currently imports between one third and 40 percent of the gasoline daily consumed in the country. Iran’s gasoline import requirements are roughly estimated at 100,000 barrels per day or 20 million liters daily, according to Russia’s energy ministry and to Mirkazemi, respectively (Interfax, July 14; Vremya Novostey, July 15).

Gazprom Neft (Gazprom’s oil subsidiary) is replacing Lukoil in the Anaran oilfield project in Iran; while Sibur (Gazprom-controlled petrochemicals concern, Russia’s largest) has also expressed interest in Iranian projects. Aleksandr Dyukov, Chairman and CEO of Gazprom Neft and concurrently Chairman of Sibur (his connections with Vladimir Putin date back to the 1990’s in St. Petersburg) participated in the Moscow meetings with Mirkazemi.

Iran had already declared its intention to remove Lukoil from the Anaran project in late 2009, allegedly for failing to meet contractual obligations on time (ITAR-TASS, July 17). In November 2009 (prior to Lukoil’s withdrawal announcement), Gazprom Neft and the National Iranian Oil Company (NIOC) signed a memorandum of understanding on Gazprom Neft’s entry into the Anaran project. On July 1, 2010, Gazprom Neft Vice-President Boris Zilbermints confirmed the intention to go ahead with this project, as part of the company’s plan to increase oil extraction from 60 million tons at present to 100 million tons per year by 2020. Oil extraction in Cuba forms another part of the same plan (Interfax, Dow-Jones, July 1).

Anaran was originally a project of Norway’s Statoil, with Lukoil as a minority stakeholder. Statoil withdrew in 2007 deferring to the US-led sanctions. Two of the project’s four blocks, Azar and Shangul, have been explored by Statoil and are estimated to contain 2 billion barrels of oil.

This project’s onshore location, adjacent to Iran’s border with Iraq, is of particular interest to Gazprom Neft. Directly across that border, the same company plans to develop Iraq’s Badrah oil field. There, GazpromNeft leads an international group that also includes South Korea’s Kogas, Turkish Petroleum (TPAO), and the Malaysia-based Petronas.

Meanwhile, Gazprom Neft’s parent company Gazprom is involved in developing the second and third phases of Iran’s South Pars gas deposits. Total of France and Petronas are also partners with Gazprom in that project. US sanctions, however, have resulted in freezing South Pars development for the time being.

Gazprom is keenly interested in routing the vast resources of South Pars (more than 20 phases altogether) away from European markets, so as to prevent Iranian gas from competing with Gazprom in Europe. Thus, Gazprom encourages the proposed construction of an Iran-Pakistan-India gas pipeline (again contradicting Washington, which opposes Pakistan’s participation in this project). Gazprom’s policy on this issue is primarily guided by its long-term strategy for dominance in Europe. Its Asia business is subordinated to its European strategy. Within this framework, Gazprom’s pipeline-construction subsidiary, StroyTransGaz, offers to build an Iran-Pakistan-India gas pipeline.

At their Moscow meeting, Shmatko and Mirkazemi signed a road-map agreement on joint oil and gas projects with a 30-year time-frame. The package of documents had been under discussion since 2008 and was updated during discussions on July 12-14 in Moscow. Again, according to Shmatko, “No sanctions can hinder us in cooperating in this sphere” (Nezavisimaya Gazeta, July 15).

The stated intentions include: joint development of oil and gas fields; sales of refined oil products and petrochemicals; natural gas transit, swapping, and marketing; creation of a joint bank, using the respective national currencies to finance joint ventures; and holding follow-up discussions on nuclear-generated electrical power. Joint ventures are envisaged both in Iran and in third countries. A round of talks on specific projects is intended for the fourth quarter of 2010 (Interfax, July 14; Russia Profile, IRNA, July 15; MEES, July 19).

Whether the Russian government and companies under its control would proceed to breach the US-led sanctions is far from a foregone conclusion (UN sanctions are a separate matter). For now, Moscow is signaling that it does not recognize those sanctions, reserving the right to ignore or circumvent them. Mirkazemi’s invitation to Moscow and its timing are designed to catch Washington’s attention and build bargaining leverage. Moscow will probably handle the issue of oil and gas cooperation with Iran as it handles the possible delivery of S-300 air defense systems, or its limited cooperation with Iran’s nuclear development program. It will almost certainly seek US geopolitical quid-pro-quos in Eurasia, in return for limiting or desisting from oil and gas sector cooperation with Iran.

As Sanctions Rise, China Steps Deeper Into Iran

Analysis by Antoaneta Becker (london)Friday, July 30, 2010
Inter Press Service
The European Union's new sanctions against Iran appear to open a new space for eager Chinese companies to expand their investments in a country viewed as a rogue player by much of the western world.

With China recently coming to light as Iran's largest trade partner, some Chinese analysts predict a wealth of new geopolitical and business opportunities with Iran. But officialdom may still waver at the idea of Beijing seen as a 'free-rider'.

An energy-thirsty China has signed agreements with Iran worth tens of billions of dollars to allow it privileged access to Iran's oil and gas sector. Courting the partnership of Iran, which possesses the world's fourth largest reserves of oil and second largest of gas, has been a long and arduous process, and Beijing would loathe to jeopardise it.

In recently published memoirs China's long-time ambassador to Tehran Hua Liming admitted that his diplomacy in Iran after China became an oil importer in the early 1990s had been entirely dictated by energy politics. Last year Iran accounted for 11 percent of China's oil imports, ranking third among China's main oil suppliers after Angola and Saudi Arabia.

Spurred by its energy needs, China has undertaken a range of investment projects in Iran, gradually filling in the void left over by Western firms forced out by international sanctions. With more than 100 Chinese companies present in Iran, it has built Tehran's subway, power stations, ferrous metals smelting factories and petrochemical plants.

As bilateral trade reached 21.2 billion dollars in 2009, China surfaced as Iran's most important trade partner. On paper the European Union still ranks as Iran's largest trading partner, but if Chinese goods imported in Iran via the United Arab Emirates are considered, China has already overtaken the EU.

This has led some to believe that Iran's defiant attitude towards the west derives somewhat from a newfound confidence that China is now supplanting Tehran's traditional trade partners. 'Who can blame Iran for being so ferocious with China behind its back?' says an opinion piece on one of China's largest Internet portals China.com.

With international pressure on Iran to abandon its nuclear programme mounting in the last few years, western companies began reducing their dealings with Tehran further, and Iran turned more to China for investment in its oil and gas sectors, says Dr. Harsh V. Pant, professor in the Department of Defence studies at King's College, London.

The new round of sanctions agreed by the European Union means that 'China will remain Iran's most significant major power supporter, and there will be little incentive for Tehran to negotiate in good faith,' Dr. Pant tells IPS.

The sanctions target the oil and gas industries -- the backbone of Iran's economy, as well as foreign trade and financial services. They ban new EU investments in the energy sector and the export to Iran of key equipment and technology for refining and for the exploration and production of natural gas.

The EU foreign ministers announced the new restrictions a month after the U.S. imposed its own strengthened sanctions on Iran. Last month the UN Security Council passed a fourth round of international sanctions over Iran's clandestine nuclear programme. China, a UN Security Council member, inconspicuously lent its support.

'Even though China does not want to be seen as ganging up with the West and hopes to maintain a strategic partnership with Tehran, it does not want to complicate relations with Washington either,' says Jonathan Holslag, research fellow with the Brussels Institute of Contemporary China studies.

Holslag believes Beijing has given 'subtle but clear signals that it wants Iran to cooperate with the UN.' He points to Beijing's decision to slow down investment in the Yadavaran oil field and delay the disbursement of loans. When Iranian President Mahmoud Ahmadinejad visited the Shanghai Expo, Chinese leaders reportedly refused to meet him.

With China called upon to become a 'responsible stakeholder' in the international system, Beijing has walked a fine line, trying to work in concert with the international community to force Tehran to abandon its nuclear weapons programme, while preserving its vital interests in Iran. Beijing supports non-proliferation efforts as part of its broader campaign to gain a higher international profile.

Attempting to water down previous UN sanctions has not only been for the purpose of protecting China's energy supplies, argues Holslag. He believes the Chinese elite finds the sanctions counterproductive as they are 'the grist for the mill of Iranian hardliners' and fuel 'nuclear nationalism'.

On Sunday China's top diplomat called for fresh nuclear talks and more diplomatic effort to resolve the standoff over Iran's nuclear programme. 'China continues on the path of negotiations' regarding Tehran's nuclear energy programme, foreign minister Yang Jiechi said in Vienna.

A recent piece in the Chinese newspaper Global Times claimed that Beijing had secured tacit agreement from western powers that in any follow-on sanctions adopted by the U.S. and the European Union, China's interests in Iranian energy and trade would be protected.

But 'the new EU sanctions mean that the Iranian energy sector will continue to face major constraints in reaching its full potential,' says Dr. Pant. 'And therefore China will find it difficult to exploit the sector fully.'

In his memoirs ex-ambassador Hua Liming recounts the difficulties China and Iran faced with securing the flow of Iranian high sulphur crude oil to China in mid-1990s. Although Iran now exports around 27 million metric tonnes of crude to China every year, the lack of knowhow and technology still impede the progress of several Chinese oil exploration and development projects in Iran.

http://www.globalissues.org/news/2010/07/30/6457

Europe's Iran sanctions may backfire

By Kaveh L Afrasiabi

The European Union (EU) on Monday adopted a new round of sanctions against Iran that, if implemented, will have serious implications not only for the EU as the Islamic Republic's largest trading partner, but also for its energy security.

The new European sanctions target Iranian shipping and air cargo companies, impose visa bans on officials and freeze assets linked to the Islamic Revolutionary Guards Corps, and also include trade insurance and financial sanctions. They ban new EU investments in Iran's nuclear and gas sectors as well as any technical energy assistance - this from a continent that receives roughly 29% of Iran's crude oil exports and is increasingly dependent on its gas exports.

The EU sanctions support curbs under the UN Security Council



Resolution 1929 imposed on June 10, which were followed by US sanctions. The resolution paved the way for a fourth round of international sanctions over claims that Iran is building nuclear weapons. Tehran denies the accusations and says its nuclear program is for peaceful purposes only.

In light of Iran's serious need for foreign capital in its energy sector, the crippling effect of Western sanctions on its oil and gas is bound to have ripple effects in accentuating Europe's current energy insecurity, reflected in the 27-member EU's wariness of undue dependence on Russia and its frantic search to diversify sources of gas imports.

It may well be that the implicit assumption behind the new EU sanctions is the comforting assurance that the energy sanctions will not cripple Iran's ability to export, allowing Europe to continue to benefit. The crux of Europe's dilemma, however, is that sanctions on Iran will inevitably translate into economic, financial and energy losses for the EU.

By imposing sanctions on Iran's energy sector while expecting business as usual in the delivery of oil and gas, European politicians are engaging in the self-deluding notion that somehow they can be at the forefront of the sanctions regime on Iran without incurring substantial costs.

Already, Iran has warned that it may switch its energy transactions from the euro to other currencies, above all the dirham of the United Arab Emirates. The mere threat of such a move simply adds to the euro's weaknesses at a critical time when the eurozone is grappling with multiple difficulties in its currency and financial health.

Not only that, the new EU sanctions, in addition to switching the EU's so-called two-track diplomacy with Iran almost entirely to one-track coercive diplomacy, target Europe's own hitherto reliable source of energy, unlike sanctions from the US, which does not directly import oil or gas from Iran. A case in point is the Swiss energy giant EGL, which has signed a US$13 billion 25-year contract with Iran that almost certainly will be hurt by the new Western sanctions on Iran's energy sector.

Ironically, the EU's decision comes only a few days after Turkey signed a US$1.3 billion pipeline agreement with Iran that calls for gas exports of 2.1 billion cubic feet a day (cf/d) in three years. No surprise then that Ankara was quick in denouncing the EU's sanctions and openly stated it would not honor them.

In addition to the proposed 410 mile (660 kilometer) pipeline, the existing 745 mile Iran-Turkey pipeline, completed in 2001, can transport up to 1.4 billion cf/d of natural gas, although due to technical and other difficulties it has never operated at optimal levels and there have been periodic interruptions.

"The EU has foolishly and blindly followed the footsteps of the United States, which has no vested economic interests with Iran,'' a Tehran University political science professor told the author. ''This is going to have negative geo-economic implications for the European Union, that is, telling Iran that now we would love to have your oil and gas, but we will do everything possible to make sure that your energy sectors are crippled. What an irony."

In response, Iran would probably expand its energy ties with Asian countries such as India, which had increased its oil imports from Iran by 9% compared to last year, the professor added. Nor is there any sign that China and Japan, which together account for roughly one third of Iran's oil exports, are ready to risk their energy security over the nuclear standoff, as Europe has now done.

Without doubt, the European and US sanctions will have a significant impact on Iran's trajectory as a gas producer in the years to come. According to senior Iranian energy officials, Iran needs a minimum of $8 billion in investment in the gas sector, given the fact that some two-thirds of its gas reserves remain undeveloped, particularly in the giant South Pars. The gas field contains roughly half of Iran's gas and is shared with Qatar, which has far outplayed Iran in its exploitation of the reserve, much to the chagrin of the Iranians who are worried that Qatar will take advantage of the Western sanctions.

A big question concerns how the new EU sanctions will impact on plans for the ambitious "Persian pipeline" that could connect Iran's South Pars gas to Europe via Turkey? [1] Has Europe really given serious thought to these questions or, as the late German Iran specialist Johannes Reissner once put it, has Europe fallen into the malady of a "nuclear reductionism"?

Prospects for a mini-breakthrough
Meanwhile, in the maddening march of Western governments toward tougher sanctions on Iran there is the glimmer of a mini-breakthrough in the area of a nuclear fuel exchange for Iran's small medical reactor.

After extensive exchanges with the International Atomic Energy Agency (IAEA), there is reportedly a considerable narrowing of differences between the parties on this issue. By early to mid-September we may witness the finalization of an IAEA-proposed deal for a fuel swap.

Iran has now submitted a new letter to the IAEA and the Vienna Group, consisting of the US, Russia, France and the IAEA, regarding the technical aspects of the fuel swap, urging the other side not to "waste time".

Reports from Tehran indicate some new signs of flexibility on Iran's part, such as with respect to the thorny issue of Iran's production of 20% enriched uranium. Iran may now be willing to forego this in exchange for a firm commitment from the Vienna group on the timely delivery of nuclear fuel to the Tehran reactor.

Not only that, the chances are that Iran, which has offered a new round of multilateral nuclear talks this September, may be willing to entertain a deal whereby it would put its enrichment activities on "standby option" and agree to a temporary freeze without stopping its centrifuges from "dry spinning"; this in exchange for the lifting of sanctions.

The "standby option" is, indeed, the most that the West can expect from Iran at this stage, since the "zero centrifuge" option is a thing of the past - and politically unrealistic in Iran.

Thus, a combined nuclear fuel swap with the standby option, together with other "objective guarantees" regarding Iran's peaceful nuclear program, may at this point pose the best and most feasible scenario for ending a crisis that over the past few months has qualitatively worsened and, indeed, could get a lot worse.

http://www.atimes.com/atimes/Middle_East/LG28Ak01.html