New gas deals between Russia and Iran threaten the West
Russian President Vladimir Putin arrived in Tehran last week for the second time since he ordered the February 24 invasion of Ukraine. Just before his arrival, the Russian gas giant, Gazprom, signed a 40 billion dollar memorandum of understanding with the National Iranian Oil Company (NIOC) which is part of a vast program of increased cooperation between Russia and the Iran. It builds on ideas discussed in January between Putin and Iranian President Ebrahim Raisi and the early June visit by Russian Deputy Prime Minister Alexander Novak, both analyzed in full by OilPrice.com, and is crucial for the current global gas crisis.
Among other agreements contained in the MoU, Gazprom has pledged to provide full assistance to NIOC in the $10 billion development of the Kish and North Pars gas fields for production of over $10 million. cubic meters of gas per day. The MoU also contains details of a US$15 billion project to increase pressure in the supergiant South Pars gas field on Iran’s maritime border with Qatar. Gazprom will additionally be involved in the completion of various liquefied natural gas (LNG) projects and the construction of gas export pipelines, according to Iranian news sources.
This is designed by the Kremlin to give it even more control over future gas supplies from Iran which might have initially found a home in southern Europe, before being transported north, to help alleviate the current shortage of gas supply in major European countries. By also getting more deeply involved in the massive South Pars gas field, Russia has also positioned itself to disrupt LNG supplies from Qatar to Europe. The South Pars field is a 3,700 square kilometer area of the world’s largest gas reservoir that contains at least 1,800 trillion cubic feet of gas and at least 50 billion barrels of natural gas condensate, the 6,000 square kilometer remains of the Qatar-owned North Field site. This takes on even greater geopolitical significance, given the continued interest of Russian and Iranian sponsor China in the still-controversial Phase 11 gas site in South Pars.
Gazprom’s focus on expanding Iran’s LNG capacity comes at exactly a time when the dramatic increase in LNG supplies is vital for European states to offset gas supply shortages resulting from the bans. to import Russian gas. It is clearly identifiable as a tried and true basic KGB strategy that relies on a combination of gradually increasing the pressure on an enemy and then waiting as long as it takes for them to give up, as it is often a great way to claim victory. . The Kremlin knows that from the start of talks on banning gas imports from Russia, Germany – the de facto leader of the European Union (EU) and its executive, the European Commission (EC) – did not want to cut itself off from Russian gas imports. Indeed, Germany’s response for some time after Russia’s invasion of Ukraine in February seemed much less concerned about stopping oil and gas imports from Russia and much more concerned about finding the best way to continue to pay them so that Russia does not stop them due to default. This followed the March 31 decree signed by Putin that required EU buyers to pay in rubles for Russian gas through a new currency conversion mechanism or risk having their supplies suspended.
Then, in a directive circulated to all EU member states on April 21, the EC said: “It seems possible [to pay for Russian gas after the adoption of the new decree without being in conflict with EU law].” The EC added: “EU companies can ask their Russian counterparts to fulfill their contractual obligations in the same way as before the adoption of the decree, i.e. by depositing the amount due in euros or in dollars”. The EC also said existing EU sanctions against Russia do not prohibit engagement with Gazprom or Gazprombank, beyond the bank’s refinancing bans. “Similarly, they do not prohibit opening an account with Gazprombank, [although] such a commitment or account must not lead to the violation of other prohibitions.
It should be remembered that Germany’s extreme reluctance to play a role in a European ban on Russian energy imports, especially gas, occurred before reality even reached precisely the way in which a such a ban would cripple its economic growth and affect voters during the winter months. , which are now fast approaching. Inflation in European Union states is rising sharply – averaging 8.6% across the Union – while economic growth was just 0.6% quarter-on-quarter (qoq) in the first quarter of this year, with only one month of this period reflecting conditions after Russia. invades Ukraine. In Germany – for so long a global and European economic powerhouse, driven for years by the effective devaluation of its mighty Deutschmark to the much less mighty Euro – economic growth in the first quarter was just 0.2% year-on-year. , and in the previous quarter, the country had experienced a very rare contraction, minus 0.3% qoq. Despite this anemic growth rate, spiraling inflation prompted the European Central Bank (ECB) to raise interest rates across the Union for the first time in 11 years last week, stifling more prospects for economic growth.
There have also been warnings in Germany, from local authorities, about the need for households and businesses to reduce their energy consumption during the winter, and the EU proposal that member countries cut their gas consumption by 15% to prepare for possible supply cuts from Russia saw fierce opposition last week from at least 12 of the 27 member states. On the other side of the coin, Russia now derives more from its energy exports than it did before invading Ukraine, the ruble is at its highest level for eight years and the Moscow’s gas exports represent only 2% of Russian GDP. In short, Russia can afford to wait, but not the EU.
By therefore creating a counterpoint to Qatari LNG supplies, and also creating the very real prospect of disrupting them at source or in transit, as Russia or one of its proxies could easily do, the Kremlin seeks to turn the live a little further. A welcome addition to Russia’s plan to finally unleash Iran’s huge LNG potential – after all, Iran has the second largest gas reserves in the world, after Russia, and plans are in place to that he’s been exploiting them for years – is that he’s also energizing the debate about whether to bring Iran back into the fold of global diplomacy by resurrecting some version of the Joint Comprehensive Plan of Action (JCPOA or, colloquially, “the nuclear deal”). Germany (the “+1” in the “P5+1” group of nations that accepted the original JCPOA, along with Russia and China, and France, the United Kingdom, and the United States) does not was ever in favor of canceling the agreement, and neither was France, with Russia and China also, of course, vehemently against the idea of canceling it.
As I have analyzed in depth in my new book on world oil markets, seeking to drive a new wedge between the de facto leader of the EU – Germany – and the United States, the real objective of Russia is adding further pressure to its 70-year-old attempts to destroy the North Atlantic Treaty Organization (NATO), which Putin holds personally responsible for the 1991 collapse of the USSR. Putin said in 2005 that: “The collapse of the Soviet Union was the greatest geopolitical catastrophe of the century. For the Russian people, it has become a real tragedy. Tens of millions of our citizens and compatriots found themselves outside Russian territory. The epidemic of disintegration has also spread to Russia itself. It was this idea, above all, that prompted him to order Russia to invade Ukraine in February.
For Putin, therefore, as I have also analyzed in depth in my new book on world oil markets, Russia’s oil and gas resources have always been a key mechanism by which Russia can: now in the EU firmly in line; second, to ensure that major EU states (especially Germany) do not seek to interfere too much in Russia’s relations with other non-EU countries; third, to take advantage, whenever possible, of existing disagreements between the EU and the US to critically undermine NATO’s core doctrine of “collective defense” against attack; and fourth, to use the prospect of given or denied energy supplies to project power into “chaotic states” – Russia, if possible and when it is in its interest, will first create chaos and then project its own power into this destabilized state and unfocused state.
By Simon Watkins for Oilprice.com