Sanctions on Iran Lifted Up: Where it Leads Russia and Oil Market?

Безымянный

International Atomic Energy Agency (IAEA) declared on Saturday that Iran has fulfilled all obligations regarding the dismantling of its nuclear program, sending the bulk of uranium outside of the country and disabling its main nuclear reactor-Arak. Therefore all economic sanctions must be lifted up. Reentering of Iran to international market would help to decrease bloody tensions in the Middle East somehow, even it will drag oil prices down by $10.

Lifting of sanctions mean for Iran a free access to its long-frozen assets for nearly $100 billion, as well as, freedom to export oil and natural gas to Europe [1]. Regaining access to $100 billion is the most essential factor for Iran taking into account the current critical finance situation of the country. Access to international marketplace will allow Iran to increase partnership deals with third world countries, which were banned by U.S and the EU from trade with Iran because of sanctions. Iran’s return to the world market is expected to add 1 million barrels of oil a day to production [2].

Nevertheless it is not clear how did Russia react to removal of sanctions on Iran, because Iran’s economic ambitions would threaten Russia’s positions in the world market. Even though the Kremlin’s desire to increase trade and sign new deal with Iran, Moscow’s chance to survive in Iran’s local markets is not so high. The small and middle range of Russian business market is not able to compete with Iran’s new western companions as Total and Shell.

Before removal of sanctions, instantly after successful meeting in Vienna, Iranian oil minister Bijan Zangane stated that the country is expected to increase oil production up to 500.000 barrel per day. Thus approximately after less than one year Iran would be able to export 3 million barrel of oil per day, which will certainly damage Russian energy market [3].

But still it should be underlined that it will not be so easy to increase export as Iran suffers from weak and outdated infrastructure therefore it needs more time to renew it. Since the beginning of 2015, Iran had begun to rekindle relations with former allies and seek for new ones in order to attract more investors to its poor energy sector.

Russian energy companies hold tie contacts with Iranian counterparts before removal of sanctions. Russia’s biggest oil companies such as “LUKOIL”, “Rosneft”, “Zarubejneft” owned small shares in different Iranian gas fields in the mid of 2000s. For now budgets of aforesaid companies is not so significant compare to French Total or American Shell but despite this fact LUKOIL expressed its aim to proceed exploitations of Anaran oil field, which it once had left in 2011 due to oppressions of the U.S counterparts.

Iran’s desire to get back to European markets and restore own position in the Middle East in the face of bloody conflicts, makes us to think that official Tehran will decrease its military and economic dependence from Russia. Russian military companies hold hazardous place in Iran’s markets by supplying it with Russian-made weaponry, such as S-300 ballistic missile system. But now Iran has an access to supply army with the Western made weaponry, which teases Israel and Gulf monarchies. Lifting sanctions on Iran does not mean the end of Iran-West confrontation, at least for several political circles both in U.S and Iran.

Since Ukraine-Russia conflict has erupted several years ago and Russia was snowed under sanctions, Iran became the only country attempted to benefit from it. Geographical capability would allow Iran to be a reliable energy partner of the West. After Russian oil market downed, Iran claims to be “secured energy center for Europe,” because Iranian oil is the only competitor to Russia’s oil in Europe.

The notion of Iran as a future alternative gas supplier for Europe is acknowledged by European officials as part of their recent drive to lessen dependence on Russian imports. In April, the EU’s foreign policy arm-the Directorate-General for External Policies-published a study of the EU’s natural gas import options in light of the Ukraine crisis and concluded that “Iran is a credible alternative to Russia” [4].

As a consequence of more than 15 years of isolationism policy, Iran’s oil infrastructure now needs to be rebuilt and modernized, which is the only current obstacle that prevents it from delivering natural gas to Europe. Apparently Russia would take measures to prevent Tehran from entering European market, as it is going to be the main headache of monopolist Gazprom. In the past Tehran once declared to be main gas supplier for Armenia that threatened Russia’s influence in this country. Through Gazprom, official Moscow has bought the shares of pipeline from Armenia’s side. But post-soviet region is not the only space that Tehran and Moscow could find themselves as a rival.

In term of Iran’s growing influence, official Ankara also expressed its interest to be transit country for Iran’s natural gas. Deteriorated Russian-Turkey relations over jet scandal several months ago and economic sanctions from Russian side pushed Turkey to openly repeat its aims regarding energy cooperation with Iran.

To the contrary, Russian media claims that Iran’s reentering to the global market will not affect oil prices so much. Obviously the oil prices in the current stage, is highly dependent on geopolitical turmoil that is mainly going in the Middle East. For a long period of time when Iran was put under sanctions, Saudi Arabia became a main energy supplier instead of Iran, which strengthened its positions in the Muslim world.

If Iran is intended to increase oil production it is necessary to agree with all OPEC member countries. Therefore further conflict inside of OPEC, based on rivalry between Iran and Saudi Arabia is unavoidable. According to Russian state circles, it is useless to compare capabilities of Iran and Russia in energy field, as Iran is not able to increase oil production as much as Russia does.

Moreover several experts assured that removal of sanctions will increase cooperation between two countries rather than damage it. Because now Western countries will not criticize Russia for trade agreements with Iran and it will allow Russian private companies to implement long-awaited projects in Iran. For now official Moscow is assured that Iran’s nuclear weapon intention poses no threat anymore. It is possible for Russia to increase trade deals up $6 billion, said Russian minister of economy [5]. Russian companies aimed to take part decisive role in modernizing of energy infrastructure of Iran in 2016.

Although official Moscow reacted positively to the new nuclear deal with Iran, the consequences for it would more ambiguous that expected. It seems to be that Iran will rekindle its relations with the West very soon, in particular with U.S that is a disadvantage for Russia, because Moscow’s influence over Tehran’s foreign policy will be reduced. On the other hand, Russia could also benefit from new geopolitical situation as Iran’s step towards the West would create new perceptions in the Kremlin regarding the West.

Published by the Washington Review of Middle East and Eurasian Affairs

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Notes

  1. Jackie Northam: “Lifting Sanctions Will Release $100 Billion To Iran. Then What?” http://www.npr.org/sections/parallels/2015/07/16/423562391/lifting-sanctions-will-release-100-billion-to-iran-then-what
  2. World Bank report: Iran: “Lifting of Sanctions Will Lower Oil Prices and Boost Domestic Economy If Managed Well.”http://www.worldbank.org/en/news/press-release/2015/08/10/iran-lifting-sanctions-will-lower-oil-prices-and-boost-domestic-economy-if-managed-well
  3. The Washington Institute: Brenda Shaffer, “Partners in Need: The Strategic Relationship of Russia and Iran.”http://www.washingtoninstitute.org/policy-analysis/view/partners-in-need-the-strategic-relationship-of-russia-and-iran
  4. Rossiyskaya Gazera: Konstantin Volkov, “Забыли ПРО.” http://zagolovki.ru/article/18Jan2016/iran
  5. Vzglyad: Снятие санкций с Ирана сулит России огромные выгоды. http://www.vz.ru/economy/2015/4/3/738000.html