Transfer of Russian Gas to Iran; Operational Agreement or Promotional Project?

A Gazprom delegation, the largest energy company in Russia operating under the government, has visited Iran again but has remained silent about the results of its negotiations with Iranian officials. The Islamic Republic had previously announced that it signed a 'memorandum worth $40 billion for the development of the oil industry' and also the 'mega-project for the transfer of Russian gas' with Gazprom. The Secretary of Iran's Supreme National Security Council, who hosted the head of Gazprom in Tehran on Tuesday, expressed hope that the agreed plans between the two countries would be operationalized as soon as possible. Gazprom was previously the largest and most profitable Russian company, but due to Western sanctions, the shutdown of the Nord Stream 2 project, the destruction of the Nord Stream 1 gas transfer pipelines, and the Kremlin's decision to stop selling gas to consumers who refuse to pay in rubles, unprecedented challenges for this giant company have intensified. According to some experts, under these circumstances, the implementation of the plans that Iran has concluded with Gazprom is questionable. Gazprom's public relations statement about Alexey Miller's visit to Iran was limited to one line: 'Business consultations during which cooperation in the gas sector was discussed.' Official media in the Islamic Republic also only mentioned that 'the head of Gazprom met with the Secretary of Iran's Supreme National Security Council and discussed the energy agreements between the two countries.' A specialized news outlet for the Russian oil and gas industry reported that the main reason for the Gazprom delegation's 'repeat' visit to Tehran was 'familiarization with the new team following the appointment of Mohsen Paknejad as Iran's Minister of Oil' and added, 'it is unclear what these meetings are for.' The Gazprom delegation had previously visited Iran on May 15 and June 26. It was announced that during these two visits, the transfer of Russian gas to Iran and turning Iran into a 'regional energy hub' were discussed. Javad Owji, Iran's former oil minister, introduced the agreement signed last July 'for the daily import of 300 million cubic meters of gas from Russia to Iran' and explained: 'Given the favorable price, it can meet the needs of Iranian industries and turn the country into a gas hub for exporting surplus gas to Pakistan and India.' The then oil minister also stated that Russia would bear the cost of constructing a gas pipeline and 'with the construction of this pipeline from north to south through Iran, annual financial exchanges would amount to $10 to $12 billion.' So far, there has been no mention of this plan in official Russian sources, but in mid-September, Vladimir Putin announced that Iran has long requested more gas supply from Russia. Alexander Novak, the Deputy Prime Minister of Russia, who still plays a key role in managing this sector after years of leading the Ministry of Energy and is also the Russian head of the intergovernmental economic commission with Iran, said for the first time two years ago that Russia and Iran 'might' agree on oil and gas swaps. A year later, he deemed Russia's participation in the development of Iran's oil and gas fields 'likely' to help turn the country into a regional hub. Recently, in response to a question from the economic news agency RBC about cooperation between Russia and Iran in oil and gas, he said: 'This plan exists, but more time is needed for the existing ideas to be operationalized.' Analysts from BCS Investment World, one of the major consulting service providers in Russia, believe that if the transfer of Russian gas to Iran is operationalized at the level announced by Iranian officials, this plan could 'compensate for up to 80% of the export volume that Gazprom has lost in Europe.' These investment consultants have predicted in a special report that the full implementation of this plan will take at least 5 to 10 years. They also estimate that the price of Russian gas exported to Iran and its neighbors will be lower than the price of gas exported to Europe but higher than the price of Russian gas in the domestic market and also the gas exported by Russia to China. In this case, according to the analysts of this company, Gazprom could compensate for up to 50% of lost revenue. At the same time, according to this report, a gas transfer pipeline over 1,100 kilometers long needs to be constructed in the Caspian Sea, with the current cost estimated at about $20 billion, but 'it is likely to be even higher.' The 'National Union of Oil and Gas Workers and Machinery' in Russia calculated last summer, following the explanations of the former Iranian oil minister about the details of the agreement with Gazprom, that Iran expects to buy Russian gas at about $100 per thousand cubic meters, which 'is practically the domestic market price and the lowest price among all Gazprom's foreign customers.' This analysis emphasizes that 'selling national resources of Russia at low prices contradicts national interests,' and the only 'advantage' for Russia if this plan is implemented could be 'increased geopolitical influence and having the upper hand in Iran's energy security and the region.' The analysis continues: 'Whether this plan will be executed or not can be explained with an old joke about the possibility of meeting a dinosaur on the street: the probability is fifty-fifty. But the chance of meeting two dinosaurs is twice as high.' According to this report, the volume mentioned in Javad Owji's statements – 110 million cubic meters of gas per year – is the same volume that Russia used to transfer to Europe via 'Nord Stream,' and this 'means a very clear message to the West that Iran and Russia are overcoming all limitations, obstacles, and sanctions in cooperation with each other.' Mikhail Krutikhin, a well-known energy expert, believes that Gazprom's only goal in announcing major plans in Iran is 'to scare Europe.' He recalls that the signing of the agreement for the transfer of gas from Russia to Iran last July coincided with the approval of the 14th sanctions package against Russia in the European Union, which for the first time hit Russian gas exports. This expert wrote a few days ago in an article for the Moscow Times: 'A significant portion of the lofty promises to Iran, from building a gas transfer pipeline to creating a Russian gas hub on Iranian soil, is completely unrealistic and unfeasible.' He added that 'Russia, as an oil and gas exporter, is Iran's competitor, and the international market conditions contradict this plan; the only goal of Russia and Iran's ambitious plans in the oil and gas sector is propaganda.' Gazprom, which reported a profit of $13 billion in the last year before the start of Russia's war against Ukraine, ended last year with a loss of $7 billion. The British publication Financial Times described Gazprom's fate with the phrase 'achievements that have been flushed down the drain' and predicted that this company would not be able to return to profitability for at least another 10 years. Last summer, following the Russian government's order to suspend annual payments to shareholders and a European court ruling for Gazprom to pay €13 billion to the German company Uniper as a penalty, Gazprom's stock value fell to its lowest level in over a decade. Positive media coverage following this company's agreement with Iran changed this situation, although its impact was short-term and limited. To 'save' Gazprom, the Russian government is determined to reduce the tax burden on this company next year, which has been a primary source of national budget funding in previous years.