Iran to Resume Oil Swap with Caspian Sea Neighboring Countries

Reports indicate that Iran plans to resume oil swaps with neighboring countries along the Caspian Sea in the near future. Iran conducted oil swaps with Caspian countries for ten years during the presidency of Mohammad Khatami and the first half of Mahmoud Ahmadinejad's presidency, earning over $800 million in total. This arrangement also saved Iran on transportation costs of oil from the south of the country to northern refineries. Masoud Mir Kazemi, Ahmadinejad's oil minister, unilaterally canceled this operation in 2010, leading to a $5.5 million penalty for Iran by the Hague Court in 2014. In the oil swap operations, Iran received a specific volume of oil from Caspian coastal countries or their oil customers and delivered an equivalent amount of its oil from the Persian Gulf to them. Iran received $1.1 per barrel for the oil swap, with Mir Kazemi seeking to increase this amount fivefold. On Saturday, September 6, the Mehr News Agency reported that during a visit by representatives of Vitol from Switzerland for Russian oil swaps at the Neka terminal on Iran's Caspian Sea coast, an official announced the possibility of resuming Iran's oil swaps within the next 14 days. This Swiss company was previously involved in swaps with Iran but, according to Iranian media reports, had dropped its complaint due to a history of cooperation with Iran and joint projects. Mehr News states that nearly seven years after the halt of oil swaps from Iran for Caspian countries, this oil trade has not yet resumed, and negotiations with international companies and Caspian Sea countries such as Russia, Turkmenistan, Kazakhstan, and Azerbaijan are ongoing. Alongside Vitol, British Petroleum (BP) is also mentioned as a company interested in resuming crude oil swaps from the Caspian Sea through Iran. BP operates four major oil and gas fields in the Azerbaijani section of the Caspian Sea, currently producing over 700,000 barrels of oil and gas condensate daily. On Thursday, Mohsen Pak-Ayin, Iran's ambassador to Azerbaijan, confirmed in an interview with Trend News Agency that negotiations to revive oil swaps have begun. Hamidreza Shahdoost, head of the northern oil terminal, also mentioned the possibility of resuming crude oil swaps within 7 to 14 days from the Neka oil terminal. Currently, the Neka terminal has 12 tanks ready to unload 120,000 barrels of oil daily from Caspian countries, and Iran plans to increase this capacity to 2.5 million barrels. Besides Kazakhstan, Turkmenistan, and Azerbaijan, after the temporary nuclear agreement in 2014, Iran agreed with Russia on a daily swap of 500,000 barrels of oil. Negotiations to resume oil swaps between Caspian countries and Iran come as Reuters reported on Saturday, citing Fayyaz al-Naeema, Iraq's Deputy Oil Minister, that the central Iraqi government would swap its oil produced in the Kirkuk region through Iran if it fails to reach an agreement on oil revenue sharing with the autonomous Kurdistan region regarding oil sales. Erbil and Baghdad have disputes over extraction methods and distribution of revenues from oil sales. Baghdad claims that the export of all oil in the country should be under the central government's supervision, while Erbil, pointing to the unmet budget allocation from the central government to Kurdish regions, has been transporting its daily production of 500,000 barrels directly to the Turkish port of Ceyhan and selling it in international markets. Reuters states that Iraq is not in a position to stop these shipments, but if it does not reach an agreement with Kurdish officials, it will have to export 150,000 barrels of oil produced in the central Kirkuk region through Iran or another country besides Turkey, as this region is not connected to Iraq's oil terminals in the Persian Gulf. Al-Naeema told Reuters that Baghdad urgently needs to export Kirkuk oil, and if Kirkuk oil cannot be sent through the autonomous Kurdistan region to Turkey, it could be swapped with Iran or another country like the Caspian Sea countries. 95% of Iraq's economy depends on oil. The Deputy Oil Minister also mentioned that an agreement was reached with Erbil last week to currently transport 75,000 barrels of Kirkuk oil daily through the Kurdistan-Turkey pipeline, and the oil transfer operations have begun. This figure should reach 100,000 barrels per day, but will not return to the previous volume of 150,000 barrels. Erbil is asking Baghdad to allow Kirkuk oil to be under the control of the Kurdistan region so that its revenues can be used to fight ISIS. A spokesperson for the Kurdistan region told Reuters that if an agreement with Baghdad guarantees that $1 billion monthly, equivalent to 17% of the Kurdistan region's budget, will be sent from Iraq to Erbil, they would be willing to hand over control of their oil production and exports to the central government. This amount is, of course, double the total value of oil produced in Iraqi Kurdistan. Early last year, with the monthly payment from the central government to Erbil dropping to $400 million, Kurdistan began direct oil sales. In this context, 66 cooperation documents worth $2 billion were signed between Iran and Kazakhstan. Iran and Azerbaijan signed 11 cooperation documents during Aliyev's visit to Tehran. Turkmenistan's gas exports to Iran have decreased by five times. Kazakhstan has no plans for oil swaps through Iran. Iran has resumed oil swaps. The likelihood of canceling the gas exchange contract between Iran and Azerbaijan has increased.