Iran: Is Tehran Using Russia as Insurance Against Tougher Sanctions?

Russia has entered into an energy swap arrangement with Iran that can strengthen Moscow's position in the Caspian Basin. Meanwhile, Tehran stands to reap geopolitical benefits, as the deal could make it more difficult for the international community to tighten economic sanctions connected to the dispute over Iran's nuclear program.

The Russian-Iranian swap deal relies on a third party -- Turkmenistan -- to act as a natural gas supplier. The deal took shape following a mid-March meeting between Russian Energy Minister Sergei Shmatko and Iranian Oil Minister Gholam Hossein Nozari. Under the barter arrangement, as reported in the Russian daily Nezavisimaya Gazeta on March 17, Russia will purchase Turkmen gas at a premium price and then export it to areas of northern Iran. In return, Russia will gain access to natural gas supplies in Iran's North Pars field, which holds an estimated 8 percent of the world's natural gas reserves.

All three participating countries have strong incentives to maintain the arrangement. For Turkmenistan, the benefit is purely economic. Turkmenistan exported 8 billion cubic meters (bcm) of gas to Iran in 2008 and has been contracted to send an additional 10 bcm in 2009. But direct exports in 2008 became entangled in a pricing dispute. [For background see the Eurasia Insight archive]. Ashgabat and Tehran took steps in recent months to put lingering acrimony behind them. [For background see the Eurasia Insight]. Nevertheless, Ashgabat will likely be happy not to have to deal directly with Iran. To make it worth Ashgabat's while, Russia is paying $240 per thousand cubic meters (tcm) for Turkmen gas meant for re-export to Iran, roughly $100 per tcm more than Iran was paying directly.

The chief benefit for Russia in this deal is measured in geopolitical influence. The swap deal will help Moscow cement its control over Turkmen gas exports. But more broadly, it could help Russia preserve a stranglehold on natural gas exports to the European Union. How? The EU's chief hope for breaking its dependency on Russian gas exports is the long-planned Nabucco pipeline. However, Nabucco has remained stalled in part by questions about gas suppliers. Of late, EU states have been probing the possibility of Iranian participation in Nabucco. [For background see the Eurasia Insight]. By obtaining an interest in South Pars, Russia may have gained leverage to block Iran from becoming a major Nabucco supplier.

In addition, Russia appears ready to toss Azerbaijan a financial nugget: Baku would act as a transit nation for Russian gas, and, in addition, Russian exports would help Baku provide gas to the Nakhichevan enclave. Azerbaijani participation is the swap would require renovation work on the country's pipeline system, the Today.az news website quoted the president of the state oil company, Rovnag Abdullayev, as saying March 17.

The swap arrangement itself could be a money-loser for Iran, but it is a potentially momentous deal nonetheless. That's because Russia, as a permanent member of the United Nations Security Council, enjoys the power to veto any effort to tighten the sanctions regime on Tehran. US and EU official have spoken of a need to tighten sanctions as a means to get Iran to negotiate on the matter of suspending its efforts to enrich uranium. The apparent hope in Tehran is that Moscow now would be unwilling to tighten sanctions, as to do so would be damaging to Russia's economic and geopolitical interests.