Russia's growing investments in Iranian energy field New cynical gas cooperation

While the Western-imposed sanctions on Russia and Iran severely hit national economies, both states now eye to neutralising the impact of economic sanctions by boosting bilateral partnership, particularly in the energy field. At the end of 2022, Iran's Oil Minister Javad Owji said Russian investors have finalised a contract with Iran for developing seven oil and gas fields worth 4.5 billion dollars.

The partnership between Tehran and Moscow in the energy field is not a new phenomenon, as on July 19, 2022, the National Iranian Oil Company (NIOC) signed a memorandum of understanding (MoU) with Russian gas company Gazprom worth close to $40 billion. The agreement will ease private Russian companies’ further investments in the Iranian oil sector. The investment pledge is a sign of continued Russian support for Iran, particularly in the economic sphere.

The sanctions imposed on Tehran and Moscow following its military intervention in Ukraine brought the two countries closer, though they left a limited space for cooperation due to economic turbulence in both states. Nevertheless, energy cooperation appears to be the strongest angle of Tehran-Moscow cooperation given that they hold the world's first and second biggest gas resources, respectively, threatening to give rise to a "global gas cartel."

Ironically, prior to the imposed Western sanctions on Russia, Moscow and Tehran might have been viewed as rivals rather than collaborators. As such, Tehran desperately eyed the opportunity to become Europe’s main gas supplier amid the halt of Russia’s fossil fuel exports. However, gas deliveries from Iran to the EU are out of the question for the foreseeable future, as Tehran’s confrontation with the Western countries re-surged again in 2022.

As a result, Russia gradually increased its investments in the Iranian energy sector, which needs significant modernisation and additional sources for building the necessary infrastructure. Hence, the recent MoU envisages the expansion of the Kish and North Pars gas fields, enhancing the South Pars field and developing six new oil fields.

In this regard, the head of the NIOC, Mohsen Khojasteh-Mehr, pointed out that "Russia is one of the largest crude oil-producing countries, and their expertise is in producing oil in very harsh and difficult climates. The capabilities and technology of Russian companies in oil production are very high, and as a result, they will undoubtedly be able to cope with the development of Iran's oil and gas fields.”

It is arguable to what extent the cooperation between two states in the energy field would yield economic and political dividends. For instance, Europe and the US have systematically isolated Tehran from any major international energy projects in the last three decades and instead cooperating with more reliable competitors such as Russia and Qatar to the fiercely anti-Western Islamic republic.

Indeed, some experts in Iran are doubtful regarding the prospects of energy cooperation with Russia, which is going through an economic and politically turbulent period. Hence, the general narrative is that the recent MoU with Russia on energy will not lead anywhere, considering that Moscow has never invested in Iran's energy sector, perhaps because it perceives Tehran as a potential competitor, especially in European exports.

Simply put, a gas swap point in the MoU would have made sense if Iran had liquified natural gas (LNG) technology and terminals to export gas to markets such as Europe. The other chance for Russia to help build this technology but Moscow itself must rely on Western companies to build an LNG export infrastructure, which seems unrealistic at this point. The US and European sanctions prevent both states from acquiring the necessary technology to build LNG terminals.

The only viable option for Iran and Russia is to build underwater pipelines in shallow seas, such as a segment of the Persian Gulf between Iran and the United Arab Emirates, but the latter would hardly agree to that given strained relations with Tehran. Other options, like building a pipeline via Pakistan or Oman to boost exports to the Asian market are also slim given the nature of the relations of Moscow and Tehran with some regional states. Moreover, other problems, such as partial fulfilment of duties by Russian companies, may arise in future, as the new memorandum, unlike a comprehensive cooperation agreement, will not be legally obligated to implement their commitments fully.

Under new geopolitical realities, Tehran hopes to capitalise on the postwar conditions in Russia amid its intervention in Ukraine and energy deficit in Europe to get more Russian investment and technical assistance.

Therefore, it is likely that if the EU-Iran nuclear talks fail again, Moscow will cease all energy projects with Iran to avoid further sanctions from the West. In addition, Iran's strengthened energy sector and potential export of natural gas to Europe are not in Russia's interest, so Moscow will be slow to assist Tehran in exploration works. Even so, the fruitful energy cooperation between Moscow and Tehran will largely depend on the further outcomes of Iran-EU nuclear talks and the US re-involvement in the process.