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JULES EVANS, MOSCOW
THE EU SHOULD BE PLAYING IRAN AND RUSSIA OFF AGAINST EACH OTHER

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The European Union is increasingly anxious about being over-reliant on gas imports from Russia. The Kremlin, it is clear, intends to wield its huge oil and gas reserves as its main bargaining chip in foreign relations. The EU is concerned that its authoritarian neighbour to the east has it “over a barrel”, as one British MP put it. Or, as the Daily Telegraph recently bewailed “The Russian bear could punch our lights out!”

If the EU is serious about reducing its dependency on Russian gas, then it needs to look quickly at Russia’s biggest gas rival – Iran.

Iran is the second-biggest source of gas in the world. It has 18% of the world’s gas supplies, compared to Russia’s 25%, but experts believe over 60% of Iran’s reserves are still undeveloped.

The EU should be doing everything it can to foster competition between these two countries in the energy sphere. It should be striving to strike bilateral deals for Iranian gas, offering financial support for Iran’s planned pipelines to India and Pakistan and other projects, and generally standing four-square with Iran over its global energy expansion.

The argument the EU should make to Iran (and to America) is that the country is fighting last century’s war by struggling to become a nuclear power. If Iran really wants to become a great power again, it should argue, it should seek to develop its energy markets and make the rest of the world – the US included – reliant on it. Energy, not nuclear missiles, is the new weapon of the twenty-first century great power. The sooner Iran lets go of its outdated ambitions to be a nuclear super-power, the quicker it can become a modern energy super-power.

Iran should resist an energy alliance with Russia, the EU should argue, because Russia will always be in the driving seat. Gazprom only ever takes a controlling stake in projects, and it will involve itself in Iranian projects precisely with the object of protecting itself from Iranian competition and stymieing the development of Iran’s gas resources. If Iran wants to develop its resources quickly, it should look to a more efficient and technologically developed partner, such as Total, OMV or Statoil. Western banks can bring far more capital to support Iranian energy projects than Russian banks ever could.

But we are not seeing this energy alliance with Iran happen. Instead, we are seeing the EU once again outmanoeuvred by Gazprom, because Gazprom thinks two moves ahead, and the EU merely reacts, usually with panic and indignation.

This weekend, Gazprom bought a controlling stake in its joint venture with Armenia, ArmRosGas, which controls Armenia’s domestic gas distribution network and a soon-to-be-completed gas pipeline with Iran. That pipeline could have helped free both Armenia and Georgia from dependence on Russian gas, and also have been a conduit for Iranian gas into western Europe. But the Armenians, unwooed by the EU, sold the controlling stake to their Russian masters for $119 million.

The same week that this deal was being signed in Moscow with Armenia’s president, the petroleum minister of India, Murli Deora, was also in town. He announced yesterday that India had agreed to let Gazprom join a planned pipeline from Iran to India and Pakistan. He said: “Russia will join the Iran pipeline. I spoke to Pakistan minister for petroleum and natural resources Amanullah Khan Jadoon (on Russian participation) on Tuesday and will be speaking to the Iranian minister later”.

So on the two most important new projects bringing Iranian gas to the outside world, Gazprom is involved, and possibly even in control. A good weekend’s work, fellows.

These appear to be the first decisive steps in a Kremlin initiative to forge an energy alliance with Iran. Also last week, Valery Yazev, head of the Duma energy committee and Gazprom’s top lobbyist in the Duma, called for the creation of a gas cartel involving CIS countries, and including Iran, to counter the ‘cartel’ of European consumers. The plan was prompted, he said, by the refusal of France and Germany to be played off against the rest of Europe by president Putin, who offered Germany the chance to be a hub for Russian supplies to the rest of Europe when he visited Germany in September. Merkel refused, sensible lady.

Alexander Medvedev, deputy chairman of Gazprom, yesterday told me that he viewed participation with Iran as “very profitable. We hope to use the joint venture to become involved in extraction and development [of Iranian gas], and possibly help supply gas through the joint venture to Western Europe, as well as Pakistan and India”.

So Russia is already a few steps ahead of the EU in this game. An energy alliance with Iran would tie up around 45% of the world’s gas supplies.

However, the game is not over yet. Luckily for us, the US and UK governments thought slightly ahead in the early 1990s, and secured both the BTC and Shah Deniz pipelines, which will bring oil and gas from Azerbaijan and Kazakhstan to Europe, without going through Russia.

There is also a plan, now being put on the front-burner by the EU, to build a new Nabucco pipeline from the Caspian region to Austria, with OMV the main backer of the project. Gazprom has also asked to be involved in the project. Of course – as soon as the Kremlin signs the European Energy Charter. The project is intended to take Azeri gas, but should also take Iranian gas too.

Am I being naïve, arguing for EU participation with Iran, for its support for Iran’s gas industry, which will only enrich this dangerous and authoritarian country?

Firstly, the lure of Iran becoming a global energy super-power might possibly be sufficient to persuade it away from its path of becoming a nuclear power, one of many all over the Middle East. It would never be a dominant nuclear power, but it could be a dominant gas power, one of the most powerful in the world.

Secondly, when it comes to energy supplies, it’s not a question of whether to work with illiberal authoritarian regimes or not. It’s a question of trying to balance one authoritarian regime against another, so you’re not too dependent on any one. Every energy power in the world, with the exception of Norway, is illiberal and authoritarian. Dick Cheney, for all his evilness, at least realizes this, and worked earlier than any EU bureaucrat to diversify CIS countries away from Moscow’s control.

We should be doing the same with Iran, though unfortunately the US seems to have decided on an altogether more direct method for securing Iranian energy supplies – and it is their belligerent rhetoric, and the EU’s typically slow and confused energy policy, that is helping drive Iran and Russia together.

Julian Evans, a British freelance journalist based in Moscow.

November 8, 2006


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