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Iran And Russia Expand Energy Ties Amid Ukraine War

  • Iran and Russia laid the groundwork in January for a new 20-year co-operation deal.
  • Moscow is discussing the second and third phases of the expansion of the Russian-built Bushehr nuclear plant with Iran.
  • Russian companies are set to play a bigger role in Iran’s petrochemical industry.

Russian Deputy Prime Minister, Alexander Novak, headed a high-level delegation to Iran last week, with the Kremlin-orchestrated invasion of Ukraine still in full swing. According to Iran’s Petroleum Minister, Javad Owji, part of Russia’s US$5 billion funds for Iranian energy, agricultural, and transport projects has now been allocated, and the two countries plan to increase their annual trade to a minimum of US$40 billion by 2025. Crucially from the West’s perspective, though, and from the perspective of any new ‘Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) between Iran and the U.S., Owji highlighted that this significantly increased cooperation between Tehran and Moscow will also encompass the financial and banking sector, oil, gas, petrochemicals, and nuclear energy. He added that the two sides have also now agreed to conduct their bilateral trade in their own currencies.

This latest trip by Novak follows the visit to Moscow in January of Iranian President, Ebrahim Raisi – the first visit of an Iranian president to Russia in almost five years at that point – which laid the groundwork for the finalization of the new 20-year cooperation deal between Iran and Russia that has been pending for some time. Although the new 20-year deal was not finalized in full at that January meeting, it was decided that the two countries’ active areas of cooperation would be significantly expanded going forward. Since Raisi’s visit to Moscow in January, the immediate focus for bilateral cooperation in the hydrocarbons sector has been in the petrochemicals field. Iran has always regarded this sector as a cornerstone of its ‘resistance economy’ model - the concept of generating value-added returns by leveraging intellectual capital into significant revenue, profit, and technology-acquisition streams wherever possible, as analyzed in depth in my new book on the global oil markets. The sector has also always carried with it the advantage of occupying a legal grey area in the various sanctions regimes imposed against it over the past 40 years or so. Given that Russia is now facing the same sort of sanctions constraints as Iran, it was no surprise that Tehran has invited Moscow deeper into the development of its petchems business, with a view to Iran becoming the Middle East’s top producer and exporter in the sector by 2027. Specifically, as also analysed by OilPrice.com, the new chief executive officer of Iran’s National Petrochemical Company (NPC), Morteza Shahmirzaei, invited Russian companies to help it further exploit opportunities in its petrochemicals industry.

These latest talks have built on this cooperation in petchems to include reintegrating Russia back into several of the oil and gas projects from which it had been marginalized both in the run-up to the JCPOA and in the interim period from 2018 (when the U.S. unilaterally pulled out of the deal) to February this year (when Russia invaded Ukraine). This period also saw an agreement between Russia and China on a more even split in their taking over oil and gas sector exploration and development projects in Iran when the 25-year China-Iran deal was originally agreed upon in 2019. Prior to this, though, Moscow was on the verge of taking over several new major oil and gas projects in the Islamic Republic. “As it became clearer in 2015 that sanctions would be rolled back [in 2015], Russia’s committed investment plans for Iran’s oil and gas sector increased to over US$50 billion and was broadened out in scope,” a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com. “This was a strategic plan by Russia to position itself front and centre for when sanctions were eventually removed and contracts for field development were on the table,” he said. 

This resulted in initial agreements being signed by GazpromNeft for feasibility studies for the Changouleh and Cheshmeh-Khosh oilfields, Zarubezhneft for the Aban and Paydar Gharb fields, and Tatneft for the Dehloran field. These were on top of the previous memoranda of understanding (MoU) signed by Lukoil and the National Iranian Oil Company (NIOC) for studies of the Ab Teymour and Mansouri oil fields, resulting in Russian firms being assigned seven field studies, the most of any country to that point. “Even more significantly, though, was that these deals were only a part of a very wide-ranging 22-point MoU signed by Iran’s deputy petroleum minister, Amir-Hossein Zamaninia, and Russia’s deputy energy minister, Kirill Molodtsov, at the time, which included not just the studies and plans for exploration and extraction of oil but also for the transfer of gas, petrochemical swap operations, research on the supply and marketing of petrochemical products, the manufacture of oil equipment together with local Iranian engineering firms, and technology transfer in the refinery sector,” said the source. 

During the visit of Raisi to Moscow in January, there were certain areas of cooperation that the Russians did not want to move head on in any meaningful timetabled manner, according to the Iran source, but this has now changed, in light of its invasion of Ukraine, and this was reflected in last week’s visit of Novak to Tehran. “Even before the U.S. withdrew from the JCPOA, Iran had also been asking Russia for means to defend itself better against any attacks, especially those that might come from Israel or the U.S. – specifically the S-400 missile defense system and the latest jet fighters – which Russia had been promising for years but without any results,” the source exclusively told OilPrice.com. “However, the bulk of the main meeting between Putin and Raisi [on 19 January 2022] was taken up with discussion over Russia finally providing Iran with the S-400 missile defense system and Sukhoi Su-35 fighter jets, with payments to be made through favorable terms for oil and gas sector deals, and last week’s meetings between high-level figures from Iran’s defense, intelligence, and energy sectors and their Russian counterparts went deeper into these subjects, and with some success from the Iranian side,” the source added.

Related: How Russia Has Remained One Step Ahead Of Western Sanctions

Russia, though, has perennially linked these military hardware requests from Iran not just too favorable terms for its companies in the Islamic Republic’s oil and gas sectors but also to other of its own security concerns across the Middle East. Syria, in particular, was an area in which Iran and Russia had long sought to come to a decisive working arrangement. “On the one hand, Iran perceives Syria to be its exclusive sphere of influence, but on the other hand, the Iranians have a sound understanding of the situation and understand that Moscow’s and Tehran’s interests on Syrian lands don’t necessarily contradict each other,” said Gevorg Mirzayan, associate professor of the department of political science and mass communication at the Financial University, in Moscow. “Russia’s long-term military presence in Syria complicates any of the Americans’ and Turks’ military and political plans in the Levant, and in the Middle East as a whole,” he underlined. “Therefore, Russian military bases per se help and will help the Iranians neutralize external threats,” he added. It may well be, then, that recent reports that Iran’s Islamic Revolutionary Guard Corps (IRGC) have taken over some of Russia’s bases in Syria because Moscow needs to redirect the resources to Ukraine are simply part of this wider cooperation, with Iran effectively only holding on to the sites for Russia before it can return its troops to them later.

In addition to these discussions during last week’s meetings, further progress was made on the North-South Transport Corridor (NSTC), with several agreements reached in the rail, road, maritime, and air transport sectors, according to Owji. Novak added that Moscow is also interested in developing the corridor, a rail cargo route from Russia to India that would boost trade from the Caspian and the Persian Gulf regions. These routes would also provide many opportunities for ‘dual purpose’ use – both civilian and military, as analyzed in depth in my new book on the global oil markets – and the build out of the NSTC is being linked currently to Russian companies developing Iran’s strategically vital South Pars Oil Layer, as exclusively highlighted by OilPrice.com.

The last part of this broader and deeper cooperation relates to Iran’s nuclear program. The U.S. has now made it clear that there will be no change in the IRGC’s status as a Foreign Terrorist Organisation and Russia had already tried to sabotage the deal even before that. News that talks with Moscow continue on the second and third phases of the expansion of the Russian-built Bushehr nuclear plant, according to Behrouz Kamalvandi, a spokesman for the Atomic Energy Organization of Iran, may well spell the end of the road for any new iteration of the JCPOA any time soon.

By Simon Watkins for Oilprice.com

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