Iran has spent a lot of its time, money, and lives of its direct and proxy military forces in building up its influence across the Shia Crescent of power in the Middle East – Lebanon, Syria, Yemen and Iraq - and it continues to target the further acquisition of power in those countries on the edges of the Crescent, together with China and Russia. A core strategy in Iran’s methodology is to build out a pan-Middle Eastern power grid with Tehran at the centre. In just the same way that Russia’s huge level of gas supplies to Europe gives it immense power across that continent so Iran’s electricity and other power supplies will give it enduring power over the Middle East. ‘Roping in’ potential countries into this notion initially through a less overtly threatening proposition – Iran’s ‘front agent’ Iraq offering oil supplies, for example – is a standard tactic for Tehran to achieve its aim and this is precisely what happened last week in Lebanon. On the face of it, the statements on the deal from Iraq’s Oil Ministry might seem like a perfectly standard and straightforward agreement: Baghdad has agreed to sell Lebanon 1 million metric tons per year (just over 21,000 barrels per day or just under 7.8 million barrels per year) of heavy fuel oil in return for goods and services. This deal, the Iraq Oil Ministry added, will help Iraq to reduce its surplus of fuel oil while at the same time enabling the financially troubled Lebanon to obtain the fuel stock for its power plants required to avoid the widespread and frequent power outages from which it has been suffering recently. According again to official comments from Iraq’s Oil Ministry, the fuel oil is to be sold at international prices and will be paid in exchange for Lebanese goods and services.
A more careful look at the details underpinning the deal reveals that it is anything but standard and straightforward. For a start – a key point, really – Iraq does not have any fuel oil at all that meets the specifications of any power plant anywhere in Lebanon. Indeed, Lebanon’s own caretaker Energy Minister, Raymond Ghajar, openly stated in February of this year: “Iraq’s heavy fuel does not match Lebanon’s specific needs.” Given this bewildering premise, the ‘plan’ is that because Iraq’s fuel oil cannot be used in Lebanon – despite the country just pledging to buy 1 million metric tons of it every year - Lebanon will resell the Iraqi fuel and use the proceeds to buy spot cargoes of a fuel that does meet its specifications and that it can actually use. At least as baffling, on the surface at least, is precisely what ‘good and services’ Lebanon is going to use to pay for this useless Iraqi fuel oil.
Lebanon’s two major exports categories – by a considerable margin, accounting for well over half of its GDP – are ‘gems and precious metals’ and ‘arms and ammunition’, a very handy combination in the Middle East as a whole and particularly for a country such as Iraq that is intimately tied up with Iran, politically, economically and militarily. Given these principal exports it is perhaps no surprise to find that the single country that accounts for by far the largest proportion of all of Lebanon’s exports is the number one global centre for discrete trade and banking services and facilities – Switzerland. On the other side of the equation – the root in the square root of the equation, it might be said – Iran has been under considerable financial pressure itself ever since the end of 2018 when the U.S. re-imposed sanctions on it after Washington’s unilateral withdrawal from the Joint Comprehensive Plan of Action in May of that year. Despite promises from China for massive financing facilities to be extended to Iran under the wide-ranging 25-year deal between the two countries, the threat of retaliation from the U.S. should it overstep the mark has kept Beijing wary of giving all the help it promised to Tehran so far.
“This has meant that Iran has been finding it increasingly difficult to pay its military proxies in the [Shia] Crescent [countries], including those in Lebanon, so this deal [between Iraq and Lebanon] is really just an effective way for Iran to pay its militias in Lebanon,” a senior oil and gas industry figure who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com last week. “The oil supposedly comes from Iraq – although it is impossible to tell whether it is from Iraq or Iran as there are so many shared fields – then Lebanon sells it for U.S. dollars and then it uses this some of this money to actually buy some fuel oil for its power stations and the rest to either pay Iran via Iraq U.S. dollars that Iran needs to pay its militias in Lebanon and elsewhere or it pays the militias itself on Iran’s behalf,” he added. “It’s a basic oil for arms deal, in essence, including money to pay the wages of the paramilitaries as well,” he underlined.
The maintenance and expansion of its multi-layered influence across the Shia Crescent countries does not just mean Iran pushing Iraq to conclude oil supply deals of this type with the countries involved but also using this as a leverage point to rollout corollary developments to oil supplies, such as pipelines and the single-centre power grid with Tehran at the centre. As highlighted recently by OilPrice.com, the Iraq-Lebanon oil deal was originally announced at around the same time as the Iraq-Jordan oil deal, and this in turn was shortly followed by the announcement of extending the Basra-Aqaba pipeline to Egypt as this would be “an important addition and a new outlet for Iraqi oil exports to North Africa” (according to representatives of the two negotiating teams).
The idea for the Basra-Aqaba route is for a pipeline of around 1,700 km that does not include Israel land or sea territory and December 2019 saw an announcement from Iraq’s Oil Ministry that it had completed the prequalifying process for companies interested in participating in the pipeline project. For Iran, this allows another alternate Iraq/Iran oil export line to the historically vulnerable Strait of Hormuz route, to add to the current plans for the Guriyeh-Jask pipeline and plans to roll out a pipeline to Syria as well. It will also provide another ‘cover’ route for Iranian oil disguised as Iraqi oil, which can then be shipped easily both West and East. There are a number of options for this Iraq-Aqaba-Egypt pipeline route, even the favoured ones that avoid any Israeli land or sea threats, including a very short route following the same ground as one of the Arab Gas Pipeline flows: from Aqaba to Taba, and then if required up north to Arish and then west to Port Said.
All of this in turn complements, and is complemented by, Iran’s ongoing rollout of a Pan-Middle East power grid. In this context, just a month or so before Iraq Prime Minister, Mustafa al-Kadhimi’s visit to Washington in 2020, Iran’s Energy Minister, Reza Ardakanian, stated that Iran and Iraq’s power grids have become fully synchronised to provide electricity to both countries by dint of the new Amarah-Karkheh 400-KV transmission line stretching over 73 kilometres. This also “paves the way for increasing energy exports to Iraq in the near future, from the current 1,361 megawatts per day now”, he said. He added that Iranian and Iraqi dispatching centres were fully connected in Baghdad, the power grids were seamlessly interlinked, and that Iran had signed a three-year co-operation agreement with Iraq ‘to help the country’s power industry in different aspects’.
At the same time, it was announced by the Iranian Electrical Power Equipment Manufacturing and Provision Company that Iran’s electricity exports to other neighbouring countries in the previous Iranian calendar year (ended on 19 March 2020) reached over 8 billion kilowatt-hours (kWh), a mean average increase of 27.6 per cent year-on-year. So far, the countries receiving power from Iran’s grid are: Armenia, Azerbaijan, Pakistan, Afghanistan, and the Nakhchivan Autonomous Republic, plus, of course, Iraq (which saw an increase of 34.6 per cent from the preceding year). This network does not include the parallel network connections that Iran is consolidating in terms both of direct electricity and gas exchanges, which further includes Turkmenistan and Turkey.
In the meantime, Iraq’s Electricity Minister, Majid Mahdi Hantoush, announced that not only is Iraq currently working on connecting its grid with Jordan’s electricity networks through a 300-kilometre-line – a project that will be finished within two years - but also plans have been finalised for the completion of Iraq’s electricity connection with Egypt within the next three years. This, in turn, he added, would be part of the overall project to establish a joint Arab electricity market. Specifically, under the electricity deal signed between Iraq and Jordan, the Kingdom will provide Iraq with 1,000 gigawatt (GW) hours per year in the first phase of the project, after the completion of the electricity linkage project that will take around 26 months. This will be followed by a second phase that allows for the two sides to further increase the power exchange capacity. Jordan’s Zawati highlighted that the project will enhance the stability and reliability of electricity networks in both countries, as well as adding impetus to the creation of a joint power market in the Arab world. This, Hawati added, should include Saudi Arabia, with which Jordan had just signed a similar agreement to connect the two countries’ electric power grids.
By Simon Watkins for Oilprice.com
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