Russia and Iran to Start Work on Game-Changing Energy Corridor

• Iranian Petroleum Minister Owji: Russia and Iran will start working soon on energy corridor.
• The corridor is now an adjunct project of the US$40 billion four-pronged deal agreed in principle between Russian gas giant Gazprom and the state-owned National Iranian Oil Company .
• The US$40 billion Gazprom deal has four core elements, all of which are critical to the tighter energy trading relationship envisaged by Russia, Iran, and China.

Work on the ‘energy corridor’ that will provide a direct link from Russia to Iran (for gas in the first instance) will begin soon, according to Iran’s Petroleum Minister, Javad Owji, last week. The corridor is now an adjunct project of the US$40 billion four-pronged deal agreed in principle between Russian gas giant Gazprom and the state-owned National Iranian Oil Company (NIOC) in July 2022. This in turn is part of the far-reaching new 20-year comprehensive cooperation deal between Iran and Russia approved on 18 January this year by Supreme Leader, Ali Khamenei, as exclusively revealed by OilPrice.com. The new 20-year deal (‘The Treaty on the Basis of Mutual Relations and Principles of Cooperation between Iran and Russia’) additionally complements several key elements of the equally all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my latest book on the new global oil market order. Crucially for the West, not only do these include a much tighter oil and gas trading alliance between Russia, Iran, and China – using local currencies rather than the U.S. dollar – but also they incorporate the ‘Land Bridge’ that Iran has long sort. This will allow Tehran to move whatever it wants (including weapons) seamlessly through Iran and then to the Mediterranean coast of Syria for use by its key proxies against Israel directly, and the U.S. indirectly.

The US$40 billion Gazprom deal has four core elements, all of which are critical to the tighter energy trading relationship envisaged by Russia, Iran, and China. First, the US$10 billion development of the big Kish and North Pars gas fields with a view to the two fields producing more than 10 million metric cubic metres of gas per day. Second, the US$15 billion initiative to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar. Third, the completion of several major liquefied natural gas (LNG) projects (including in North Pars and later in South Pars) and the construction of gas export pipelines to other countries in the region. And four, leveraging the cheap gas opportunity for nearby countries (in the Middle East and Western Asia) from these pipelines to further empower the notion of a ‘Gas OPEC’ with Russia and Iran at its centre. Already, Russia occupies the global top spot for gas reserves (with around 1,688 trillion cubic feet, Tcf) and Iran the second position (with about 1,200 Tcf). According to a very senior European Union (E.U.) energy security source exclusively spoken to OilPrice.com recently, it is hoped by Moscow and Tehran that given such an expansion of gas production from this Russia-Iran union and a corollary rise in gas exports to China from the two gas giants, Qatar might be persuaded to tilt back again into the China-Russia-Iran sphere of influence. This would re-energise the notion of the Gulf Exporting Countries Forum (GECF) as being the Gas OPEC equivalent, given that Qatar – along with Russia and Iran – was a founding member. Moscow and Tehran also think additional pressure from an expedited Iranian development of South Pars - which can disrupt Qatar’s plans for its crucial North Field gas field (the other part of the same gas reservoir as South Pars) – might further tip the balance for Qatar’s active re-engagement with the GECF.

Related: Russia’s Crude Oil Shipments Plunge to 11-Month Low

For China, this closer alliance in the gas sector – both through pipelines and in LNG form – as well as in oil, would be beneficial from many perspectives. LNG, for example, became the top global emergency energy source following the sanctions placed on Russian gas flows after its 24 February 2022 invasion of Ukraine. Until the U.S. dramatically upped its LNG production from virtually zero in 2022 to become the world’s top exporter only a year later, Qatar was the swing producer of that gas, and with remarkable prescience (or advanced warning) China had secured itself the main part of its production in multiple long-term contracts even before the Russia invasion began, as also detailed in my latest book on the new global oil market order. It is safe to say that any further major military escalation in the world – resulting perhaps from China making good on its threats to forcibly ‘reunify’ Taiwan to the ‘mainland’ if required – would only exacerbate LNG’s importance in the global energy sector.

Additionally for President Xi Jinping, as was strongly reiterated during a series of meetings in January 2022 between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC), trade in gas and oil between Middle Eastern countries and China should be done in its currency the Renminbi, not the U.S. dollar. This idea would be at the heart of the China-GCC Free Trade Agreement, broadly designed to forge a “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat.” China has long regarded the position of its currency in the global league table of currencies as a reflection of its own geopolitical and economic importance on the world stage, as also examined in my latest book. A very early indication of its ambition for the renminbi was evident at the G20 summit in London in April 2010, when Zhou Xiaochuan, then-governor of the People’s Bank of China (PBOC), flagged the notion that the Chinese wanted a new global reserve currency to replace the U.S. dollar at some point. He added that the RMB’s inclusion in the IMF’s Special Drawing Right (SDR) reserve asset mix would be a key stepping-stone in this context, and this occurred in October 2016. Beijing has also long been acutely aware of the fact that, as the largest annual gross crude oil importer in the world since 2017 (and the world’s largest net importer of total petroleum and other liquid fuels in 2013), it is subject to the vagaries of U.S. foreign policy tangentially through the oil pricing mechanism of the U.S. dollar. This view of the U.S. dollar as a weapon has been powerfully reinforced since Russia’s invasion of Ukraine and the accompanying U.S.-led sanctions that followed, the most severe of which – as with sanctions on Iran from 2018 – relate to exclusion from use of the U.S. dollar. Indeed, the former executive vice-president of the Bank of China, Zhang Yanling, said in a speech in April 2022 that the latest sanctions against Russia would “cause the U.S. to lose its credibility and undermine the [U.S.] dollar’s hegemony in the long run.” She further suggested that China should help the world “get rid of the dollar hegemony sooner rather than later.”

The final of the three key reasons why the new Russia-Iran energy corridor is so important in the balance of power in the Middle East, and in the security threat to the U.S. and its allies is that it is not just intended as an energy corridor. It is also intended as the first part of the ‘Land Bridge’ that Iran has desperately being trying to create since its 1979 Revolution brought it into being as a global Islamic power. The Land Bridge would run from Iran across Iraq and on to the Mediterranean Sea coast of Russian-controlled Syria. This would enable Iran and Russia to exponentially increase weapons delivery into southern Lebanon and the Golan Heights area of Syria to be used in attacks on Israel. The core aim of this policy is to provoke a broader conflict in the Middle East that would draw in the U.S. and its allies into an unwinnable war of the sort seen recently in Iraq and Afghanistan, and which the Israel-Hamas War was always intended to be. With Russia having an extensive military presence along the coast, both with the naval base at Tartus and with the Hmeimim Air Base and nearby listening station at Latakia, the various oil and gas exploration and development contracts shared by Russian, Chinese and Iranian companies operating in Iraq provide the link from Iran to Syria. Under international law, oil and gas firms are perfectly entitled to station as many ‘security personnel’ as they wish in and around these high-value sites, including around the transport system that connects them. Additional support for these hubs along much of the Land Bridge route is likely to come from plans agreed between Iraq and China to construct the US$17 billion Strategic Development Road that will create its own transport corridor from Basra to southern Turkey (close to the Syrian border), and link in with China’s Belt and Road Initiative.

More Top Reads From Oilprice.com:

• Venezuela's Election Authority Declares Maduro Victor in Disputed Election
• Oil Prices Climb Following Saturday's Rocket Attack on the Golan Heights
• OPEC: Oil Is Indispensable for Global Electrification