Text size:

  • Small
  • Normal
  • Large
The Nouri petrochemicals facility in Assaluyeh, southern Iran. AFP
The Nouri petrochemicals facility in Assaluyeh, southern Iran. AFP

Iran sanctions hurt US but are no bar for Gulf and Russia

The likely exemption of a BP gas project, in which Iran holds a stake, from recent US and EU sanctions shows how western energy policy suffers from being turned to political ends, Robin Mills writes.

It is the exception that proves the rule. The likely exemption of a BP gas project, in which Iran holds a stake, from recent US and EU sanctions shows how western energy policy suffers from being turned to political ends.

Naftiran Intertrade Company (Nico), a unit of Iran's national oil company, holds 10 per cent in Azerbaijan's Shah Deniz gasfield, the cornerstone of plans to export Azeri gas via Turkey to Europe to reduce dependence on Russia.

"Our sanctions policy should impose maximum economic pain on the Iranians without allowing Russia to hold Eastern Europe hostage for energy," a senior US congressional aide noted. Therefore, after strenuous European lobbying, legislation is likely to exempt Azerbaijan gas exports.

The longer-term policies of the US and, more recently, Europe towards Iran have been driven by political imperatives. Yet their focus on the militarily and economically negligible Islamic Republic has damaged their energy security and that of Asian allies, while being very favourable for Russia and the GCC.

Iran has the world's second-largest gas reserves, after Russia, yet it is a net importer of gas. It is the natural anchor for Middle East pipelines to Europe which would compete with Russia. It is best-placed to send gas to energy-starved Pakistan and India, but the US has instead promoted an alternative from reclusive Turkmenistan through war-torn Afghanistan.

Finally, Iran is the easiest transit route for central Asian oil and gas to world markets. But through the 1990s, Washington sponsored a longer pipeline from Azerbaijan to the Mediterranean. Though the Baku-Tbilisi-Ceyhan line was a success in itself, it has not led to more export routes, and Russia's 2008 war with Georgia highlighted its vulnerability.

Sanctions on Iran have combined with its own mismanagement to hamper its petroleum industry severely. In the 1970s, when Arab countries embargoed the US, the Shah's government increased output to more than 6 million barrels per day. Now production limps along at little more than half that.

When the US oil company Conoco agreed a contract in 1995 to develop Iran's Sirri A and E oilfields, Bill Clinton, then the US president, ordered it to withdraw. More recently, European oil companies, including Shell, Total and ENI, also left the country.

Combined with earlier sanctions on Iraq and Libya, the result has been to eliminate plausible Opec competitors to Saudi Arabia and its Gulf allies. In contrast with the cut-throat competition that prevailed up to 1998, Opec's production restraint so far this century has pushed oil prices to record highs. While both the GCC and Russia have enjoyed a tremendous windfall, costly energy has hampered economic growth in developed countries.

Meanwhile, without Iranian competition, Qatar was able to become the world's largest liquefied natural gas exporter and establish dominant positions in European and Asian markets.

The Iranians have also failed to use their energy resources strategically. Had they not negotiated interminably on unattractive terms, they could have attracted multi billion-dollar European, Russian and Chinese investments. Becoming the key alternative gas supplier to the EU and Asia would have made them much harder to sanction, and would have left US oil companies clamouring to be allowed in as well.

Sanctions might appear to be a cost-free alternative to war. But whatever minor tweaks are made to them, over the long term they erode global energy security - and may have cost the US alone half a trillion dollars in higher energy costs over the past decade. No administration, whether in Washington, Brussels or Tehran, has been able to create a "Nixon in China" moment, realign global energy alliances and turn the tables on Russia and Riyadh. The Gulf should be grateful for this. It may not endure forever.

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Miele coffee maker making Cappuccino at Miele Gallery in Sama Tower in Dubai. The cost of this coffee maker is around Dh 17,000. Pawan Singh / The National

Space-age coffee comes at a price from Miele

Miele have taken the coffee machine to a new level with its Dh17,000 offering that is built into your kitchen.

 The bridge of Seajacks Hydra, as the wind farm installation vessel undergoes finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014. Jeffrey E Biteng / The National

In pictures: Building the Seajacks Hydra

The Seajacks Hydra, a wind farm installation vessel, is undergoing finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 The rush of new supply of hotel rooms pushed Dubai occupancy rates down to 87 per cent. Sarah Dea / The National

Dubai hotel room rates rise 10 per cent

The rush of new supply pushed occupancy rates down to 87 per cent, a dip of 2.6 per cent from the previous year. Winter months are the strongest for Dubai hotels, with occupancy and prices falling to half their peaks by July.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National