E.U. – Iran Energy Partnership: Hurdles and Incentives Clement Therme21 November 2008 Conference on Energy Security and the Geopolitics of Energy Cyprus

2 Introduction The reasons why Iran could be an energy partner for E.U. countries

3 Introduction (cont ’ d) The reasons why Iran could be an energy partner for E.U. countries: –Economic Logic: Iran is the only country which could offer an alternative to the Russian gas production

4 Introduction (cont ’ d) The reasons why Iran could be an energy partner for E.U. countries: –Economic Logic: Iran is the only country which could offer an alternative to the Russian gas production –E.U. countries oil and gas companies are present in Iran (Total, ENI, Repsol, OMV…)

5 Introduction (cont ’ d) The reasons why Iran could be an energy partner for E.U. countries: –Economic Logic: Iran is the only country which could offer an alternative to the Russian gas production –E.U. countries oil and gas companies are present in Iran (Total, ENI, Repsol, OMV…) –Increase of gas demand in E.U. countries

6 Introduction (cont ’ d) The reasons why Iran could be an energy partner for E.U. countries: –Economic Logic: Iran is the only country which could offer an alternative to the Russian gas production –E.U. countries oil and gas companies are present in Iran (Total, ENI, Repsol, OMV…) –Increase of gas demand in E.U. countries –Diversification of energy providers

7 Introduction (cont ’ d) The reasons why Iran could be an energy partner for E.U. countries: –Economic Logic: Iran is the only country which could offer an alternative to the Russian gas production –E.U. countries oil and gas companies are present in Iran (Total, ENI, Repsol, OMV…) –Increase of gas demand in E.U. countries –Diversification of energy providers –Geographical proximity

8 Introduction (cont ’ d) Despite this obvious potential for cooperation, Iran is not an energy partner for E.U. countries at the moment.

9 Introduction (cont ’ d) This presentation will focus on: –The reasons for the lack of E.U.-Iran energy partnership

10 Introduction (cont ’ d) This presentation will focus on: –The reasons for the lack of E.U.-Iran energy partnership; –Whether Iran could be a reliable partner.

11 Main Themes Developed 1.Historical Background of Iran-Europe Energy Cooperation 2.Current and Potential Energy Cooperation 3.Political and Economic Obstacles to a Partnership

12 Historical Background of the Iranian Oil and Gas Sector British imperialism in Iran: American-Iranian alliance: Iranian perception: Mistrust of Western energy policy 1970: First Iranian gas export towards Europe (swap with Russia) 1979: Suspension of cooperation until the end of the Iran-Iraq war

13 Historical Background (cont ’ d) : Investment of European energy companies in Iran; Increase of Iranian oil and gas production 2005: Increased American pressure to stop Iran-E.U. energy cooperation Nov. 2007: Gordon Brown favors international or E.U. sanctions against the Iranian energy sector Summer 2008: Electricity cuts in Tehran

14 Current Energy Cooperation Effective Cooperation: –Gas production: South Pars –Petrochemical field –CNG (Compressed Natural Gas) –Oil production –Contract negotiations –German gas deal –Swiss gas deal

15 South Pars Offshore

16 South Pars Onshore

17 Potential Energy Cooperation The Nabucco Project: –One of the main projects of the E.U. Commission –Azerbaijan gas not sufficient to fill up the gas pipeline –Alternative to Russian gas: The “raison d’être” of the project (diversification) will be altered –The most logical solution: Opting for Iranian gas provided E.U. companies invest in the Iranian gas sector so that both domestic and international demands can be met

18 Kayhan International, 24 Nov. 2007

19 Iran Daily, 27 Nov. 2007

20 Contours of the Nabucco Project

21 Potential Cooperation (cont ’ d) Liquefied Natural Gas (LNG) –1 st project: Pars LNG (Total/Petronas) –2 nd project: Shell/Repsol/NIOC –3 rd project: Iran Privatization of the Iranian energy sector: closer to the E.U. model compared to the Russian model (State control of energy resources) Technological advantage of European energy companies

22 Potential Cooperation (cont ’ d) Iran as transit country for Caspian oil and gas production –For the first time since the fall of the Soviet Union, Iran has become a transit country for Azeri oil after the BTC attack (August 2008); Swap: Iran gets Azeri oil for its domestic consumption and in exchange Iran exports the same amount of oil from Khark island –Neka /Jask pipeline project: Connection between Caspian Sea and Oman Gulf –Azerbaijan/Turkmen gas export towards Europe through Iranian territory

23 Political Challenges Iranian energy nuclear program U.S./E.U. strategy: Economic sanctions targeting LNG and refinery technology U.S. containment policy vis-à-vis Iranian energy development Cutting off Iran gasoline imports Islamic Republic of Iran Israel Policy

24 Political Challenges (cont ’ d) The Eastern trend of Iranian foreign policy : Political will to increase oil and gas cooperation with Russia, China and India (Peace Pipeline) The new oil and gas administration after Ahmadinejad’s presidency: Ideological objectives supersede Realpolitik Iran imports gas, Iranian priorities still have to be defined: –Domestic consumption –Gas injection in oil fields –Exports: Pipelines or LNG

25 Economic Challenges Increase in domestic oil and gas demand Lack of investment in Iranian oil and gas sectors Iran-Turkey energy relationship Lack of cooperation between E.U. countries regarding energy policy

26 Economic Challenges (cont ’ d) Dual use technology: Oil and gas/nuclear program Increased financial costs and difficulty to finance oil and gas projects in Iran (U.S. unilateral financial sanctions)

27 Conclusion: The International Context The so-called Gas OPEC Project: –“Troïka” between Iran, Qatar and Russia –Iranian technological dependency vis-à-vis Western technology (refinery, LNG) Prospects: –Hypothesis: Coalition of countries willing to sanction Iran will lead to a rapprochement between Iran and Russian/Chinese oil and gas companies

28 Conclusion (cont ’ d) Need of an independent strategy of the E.U. vis-à-vis the U.S. Iran has to act in accordance with its national interest (Western technology favored) E.U. countries can use the energy threat against the Iranian nuclear program but risk of failure if the international community is divided Need to avoid ideological strategies and rather focus on the E.U.-Iran common interest as political leverage to solve the Iranian nuclear issue

29 The End