ECONOMY
Gazprom’s Iranian Pipe Dream
January 22, 2025
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Mikhail Krutikhin
Oil and gas market expert
Energy expert Mikhail Krutikhin lays out why Vladimir Putin’s recently announced plans to sell gas to Iran, even if they come to fruition, will not mean much for Russia’s wounded gas monopoly.
The original text in Russian was published by the Moscow Times and is being republished here with the author’s permission.
Vladimir Putin meets with Iranian President Masoud Pezeshkian. January 17, 2025. Source: Kremlin.ru
Vladimir Putin has announced that Russia will export gas to Iran. At a press conference after talks in Moscow with his Iranian counterpart, the Russian president said that a gas pipeline from Russia to Iran is “in progress” and that supplies in the first stage could amount to 2 billion cubic meters a year, which could eventually be ramped up to 55 billion cubic meters a year.
This project is surprising and extremely dubious – for many reasons.
Let’s start with the fact that Iran has proven natural gas reserves of 33.9 trillion cubic meters, or 18% of global reserves. This ranks the Islamic Republic second in the world, just behind Russia, with the annual OPEC statistical report listing Russian reserves at 47.8 trillion cubic meters.
It is worth recalling how in 1966 the USSR and Iran agreed to build industrial and other facilities in Iran – financed by a Soviet loan that the Iranians would repay with gas supplies. More than 200 facilities appeared in Iran under the deal, from the Esfahan metallurgical plant to fish farms in the Caspian, while Soviet Transcaucasia was hooked up to a major source of gas.
The Islamic Revolution of 1979 temporarily interrupted imports from Iran, and the USSR had to build new routes to supply Armenia and Georgia with gas from fields in the Volga region and Western Siberia.
With the disappearance of the USSR, Gazprom became the main supplier of gas to this region. For its part, Azerbaijan, where offshore gas began to be developed with the participation of foreign companies, turned into a solid exporter.
The Shiite clerics ruling Iran have run the country’s gas industry into the ground. Overall, Tehran is now a source of regional instability and terror, for which it has been isolated internationally and slapped with economic sanctions.
Incompetent management, aging infrastructure, an inability (unwillingness) to attract foreign investment and technology to develop the gas sector and, finally, wasteful consumption have caused a series of severe energy crises, with power plants shut down, consumers left in the dark by rolling blackouts, industrial production handicapped, etc.
The shortage of gas for domestic consumption in Iran is all the more striking given that Tehran cannot expand gas exports, which have not exceeded 18 billion cubic meters per year for the past three years.
The main destinations for Iranian gas are Iraq and Turkey, with about half a billion cubic meters also supplied to border regions in Azerbaijan.
Iranian hopes of exporting gas to Pakistan and through it to India have failed to materialize. In the context of the Islamic Republic’s international isolation, Islamabad and New Dheli have shied away from building gas pipelines or signing any contracts. In addition, Iran cannot build gas liquefaction plants for subsequent export because of sanctions.
Today’s Iran is closed to investors and firms with needed technology. In their absence, part of the extracted gas goes to oil fields, where it is pumped underground to increase the flow rate of oil wells.
To supply its northeastern regions, Iran buys gas from neighboring Turkmenistan via two gas pipelines. Plus, Tehran has recently been sending some Turkmenistani gas through its territory to Turkey under a swap scheme.
Last June, Gazprom and the National Iranian Gas Company signed a “strategic memorandum on elaboration of arrangements for Russian gas supplies to Iran” – not to be confused with an agreement to start a project or a contract.Translated from bureaucratese, this means that they agreed to sit down together sometime and think about whether it is worth doing business at all.
But there was quite a stir in Moscow and Tehran. Gazprom announced its intention to supply “for starters” 10 billion cubic meters of Russian gas a year, participate in gas production projects in the Persian Gulf and even create a regional hub in Iran for trading gas.
There is also talk about laying a gas pipeline from Russia to Iran along the bottom of the Caspian Sea.
This project is surprising and extremely dubious – for many reasons.
Let’s start with the fact that Iran has proven natural gas reserves of 33.9 trillion cubic meters, or 18% of global reserves. This ranks the Islamic Republic second in the world, just behind Russia, with the annual OPEC statistical report listing Russian reserves at 47.8 trillion cubic meters.
It is worth recalling how in 1966 the USSR and Iran agreed to build industrial and other facilities in Iran – financed by a Soviet loan that the Iranians would repay with gas supplies. More than 200 facilities appeared in Iran under the deal, from the Esfahan metallurgical plant to fish farms in the Caspian, while Soviet Transcaucasia was hooked up to a major source of gas.
The Islamic Revolution of 1979 temporarily interrupted imports from Iran, and the USSR had to build new routes to supply Armenia and Georgia with gas from fields in the Volga region and Western Siberia.
With the disappearance of the USSR, Gazprom became the main supplier of gas to this region. For its part, Azerbaijan, where offshore gas began to be developed with the participation of foreign companies, turned into a solid exporter.
The Shiite clerics ruling Iran have run the country’s gas industry into the ground. Overall, Tehran is now a source of regional instability and terror, for which it has been isolated internationally and slapped with economic sanctions.
Incompetent management, aging infrastructure, an inability (unwillingness) to attract foreign investment and technology to develop the gas sector and, finally, wasteful consumption have caused a series of severe energy crises, with power plants shut down, consumers left in the dark by rolling blackouts, industrial production handicapped, etc.
The shortage of gas for domestic consumption in Iran is all the more striking given that Tehran cannot expand gas exports, which have not exceeded 18 billion cubic meters per year for the past three years.
The main destinations for Iranian gas are Iraq and Turkey, with about half a billion cubic meters also supplied to border regions in Azerbaijan.
Iranian hopes of exporting gas to Pakistan and through it to India have failed to materialize. In the context of the Islamic Republic’s international isolation, Islamabad and New Dheli have shied away from building gas pipelines or signing any contracts. In addition, Iran cannot build gas liquefaction plants for subsequent export because of sanctions.
Today’s Iran is closed to investors and firms with needed technology. In their absence, part of the extracted gas goes to oil fields, where it is pumped underground to increase the flow rate of oil wells.
To supply its northeastern regions, Iran buys gas from neighboring Turkmenistan via two gas pipelines. Plus, Tehran has recently been sending some Turkmenistani gas through its territory to Turkey under a swap scheme.
Last June, Gazprom and the National Iranian Gas Company signed a “strategic memorandum on elaboration of arrangements for Russian gas supplies to Iran” – not to be confused with an agreement to start a project or a contract.Translated from bureaucratese, this means that they agreed to sit down together sometime and think about whether it is worth doing business at all.
But there was quite a stir in Moscow and Tehran. Gazprom announced its intention to supply “for starters” 10 billion cubic meters of Russian gas a year, participate in gas production projects in the Persian Gulf and even create a regional hub in Iran for trading gas.
There is also talk about laying a gas pipeline from Russia to Iran along the bottom of the Caspian Sea.
“By January 2025, the grandiose effort had shriveled up: the pipeline, according to Russian officials, would not go by sea but through Azerbaijan, and flows will initially not exceed 2 billion cubic meters a year.”
And yet, even these moderated plans do not inspire optimism.
Firstly, there is no more talk of Iran becoming a regional trading hub for Iranian and Russian (and, if necessary, Turkmenistani) gas. There are no buyers outside of Iran, and none are expected; any imported gas would first have to be sold to Iranian state companies before being resold – this is what local law requires.
Secondly, it remains to be seen whether Azerbaijan will allow the Gazprom pipeline to pass through its territory. Given the current state of relations between Moscow and Baku (which have deteriorated precipitously since an Azerbaijan Airlines plane was shot down over Grozny), transit will likely depend entirely on the whims of the Azerbaijani leadership or even the interests of foreign companies that manage the gas transportation infrastructure from Baku, through Georgia and Turkey, to European countries.
And thirdly, there is no commercial sense in setting up such a route. Microscopic in volume, unprofitable exports to Iran will not save Gazprom, which, at the behest of the Kremlin, has exited its main market of Europe and turned loss-making.
Firstly, there is no more talk of Iran becoming a regional trading hub for Iranian and Russian (and, if necessary, Turkmenistani) gas. There are no buyers outside of Iran, and none are expected; any imported gas would first have to be sold to Iranian state companies before being resold – this is what local law requires.
Secondly, it remains to be seen whether Azerbaijan will allow the Gazprom pipeline to pass through its territory. Given the current state of relations between Moscow and Baku (which have deteriorated precipitously since an Azerbaijan Airlines plane was shot down over Grozny), transit will likely depend entirely on the whims of the Azerbaijani leadership or even the interests of foreign companies that manage the gas transportation infrastructure from Baku, through Georgia and Turkey, to European countries.
And thirdly, there is no commercial sense in setting up such a route. Microscopic in volume, unprofitable exports to Iran will not save Gazprom, which, at the behest of the Kremlin, has exited its main market of Europe and turned loss-making.
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