No Congressional Majority Can Defy the Laws of Economics (I24News, 5 August 2015)

One of the reasons why sanctions against Iran will be lifted whether or not America pulls out of the nuclear deal is that the other signatories (Russia, China, and the EU) have an economic interest in lifting those sanctions. This economic interest includes natural gas.
On the face of it, there was no reason for Russia to let Iran re-renter the natural gas market. The two countries, after all, are competitors. Yet a closer look at the complicated geopolitics of energy makes sense of Russia’s endgame.
The EU imports about one third of its natural gas from Russia. This relative dependency limits the EU’s leverage over Russia and, therefore, Europe’s ability to rein in Vladimir Putin’s rampant annexation of eastern Ukraine. Since Iran has one of the world’s largest natural gas reserves, it could potentially help diversify Europe’s imports. Yet it might take a decade for Iran to turn into a major natural gas supplier (not least because Iran has a high domestic demand that is likely to increase). Putin, of course, understands that Iran might become a major competitor in this field, but he appears to assess that bringing back Iran into the natural gas market may help Russia create a cartel that will artificially inflate the price of natural gas. Doing so would serve Russia’s economic interests.
Russia, Iran and Qatar hold about 57% of the world’s natural gas reserves. They therefore constitute a de-facto oligopoly within the Gas Exporting Countries Forum (GECF), an intergovernmental organization of 11 of the world’s leading natural gas producers (Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, and Venezuela). GECF countries control not only 70% of the world’s natural gas reserves, but also 38% of the world’s pipeline trade. With the emergence of the United States as a major natural gas producer (thanks to fracking technology), and because of the US-Russia rivalry over pipeline routing in the Caspian Sea and the Caucasus, Russia wants to keep the upper hand in the natural gas market. Having Iran on board, in that regard, makes sense.
Russia is at odds not only with the US but also with the EU over natural gas pipelines. In order to reduce its dependency on Russian natural gas, the EU is planning the construction of the so-called Nabucco pipeline, which would connect it to Azerbaijan and Georgia via Turkey (thus bypassing Russia from the south). In December 2014, Putin announced his intention to build the so-called Turkish Stream pipeline, which would deliver natural gas directly from Russia to Turkey (via the Black Sea).
Since the establishment of GECF in 2001, there has been speculation that Russia and Iran intend to create a natural gas cartel similar to the OPEC oil cartel. In May 2006, Alexander Medvedev, the deputy chairman of Gazprom (Russia’s natural gas giant), warned that Russia might create “an alliance of gas suppliers that will be more influential than OPEC.” In February 2007, CNN reported that Russia and Iran were discussing the establishment of a natural gas cartel. So the reentry of Iran into the international natural gas market does serve Russia’s interests.
Then there are the economic interests of China, which is planning on building a natural gas pipeline from Iran to Pakistan. The US had previously threatened Pakistan with sanctions if it went ahead with this project. With the new nuclear deal with Iran, the US can no longer make such threats – whether or not it remains a party to the agreement or not.
Those who think that building a two-thirds majority in the US Congress would derail the deal with Iran are deluding themselves. Whether or not the US ends up being part of that deal, sanctions will be lifted by China, by Russia, and by the EU – all of which have a strong interest in letting Iran’s natural gas flow again.

Leave a Reply

Your email address will not be published. Required fields are marked *