The framework agreement: Implications for Iran’s natural gas

April 13, 2015 - 0:0

The Framework agreement between Iran and the P5+1 group (China, England, France, Germany, Russia, and the United States) faces many challenges ahead, but could ultimately pave the way for sanctions relief on Iran should the final deal materializes by June 30, 2015. Two questions deserve particular attention: Will this agreement, if it ever came to pass, return Iran to the status of a regional superpower? Could it unlock Iran’s national gas potential?

The answer to these questions might lie in the notion that the framework agreement may appear to be more than an arms control agreement. It could be about redefining and fundamentally changing Iran’s relationship with the West more generally, but especially with the United States. If this is the case, it will certainly open up the possibility of regular diplomatic ties and trade between Iran and the West. Let us turn our attention to the question of how would this agreement affect Iran’s relationship with Europe?

As the tensions between Russia and European countries over Ukraine ramped up, resolving Iran’s nuclear problem gained considerable traction in the West. Furthermore, the rise of Islamic State in Iraq and Syria (ISIS) in the Middle East and North Africa and the spread of violence as a result have roiled a region that already clings to an uneasy stability in the aftermath of 2011 Arab uprisings. Not having the answer to Iran’s nuclear program, it turned out, could have had serious consequences and the costs of failure in the negotiations with Iran would have been enormously high.

No less significant is the fact that the resolution of this problem could fundamentally alter the dynamics of global energy markets, holding serious ramifications for global energy security. Thus far, EU member states have been reluctant to consider Iran as an alternative supply source to their heavy dependence upon Russia’s natural gas and oil because of pressure applied by the U.S. and the UN sanctions regime imposed on Iran. Emphasizing the need for Iranian oil and gas in international markets, some experts have noted that the sanctions against Iran have minimized the West’s leverage against Russia’s Vladimir Putin. Given its huge natural gas reserves, Iran appears to be in a good position to export gas to Europe through pipeline and also in the form of liquefied natural gas (LNG). Undoubtedly, the Islamic Republic will be able to serve as part of the EU’s solution for the diversification of its gas supply sources. If this scenario unfolds, Turkey can serve as the transit route to take Iran’s gas to Europe and, at the same time, supply part of the gas that Ankara needs to meet the country’s domestic demand.

The basic problems of infrastructure and the lack of facilities to produce LNG or the means to export them present major problems for Iran. Iran and Qatar, despite chronic friction, must find a way to manage together enormous gas reserves that offer an attractive alternative to the EU member states. For Qatar, this option is equally attractive because, as experts observe, the country has since 2007 earned more from gas exports than from oil exports and is currently the world’s largest exporter of liquefied natural gas. Qatar’s foreign ministry welcomed Iran’s nuclear deal in a statement released shortly thereafter, characterizing it as a step toward ensuring peace and security in the region. Qatari officials have also called for making the Middle East a “nuclear-weapon-free zone.”

From the practical standpoint, that is, in the real global and regional energy markets, however, Iran faces tight competition—largely from Russia, Qatar, and Turkmenistan—in its attempts to formulate and enforce a new energy policy, but its vast natural gas reserves and its potential to expand its exports is a new reality with which the region must come to grip. That said, without foreign investment in Iran’s natural gas reserves, the country’s rising domestic consumption, archaic installations, and poor management will not improve, and Iran’s enormous potential to become a major exporter of the gas to the world remains highly unlikely.

Mahmood Monshipouri, PhD., teaches Middle Eastern Politics at San Francisco State University and the University of California, Berkeley. He is the editor, most recently, of Inside the Islamic Republic: Social Change in Post-Khomeini Iran, New York: Oxford University Press, forthcoming.