By Chris Cook and Mahmood Khaghani

The era of new energy diplomacy paradigm

August 7, 2016 - 22:24

The political framework for what can best be described as Eurasian Energy Co-operation is set to be formally recognised in the coming days.

The recent failed coup in Turkey has – temporarily at least – opened the way for a realignment of Caspian and Eurasian regional geopolitics by destroying a long standing US geopolitical initiative to re-draw the regional map in favour of what has been the status quo for since man discovered oil, namely resource theft, and create a route to extract Caspian hydrocarbons for the profit of US corporations.

President Putin continues to take the lead in Eurasia diplomatically, holding meetings with regional Heads of State, which include Iran and the Republic of Azerbaijan on 8th August, Turkey on the 9th August and Armenia on 10th August. President Putin's aim is for Iran to join a Eurasian Economic Union (EEU), initiated by Russia, beginning with Iran joining an EEU Free Trade zone.

The recent Brexit vote for the UK to leave the EU (European Union) was not merely a cry, but a loud scream from the people of the UK that they are tired of their voice not being heard by both the European parliament and non-elected European Union officials.  Whilst open boarders for trade are acceptable, a single financial union is not. Britons have tired of increasing housing prices, stagnating wages, cuts to pensions and the basic cost of essential services out of the reach of those who most need them.  Putin’s EEU has a rare opportunity to re-imagine the international agreements comprising unions, ones based on trade not fiscal (currency).


Most Westerners are accustomed, and increasingly becoming tired, to a form of democracy whereby elected leaders are given the power - through an executive branch – to impose policies on what is usually a majority of the population which either voted against, or did not vote for, the policies imposed.  This is evidenced most notably by recent Australian elections, which took more than a week for a party to form a razor thin one seat majority in the lower house, and no party able to form a majority in the upper house.  In the UK the unexpected yes vote for the UK to leave the EU, Brexit, caused the fall of its sitting Prime Minister, and who knows what will happen in the US elections in November? The UK's constitution and governance has been termed, not entirely wrongly, an elective dictatorship.  Australia’s system of government is no different based on the Westminster system. 

Iran's vibrant democracy is the complete opposite. No branch of government has the power to impose policy, but several have the power to block or veto it, with the role of the Supreme Leader being to wield the power of ultimate veto.

The result of democracies such as the UK, Australia and the USA is often the imposition of bad policy on usually half of the population who voted against it. The result of the latter, Iran is all too often, no policy at all. More to the point there are countries which act, and there are countries which are acted upon: countries which impose policy; and countries which have policy imposed upon them by military or market power.  Yet, Russia and Iran, as members of the EEU, have the opportunity to create co-operative policy; Mutual frameworks of agreement through trade.

Politics and policy

While traditional US politics melts down ahead of elections in November the EU is taking the lead in engaging with Iran. However, it is clearly the case that the EU sees engagement with Iran as lending sufficient Euros to buy over-priced, over-complex and over-engineered technology and solutions. In other words, the EU wishes to apply the US Petrodollar approach to create a Petro Euro based upon debt claims over Iran's oil & gas resources. Where that path may lead is visible in Greece.

But if such a political economy is no longer viable, due to the fundamental unsustainability of the Western financial system based upon debt, how else may Iran engage with other nations?

The answer lies in a new generation of international agreements of co-operation to a common purpose which are specific to a particular theme or function. The starting point should be in the field of energy, and the fact that Iran and Russia has between them over 50% of global natural gas reserves is a good starting point and basis for co-operation, in pricing trading and delivering of energy to the consumer. 

EU Energy Union

The EU approach to energy is to create an EU Energy Union monolith through which to exercise market power in engaging competitively with energy supplier nations and – through the international Energy Charter Treaty – for EU nations to invest in global oil and gas production, thereby creating the Petro Euro.

The problem is that the original energy market paradigm of energy as a commodity bought and sold for $ and € profit has now evolved into a market paradigm of energy as an asset which investors buy because they fear that the (inherently worthless) dollar and euro will decline in value, whereas energy will not. The result of this has been that the energy markets have become completely detached from reality and dysfunctional, so that producers and consumers see massive volatility in price, at their expense while investment in infrastructure becomes excessively costly at best and impossible at worst.

Energy Clearing Union

Rather than competing against each other for $ or € profit, Iran, Russia and regional nations such as the Republic of Azerbaijan could co-operate to reduce resource costs, since all nations have an interest in cost reduction, heralding an era of resource efficiency.

This is achievable through the organising principle of least resource cost: that is to say that for a given use of electricity, heat/cooling or power the use of finite resources such as water and carbon fuels should be minimised. The economic rationale for this approach is simple: the more expensive that water and carbon fuels become in dollars or euros, the more profitable it is to save them.

Indeed, it is not only nations seeking to reduce resource costs, it is corporations also: we see Exxon Mobil prioritising cost reduction and stating that investment in Caspian oil and gas is not viable at current oil prices and cost levels.

Resource efficiency frameworks can be launched in two ways:

Firstly, the regional launch of the networked Institute for Resource Resilience, which on the basis of Caspian Energy Grid (CEG) initiative launched in Tehran on 20th June 2016, was recently founded in the UK to link Iranian and Scottish/UK academic institutions to pursue research into least resource cost solutions.

Secondly, the creation of a regional Energy Clearing Union (ECU) to mobilise people and resources using both conventional financing and funding and a new generation of energy swaps for funding and energy credits for development financing.

Energy Paradigm and resource efficiency

Financial Technology or Fin-Tech, simply takes agreements of existing organisations and applies ICT (Information and Communication Technology) in the form of Exchanges or simple platforms to create accessible and liquid market places where consumers, producers and investors can all interact together.

Consumers, producers and investors can co-operate in a market to apply latest technology and investment which is measured not by profit but by efficiency.  Who can produce the most from the least?

When buying a car these days, one of the most critical metrics people use to decide which car they buy is how fuel efficient the car is.  The more fuel efficient, the less it costs, and the better value per litre of petrol one gets.

Energy co-operation is no different, and can be measured by Energy efficiency.  If we extend this out to other resources, then we have a market place measured by resource efficiency.

Russia and Iran already have the Exchanges or platforms in place for the trading and pricing of energy and other commodity or resources; namely the St Petersburg International Mercantile Exchange (SPIMEX) and in Iran, the Iranian International Oil Bourse (IOB) in Kish Island.  Both have the desire and ability to trade in multiple currencies, so as to provide access for the settlement of trade between Nations and corporations. 

All that is missing is the agreements in the form of political framework, which by all accounts President Putin of Russia and President Rouhani of Iran in the Summit hosted by the President of the Republic of Azerbaijan in Baku, can agree and which will form the backbone of the EEU, and a new Paradigm not simply in Energy Co-operation, but the basis for a market in Resource efficiency. 

Leave a Comment

1 + 15 =