By Ebrahim Gilani - Iran;
source: Institute for War & Peace
Tehran felt obliged to end
loss-making oil swaps, but decision could further reduce its influence as a
Caspian regional player.
Three months since Iran's oil ministry announced it was ending
an import deal with three Caspian states, future plans remain unclear.
The ministry announced in June that it would not be renewing
contracts with four companies that had been bringing in oil from Kazakstan,
Turkmenistan and Azerbaijan. Under an arrangement known as an oil swap, the
imported crude was refined locally in northern Iran, and an equivalent amount of
Iranian oil was then made available for export from seaports in the south.
The oil swap deals were managed by Germany's Select Energy
Trading GmbH, the Swiss energy trader Vitol, Dragon Oil from the United Arab
Emirates, and the Ireland-based Caspian Oil Development.
The first oil swaps began in 1997, allowing Caspian states with
limited export options to go through Iran.
The oil ministry's decision to stop them came as a surprise
because only a few months earlier, President Mahmoud Ahmadinejad predicted that
the volume of oil swaps - currently between 70,000 and 100,000 barrels per day -
could rise to nearly 320,000 bpd by 2015.
Explaining the decision, officials said Iran was not making money
because receipts from the swap - about one US dollar per barrel - had not
increased in line with spiraling oil prices over the past decade or so.
Seyyed Abdolmajid Shoja, formerly of the Iranian parliament's
energy affairs committee said revenue from the 115 million barrels exchanged
between 1997 and 2006 came to just 146 million dollars.
Asked by reporters why the oil swaps had ended, Oil Minister
Massoud Mir-Kazemi said the deal had been a loss-maker rather than generating a
He noted that any oil moved from southern ports on behalf of
Caspian states counted towards Iran's total exports, and domestic production had
to be curbed accordingly to keep within OPEC quotas.
Since these exports earned Iran only a small flat fee instead of
the going rate for oil, Mir-Kazemi said that "it was as if we were losing 69
dollars on every barrel, which was completely disadvantageous for us".
The minister has indicated that the contracts could be renewed,
but with the fee increased "from one to five dollars" per barrel.
Months before oil swaps were suspended, Swiss energy trader Vitol
had already made it clear it wanted to end its arrangement with Iran. At the
time, its decision was seen as a desire to avoid falling foul of United States
Meanwhile, Dragon Oil made arrangements to ship its oil from
Turkmenistan to Azerbaijan, where it could go into the Baku-Ceyhan pipeline.
The oil swap was of mutual benefit to Iran and its northern
partners. Kazak oil has traditionally had to go through Russia, which can
dictate volumes and transit fees, and an eastward route to China opened up only
recently. Azerbaijan has a major pipeline running via Georgia to Turkey's Ceyhan
terminal, but the Russian-Georgian conflict in 2008 showed the advantages of
having alternative options to hand. Finally, Turkmenistan is mainly a natural
gas producer and has no easy way of exporting its crude oil, except to
For Iran, the swaps with nearby producers meant it could supply
northern areas from oil processed at the Tehran, Tabriz and Arak refineries
without having to transport it all the way from wells in the south.
Just as importantly, the arrangements provided Tehran with
opportunities to position itself as a player in the Caspian energy market.
Following the collapse of the Soviet Union, successive Iranian
governments tried to attract investment in pipelines to take Caspian oil and gas
to the Persian Gulf - an easier route to international markets than going
But mounting international sanctions meant this never happened,
and the Baku-Ceyhan oil route and the projected Nabucco gas pipeline through
Turkey and southeast Europe reduce Iran's ability to sell itself as the shortest
and cheapest route.
For geopolitical reasons, the firms involved in oil swaps now
appear less motivated to maintain the arrangement, especially if Tehran is going
to demand higher fees.
Although Iranian oil officials say they are open to negotiations,
an oil expert in Tehran, speaking on condition of anonymity, said this is
looking less likely than ever, as the latest UN sanctions "create new
obstacles", so that "bringing these companies back is a difficult task".
Speaking on the sidelines of an oil and foreign policy meeting
held in Tehran in March, energy expert Nersi Ghorban said the former Soviet
Caspian states now viewed Iran as something of a liability because of sanctions.
The Iran advisor for a major western oil firm, who asked not to
be named, says Iran's peremptory decision to shut off oil swaps was an error of
judgement, coming as it did at a time when the country is increasingly hemmed in
by economic sanctions, the latest of which were imposed by the United Nations
and the US in early June.
Instead of simply ending the deal, he said, Tehran could have
warned its partners in advance and then entered into negotiations about raising
the fee per barrel.
Hasan Mansoor, a professor at the Schiller International
University in Paris, says Iran could have followed Russia's example by asking
intermediaries to pay a tax instead of bumping up the fee itself.
"It appears that Iran was not levying specific taxes on its
contractors," he added.
Ebrahim Gilani is the pseudonym of an Iranian journalist
and foreign policy analyst based in London.
... Payvand News - 10/07/10 ... --