The Iranian gas dues problem and resupplying Iraq and Turkey (Article)
Exporting gas to neighboring countries is Iran's priority, Given the demand in the region and the availability of the necessary infrastructure for gas transmission, it should be expected that Iran, thanks to its huge gas reserves, can play an active role in energy security in the region and enjoy the political and economic benefits of energy exports to neighboring countries.
However, repeated sanctions against Iran's energy industry and its high domestic consumption have meant that Iran has no major natural gas exports other than Turkey and Iraq.
In early May, the Iraqi Al-Sabah newspaper quoted Ahmad Musa al-Ebadi, a spokesperson for the Iraqi Ministry of Electricity, as saying that Tehran and Baghdad had reached an "understanding" to increase gas exports to Iraq.
According to a spokesman for the Iraqi Ministry of Electricity, Iraq generally imports 50 to 70 million cubic meters of gas a day from Iran in summer and winter. Recently, imports from Iran reached 5 to 8 million cubic meters per day, so much so that some production units stopped operating.
The money Iraq owes to Iran for electricity and natural gas imports in recent years has always been one of the causes of tension and frictions in relations between the two countries.
Due to the continuation of sanctions and the existing problems in the energy sector of Iran, Tehran in some cases cut and reduced the volume of natural gas and electricity exports to Iraq, which created many problems to Baghdad.
Iraq's debts to Iran
In recent years, there have been numerous talks between the officials from both countries on how to pay Iraq's debts to Iran, with Iraqi officials always blaming sanctions for the non-payment of debts.
This argument pointing to the sanctions has always been met with dissatisfaction in Tehran. Iran’s inability to supply natural gas and electricity to Iraq and cut off natural gas exports to the country led Baghdad to seek alternatives to its energy imports in recent years. During these years, Baghdad signed several contracts with foreign companies for the construction of solar power plants, as well as the import of electricity from neighboring countries.
On June 15 Iranian Oil Minister Javad Owji announced on his Twitter account that Iran received $1.6 billion in gas debt from Iraq. “Fortunately, with active energy diplomacy and after months of negotiations, hours ago, $ 1.6 billion in overdue requests for gas exports to Iraq were received.” Owji tweeted.
Owji added: “Since the beginning of the year, compared to last year, the country's gas export volume has increased by 25% and foreign exchange earnings by 90%.” Javad Owji describes Iran's receipt of Iraqi debt as a successful energy diplomacy of the Iranian President’s office.
energy conference in Baku
During an energy conference in Baku, the capital of Azerbaijan, Iranian-Azerbaijanian and Turkmen officials agreed to increase the volume of natural gas swaps. During the past month, several trips were made between Iranian officials and neighboring countries to boost energy relations.
Citing officials at the Ministry of Oil, some Iranian media outlets praised the positive impact of these meetings on the payment of Iraq's debt to Iran.
According officials, OFAC (Office of Foreign Assets Control) gives a conditional permission to Iraq to pay its debts to Iran. Iraq has to pay the debt to Turkmenistan instead of Iran. In this way, the ground is prepared for the restoration of a lost contract until Iran takes another step towards its macro policy of becoming the region's energy hub.
Last October, Javad Owji announced the Iranian Ministry of Oil’s decision to pay off the Islamic Republic's $2 billion that it owed to Turkmenistan in return for the natural gas imports. Turkmenistan has suspended gas sales to Iran since the beginning of 2017 due to Iran's several-year delay in paying its gas debt to Turkmenistan and has filed a lawsuit with the International Court of Justice. The court eventually fined Iran $ 2 billion.
Turkmenistan is expected to resume gas supplies to the country this winter. Last October, Owji claimed that Iran could settle its debt to Turkmenistan by exporting needed products or providing engineering services to Ashgabat.
Iran intends to inject gas and electricity to Iraqi power plants once again, where last year we saw the closure of 110 steel plants due to widespread blackouts. This year, too, the Ministry of Energy announced power outages for industries earlier than in previous years. While the Iranian Ministry of Energy and Petroleum is considering exporting electricity and gas to neighboring countries, the country's own industries, including steel and cement, are looking for a way to survive.
In the meantime, the only solution for the steelmakers has been to migrate to Syria. These ministries, now seem to understand that rather than focusing on meeting the needs of Iraqi power plants, it is better to launch a plan to prevent bankruptcy and shut down of their own domestic industries.
Nuclear talks have stalled, and no exact date has been set for the resumption of talks and a possible agreement. Conditions are becoming more difficult for Iran in the global energy market. Selling oil on the gray market to China was one of the Islamic Republic's options of bypassing sanctions.
Russian crude oil with high discounts to India and China increased Russia’s oil share in the Chinese and Indian energy mix, in addition, due to such discounts Iran oil exports to China declined.
Due to the secrecy of Iran's oil sales, as well as Iran's oil export destinations, it is not possible to obtain accurate statistics on Iran's oil exports during the sanctions. However, a comparison of the foreign exchange earnings statistics of major oil-exporting countries in recent months clearly shows that countries with the least tensions with oil exporting countries and major powers have made the most of the recent energy market conditions and the continuing energy crisis. Oil exports have been able to improve the exporting countries’ economic conditions as well.
Contrary to Javad Owji's claim, without Biden administration's green light, it would not have been possible for Iran to receive its debt from Iraq.
Due to the shortage of gas in the national grid and the imbalance in the production and consumption of natural gas, the crisis in the natural gas and electricity sector might exacerbate in the coming months in Iran.
Contrary to Javad Owji's claims, the government will not be able to use active energy diplomacy without a fundamental change in Iranian foreign policy.
With the continuation of the current foreign policy and the uncertainty of the position of energy exports in the foreign policy of the Islamic Republic of Iran, we may witness an increase in the share of Iran’s neighboring countries in the oil market as well as their economic progress while Iran will miss some significant opportunities.
Dr Umud Shokri, Author of "US Energy Diplomacy in the Caspian Sea Basin Changing Trends Since 2001", Foreign Policy&Energy Consultant.
Is Iran able to increase oil and gas production capacity? (Article)
Shale Blessings Squandered by Bad Policy (Article)
EU plan to ban Russian oil sends crude back into a bull run (Article)
Biden green light to increase Chinese oil imports from Iran