bottleneck analysis

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Gassy Friends

Tallinn, Estonia

There should be more “energy” in this blog. Here we look at how energy builds feeble friendships and goes against what in International Relations and everyday media seems to be non-controversial.

Iran has very few friends in the international community. US embargo and sanctions have accomplished the slowdown of foreign economic activity in the country. The Seattle Times summarized it all in early 2010:

German industrial conglomerate Siemens AG said last week that it will stop doing business in Iran by the middle of 2010. European banks such as Deutsche Bank, Commerzbank, UBS AG and Credit Suisse Group have also pulled out of Iran.

In 2010 the Italian ENI was going to be the last big business to leave Iran, only to come back later and announce that their contracts are not covered by the embargo – something that the US has not confirmed. Recently, ENI confirmed the phasing-out of business in Iran once the costs of the current ones are recovered. Given that Iran was one of the gems that ENI was proud of having found during the years of Enrico Mattei, it will be a pretty big loss for the Italian company in general.

This background is just for perspective. Meanwhile, however, non-Western energy is playing a big role in the region, overcoming the obstacles of international sanctions, embargoes and tense relations. With great pride, Armenia and Iran are linked by a gas pipeline since 2008. At the same time, a few kilometers to the East, another gas pipeline feeds the Azeri enclave of Nakhchivan, through swaps between Teheran and Baku. Azerbaijan is not able to send gas via pipeline across Armenia to its citizens in Nakhchivan, so it gets Iranian gas and is paid back with Azeri gas going into the northern and populous regions of Iran. This web of relations could seem silly in a market-driven environment, where the path of pipelines would look more straight and there would be no need to circumvent sensitive regions. But in the heart of the Middle East, reality is more complicated. Turkmenistan swaps its gas as well with Southern Iran, but quantities are not disclosed.

But then you look at Turkey and you scratch your head. Ankara, now under increasing pressures from the population, is the biggest client of Iranian gas (10 bcm). But wait, isn’t Turkey part of NATO? Isn’t NATO… yes, all those consequential questions are legitimate and justified. And just as we care nothing about human rights in Armenia, Azerbaijan, Turkey, and Turkmenistan (just to mention the countries cited here, with which we constantly entertain fruitful relations), the regional gas balance cares little about Western concerns about the Iranian economy. Sanctions and embargoes are precisely intended to weaken the economic stability of an oil and gas potential exporter (although the internal problem in the energy mix are still huge). Therefore, energy trade, or the lack of it, should be the first political tool to use against Iran. By now, the entirety of the West does it. In the region, however, the need for natural gas and of lucrative contracts trumps the political pressures from Washington (and Brussels).

Political friends or enemies, when it comes to business, let’s put a brown bag on our faces and do it. The Western pull out from Iran will certainly contribute to our ignorance of the entire region and foster an antagonistic discourse based on what we think, we hope, we wish was going on “over there”. It’s lucky that there’s people around that write good stuff and open our eyes – in this case on natural gas issues.

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