UKRAINE IN QUEST FOR IRANIAN GAS

Ukraine’s National Security and Defense Council Secretary, Petro Poroshenko, and Naftohaz Ukrainy chairman Oleksiy Ivchenko paid little-noted visits to Iran on July 14 and July 24-25, respectively. The visits in quick succession evidenced Kyiv’s sense of urgency about reducing its dependence on Russian energy supplies, as well as its medium-term ambition to increase Ukraine’s role as an energy transit corridor to European Union countries.

Poroshenko and Ivchenko held talks with Iran’s Oil Minister Bijan Namdar-Zanganeh and Deputy Oil Minister Hadi Nezhad-Hoseyinian. Poroshenko was also received by Iran’s newly elected President Mahmud Ahmadinejad. Poroshenko and Ivchenko recalled that President Viktor Yushchenko had in 2000, while prime minister, initiated discussions with Iran for energy supplies to Ukraine. Prime Minister Yulia Tymoshenko has also spoken more than once recently in favor of discussions with Iran for oil and gas.

The Tehran meetings discussed options for delivery of Iranian natural gas to Ukraine and farther afield into Europe. Three possible transit routes were considered: a) Iran-Armenia-Georgia-Russia-Ukraine-Europe; b) Iran-Armenia-Georgia-Black Sea-Ukraine-Europe; and c) Iran-Turkey-Black Sea-Ukraine-Europe.

Under any of these versions, Iran would finance the pipeline construction on its own territory. Presumably, this would enable the countries participating in such a project to steer clear of violating the Iran-Libya Sanctions Act of the United States, which penalizes any sizeable foreign investment in energy projects on Iran’s territory.

It was agreed during these meetings to form expert groups, exchange information on feasibility of projects, identify participant companies and the shape of a possible consortium, select a transit route, make preliminary calculations on investments, determine volumes of gas for delivery to Ukraine and EU countries, and set prices for the amortization period.

A six-party meeting among the aforementioned countries has been scheduled for September. Meanwhile, Ukraine proposes moving ahead bilaterally with Iran to select a transit route. Ukraine and Iran can then invite other countries to participate, depending on the choice of route.

Each of the three options poses daunting problems. The route out of Iran through Armenia will almost certainly be opposed by Gazprom. The Russian company will defend its position in Ukraine, and has ample means to pressure Armenia to act as a buffer, rather than as a conduit for competing gas. Moreover, it is Gazprom policy at present to restrict access of Iranian gas in the South Caucasus as well. At Moscow’s insistence, the Iran-Armenia gas supply pipeline now under construction will have a small diameter, so as to keep its throughput capacity to a minimum.

The route out of Iran through Turkey seems less subject to Russian or other strong-arm political interference. Moreover, an Iran-Turkey gas pipeline already exists, and is being underutilized because the Turkish gas market is oversubscribed. However, laying a pipeline across mountainous Anatolia to the Black Sea coast, and then a seabed pipeline to Crimea, is a proposition that investors will receive with great caution. Construction of a large-capacity transit pipeline through Ukraine will then be necessary, as there is no spare capacity in existing pipelines.

Iranian gas is high-priced already at the country’s border, as Armenia has learned. If inordinate transportation costs are added, Iranian gas might price itself above Ukraine’s paying ability and out of competition on European markets.

(Iran Daily, July 16; IranMania, July 17; Interfax-Ukraine, July 15, 25)