Inside Iran’s failure to become a gas hub

Iran’s media, unlike many totalitarian regimes, is pro-government but also has a degree of wiggle room due to different factions within the tent of the regime.

By SETH J. FRANTZMAN
Malta-flagged Iranian crude oil supertanker "Delvar" is seen anchored off Singapore March 1, 2012. Western trade sanctions against Iran are strangling its oil exports even before they go into effect, a U.S. advisory body has found, amid warnings that any shortages will only push up crude prices and (photo credit: REUTERS/TIM CHONG)
Malta-flagged Iranian crude oil supertanker "Delvar" is seen anchored off Singapore March 1, 2012. Western trade sanctions against Iran are strangling its oil exports even before they go into effect, a U.S. advisory body has found, amid warnings that any shortages will only push up crude prices and
(photo credit: REUTERS/TIM CHONG)
Iran holds 18% of the world’s proven natural gas reserves and should be in a strategic position in the market, according to an article at Fars News on Sunday. The country gambled on a $200 million gas facility and “peace” pipeline with Pakistan, but the work was “abandoned altogether.” Why? In the groundbreaking article at Fars, the pro-regime website sent its economic correspondent, Ehsan Hosseini, to figure out what happened. The article reveals how Iran sought to build pipelines to Pakistan, Turkey and also through Iraq to Syria, and once sought deals that spanned Kuwait to India and Europe. However, as things fell apart in the last seven years, Iran was punished by its neighbors and even had to trade gold to make amends.
Iran’s media, unlike many totalitarian regimes, is pro-government but also has a degree of wiggle room due to different factions within the tent of the regime. The agenda here, like many articles at Fars and Tasnim, appears to be to undermine the government of President Hassan Rouhani, or prod it to do more. It’s not the first article to slam the government for economic mismanagement. This is important because the regime puts on a brave face in its English propaganda media, such as Press TV, and also sings one song in Europe and another in Moscow. It also is quite good at creating largely mythical stories about Iranian “moderates” and “hardliners,” which are sold to pro-Iranian voices in the West.
The reality, if more Westerners bothered to read Iran’s actual media, is quite different. The 3,000-word article at Fars slamming the government gas mismanagement is interesting in this respect. “Iran can play a role as one of the main players in this market and with the help of natural gas exports and trade, long-term strategic ties with countries that have demand,” the article notes. “In addition to its great economic advantage, gas exports can be considered in terms of influencing the political equations of the region and the world, as well as improving the national security of the country; Because energy trade (oil, gas, etc.) with other countries causes their dependence on Iran and as a result increases political power and promotes national security.”
This is a clear admission from Iran that gas is part of the military-industrial complex. Iran, like Russia, China and Turkey, views its economy as one of the building blocks of national security power. Unlike Western countries that are often chaotic and have military policy that is often at odds with diplomats and both at odds with business interests, Iran pursues an ostensibly Clausewitzian style method of diplomacy, military and business affairs all wrapped into one hammer blow. The point of the Fars article is that, in this case, the hammer failed.
“Due to Iran's special conditions in subsidizing the price of energy carriers, the development of gas exports is one of the driving policies to increase gas production from oil fields and the implementation of optimization projects in the country,” the writer notes. So why has Iran suffered from gas shortages? Why has it failed while Russia succeeds? Indeed, Russia is plowing ahead on Nord Stream 2, a pipeline to Europe and Russia has other pipelines into Europe, essentially holding the EU hostage.
The article notes that “despite the importance of the gas trade, Iran, as the world's first holder of gas resources, has an unfavorable situation in the regional gas market and, according to experts, is on the verge of elimination from the regional market.” Iran wants to export to Pakistan but currently the exports are not matching what Iran wants. “Turkey has completely made itself unnecessary for Iranian gas,” the article says, basically meaning Turkey has a surfeit of gas from Russia and other states. “Under US pressure, Iraq is looking for alternatives to Iranian gas. Gas exports to the Persian Gulf countries, including Oman and Kuwait, have remained quiet, and Iran has been sentenced to pay compensation in a gas trade case with Turkmenistan.”
Fars News spoke to former oil minister Rostam Ghasemi, who was in charge from 2011 to 2013. “We could make Pakistani household electricity dependent on Iranian gas,” the article states. “Exporting Iranian gas to Pakistan was one of the issues pursued during your ministry. The question is, how far did this project go in your period and why did it stop later?” The former minister says that “as a world leader in gas reserves, in addition to meeting domestic needs, we must use these resources to export and generate revenue and create political and economic benefits for the country.” When Ghasemi was oil minister, he created a program to develop the oil “in which the export of gas was one of the pillars. The process of developing this program took about seven months. After compiling the program, I went to the service of the Supreme Leader to report my comprehensive program.”
The minister says that “we put on the agenda several basic measures in the field of gas, one of which was concluding a contract for the export of Iranian gas to Pakistan. After our follow-up, we set up a comprehensive contract with the Pakistanis, which was even better than the price of gas sold to Turkey. Under the agreement, Iran initially exported 21 million cubic meters of gas a day to Pakistan. Pakistan needed the gas to fuel its power plants in the port of Gwadar.” Gwadar is a port city shaped like an anvil stretching into the sea and is about 100 km. east of the Iranian key port of Chabahar. Iran has long fancied having an Indian buy-in for Chabahar.
“To conclude this agreement, I made several trips to Pakistan and met with Pakistani Prime Minister Asif Ali Zardari. In our meetings with the Pakistani side, the proposal to export gas to Pakistan was raised. Immediately after my return to Tehran, Mr. Zardari came to Iran and met with the Supreme Leader of the Revolution, and incidentally talked to him about the export of Iranian gas to Pakistan,” says the former minister. According to reports, Zardari went to Iran in 2013 for a pipeline celebration, despite US complaints. However, he also cancelled a December trip in 2012. The trip to highlight the pipeline came two years before the US signed the Iran deal.
During the meeting that the minister recalls, “the Supreme Leader of the Revolution made a wise statement and pointed out that the existence of a gas transmission pipeline is very vital for the two countries. Liquid fuel used by Pakistan in its power plants is at least three times more expensive than gas fuel, and with this contract it could buy cheap fuel. Iran is also gaining its own economic and political interests.” As a result, the deal was a win-win situation between Iran and Pakistan, as they paid less to fuel the power plants and “we also generated a lot of revenue and political benefits. In my opinion, regardless of economic issues, what is more important in a gas export contract is to create security between the two countries. Consider making Pakistani household electricity dependent on Iranian gas. The result of this agreement was security between the two countries, in which Iran had the upper hand.”
The key word for Iran here is “dependent.” Iran is very good at making countries dependent on Iran. Iran’s goal in Iraq, Syria, Yemen and Lebanon is to make them dependent and use a combination of militias, arms, business and other means to make these countries dependent. It isn’t like Iran hides this. Fars News clearly pushes this theme.
However, something went wrong in Pakistan. After the interactions with the Pakistani side between 2011 and 2013, “we decided to hold the start of the project on Eid al-Adha.” Iran was supposed to provide a loan to Pakistan to build the Khatam al-Anbiya base in Pakistan with this loan, and then the loan would be repaid through the price of gas exported to Pakistan. However, Pakistan stopped paying Iran.
Oil Minister Bijan Namdar Zanganah stressed in 2014 that the pipeline and gas contract deals would not lead to suspension of export contracts, despite troubles. He later became the deputy governor of the southeastern Sistan and Baluchestan province and in October 2020 was still hammering away at a Pakistan-Iran joint border trade committee. He assured reporters that India and Pakistan would not buckle to US pressure on this issue. He even went to Quetta in Pakistan and enjoyed his time there.
Ghasemi says the agreement to export Iranian gas to Pakistan is an international agreement and the Pakistanis could not cancel it because they had signed it. “If they did not receive the gas, they would have to pay the price. I do not remember the Pakistanis opposing this agreement and insisting on speeding up the project in all their negotiations with us.” Iran was supposed to lend $200 million. But plans were put on hold when Rouhani came to power in 2013. “As for the fact that Pakistan is said to have no money and is poor, let me tell you that the Pakistanis who wanted Iranian gas for their power plants are already buying liquid fuel and consuming it in their power plants. The price of liquefied fuel is many times the price of gas imported from Iran. In addition, the gas cut-off button for Pakistani power plants was in Iran, and if the gas prices were not paid within the first 45 days, Iran could easily cut off the gas. Certainly, this agreement was in the interest of both Pakistan and us, which unfortunately was not pursued,” says the former minister.
Fars News wonders whether the US and Saudi Arabia put pressure on Pakistan. In fact, the article notes that Pakistan was pressured to build an LNG, or liquified natural gas, terminal to take deliveries from Qatar. Did external pressure prevent the purchase of Iranian gas?  “No, I did not hear at all that the Pakistanis did not work. I did not even see a written letter from them saying that Pakistan did not want to import gas from Iran. If there was pressure on this country, they still could not cite this excuse, because the contract stipulated that if they did not deliver Iranian gas, they would have to pay 85% of the price of gas. As for the reason for the stop, as far as I can remember, it was the Iranian government that announced that because Pakistan is a poor country, it could not pay for our gas, and as a result, we stopped the project,” the former official reveals.
This shows that the real problem was not Washington, but Iran. Iran understands that transporting LNG is a possibility, even though pipelines are easier for the country to manage.
“We also export gas in the form of LNG to distant countries and diversify Iran's export basket. But naturally, pipeline gas transmission is both more stable and cheaper for Iran and cheaper for the Pakistanis,” says the minister. He predicts the pipeline can be revived. “The Pakistanis do not have a bad relationship with us at the moment, so this pipeline can continue.” One issue is that there is a pipeline called the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline that does exist. “The TAPI pipeline passes through very insecure areas of Pakistan and Afghanistan, and India is also working on this pipeline. Now the question is, why did India not work on the peace pipeline despite the lower risks?” The minister recalls that in his meetings in New Delhi, the Indians expressed interest in the gas but wanted a non-Pakistan channel to do it. “There was also talk of a pipeline for sea transport. Of course, at that meeting, the Indian officials finally told me that if a peace pipeline was built to Pakistan, it would be the best and most cost-effective way for the Indians to supply gas to this peace pipeline.”
India and Iran discussed the Farzad A and B gas fields in the Persian Gulf where Iran claims control, and where India is conducting explorations. “We had talks with the Indians about Farzad A and B. Farzad A and B that are two common gas fields between us and Saudi Arabia, which are very sour in terms of gas type characteristics. Farzad field gas is much more sour than South Pars gas, which is one of the sour gases in the world, and for this reason, the development of this field requires its own technology.” The minister even went out to see the fields by helicopter and says he found Saudis there in Farzad A with drilling rigs. “Therefore, I negotiated with the Indians to develop this field, and I said, ‘Let us develop these two joint gas fields with Saudi Arabia.’”
What happened to exports to Turkey? “Before I entered the Ministry of Oil, we had a gas export contract with Turkey. According to this agreement, we must export 30 million cubic meters of gas to Turkey daily,” the minister says. “In addition to the contract with Iran, Turkey had two other contracts with Russia, one of which had a higher gas price than ours and one less. The Turks have always wanted us to reduce the price of gas exported to them. We also argued that you have a contract more expensive than ours, so your objection is not logical.”
Turkey signed a new contract with Russia over time for cheaper gas. This was likely when Turkey and Russia were looking to build TurkStream, a pipeline across the Black Sea. We now know Russia also sold Turkey its S-400s. Turkey supported the US Iran Deal and has grown closer to Iran in recent years. Iran’s ministers pushed this issue with the Supreme Leader. “I remember that once [Turkey’s President Recep Tayyip] Erdogan raised this issue in the service of the Supreme Leader of the Revolution and insisted that ‘you tell Mr. Ghasemi to solve the gas issue for us. [An official] told me to look into the gas issue and see if there is a way to interact with Erdogan on this issue,’” the minister recalls.
The minister was sent to negotiate with the Turks and conclude two contracts. “I had obtained a 7% discount on the price of exported gas. I had one or two meetings with Erdogan and the Turkish Minister of Oil, and in the meetings I had with Erdogan I said that we will give you a 5% discount, provided that the contract for the export of gas through the second pipeline is also between the two countries.” 25 million cubic meters of new gas were to be exported to Turkey at a discounted price. “Our goal of transporting gas through the second pipeline to Turkey was not limited to this country, and in addition to Turkey, we also sought to export gas to Europe, and in this regard, negotiations were held with the Greeks.”
A Turkish company was set up to take responsibility for a pipeline. Some measures were taken to build this pipeline. This line was 56 inches and this work continued during my ministry and this pipeline was built up to Dehgolan,” the minister says. “It was 600 km from Dehgolan to the Turkish border. Turkey was also supposed to finance and continue the construction of this pipeline, but it was practically canceled.” Dehgolan is a city in the Kurdish region of Iran near Sanandaj.
Once again, Iran’s change in government led to the abandonment of the pipeline. Turkey demanded arbitration of the case, claiming Iran had not fulfilled its side. Of the deal. According to reports online gas exports have been cut in the past to Turkey, in 2008 and in March 2020 after an attack on the pipeline by “militants.” Iran’s former minister says Iran lost out on its Turkish gas deals. “As a result of Turkey's complaint, we were first sentenced to pay the equivalent of $2 billion in free gas to the Turks for late payment in previous years, which in my opinion was unreasonable….Secondly, according to the ruling, the Turks were able to reduce our gas price by 13% by the end of the 25-year contract. This incident caused about 3 to 4 billion dollars of non-profit for the country annually.”
Other failures befell Iran. Iran was supposed to transfer gas to Europe through the construction of pipelines from Iraq, Syria and the Mediterranean. “Where did this project go?” Well, it turns out that a tripartite agreement was signed between Iran, Iraq and Syria to build a pipeline. “We were supposed to export gas through Syria to Syria and the Mediterranean. Perhaps this pipeline could be an alternative to the second export pipeline to Turkey. While I was in the Ministry of Oil, we signed and implemented a contract to export gas to Baghdad.” This was in the early years of the Syrian civil war. By 2013 ISIS was active in Iraq and Syria, likely cutting off any ability to build the pipeline. It wouldn’t be until 2019 that areas would be stabilized. The minister says that gas was supposed to go to Basra, where much of Iraq’s energy trade goes. “50 million cubic meters per day. Our intention was to deliver Iranian gas to Syria in the next step. The Syrians had difficulty financing it, but negotiations were under way. The Kuwaitis also entered into negotiations with us to be able to receive Iranian gas through the Basra line, and in this regard, a joint meeting was held between Iran, Iraq and Kuwait.”
In addition the Rouhani administration apparently failed to develop a deal with Turkmenistan to purify Iranian gas. “By importing gas from Turkmenistan and exporting it, we can take steps to become a gas hub in the region and strengthen political relations and make the country dependent on Iran. Why did the connection with Turkmenistan not become wider? Why didn't we take Turkmen gas to give to our customers and keep this country dependent on us and allow China to replace Iran?” The minister says that gas from Turkmenistan was supplying Iran’s domestic market. “It is true that we do not need Turkmen gas to meet domestic demand right now, but its gas has advantages for Iran. Turkmen gas was cheap gas and it was economically justified for us to consume this gas in the north of the country and export our equivalent gas to neighboring countries at a higher price, or we could even receive and consume the gas of this country in the north and in the south…Therefore, the continuation of gas interaction with Turkmenistan was of special importance for Iran,” the minister says.
Iran had been under sanctions from the US and also could not use the SWIFT network which is a society off worldwide interbank financial telecommunications under the jurisdiction of the EU. SWIFT was complying with US sanctions at the time. “Due to the lack of access to SWIFT, our financial exchanges with Turkmenistan were restricted and we became indebted to that country. At that time, I made two trips to Turkmenistan and met with the President of this country. In those meetings, I negotiated with the Turkmen and finally suggested that Iran's debt to Turkmenistan be settled through goods. Therefore, the final proposal was for the Turkmen to buy the goods they needed to import from other countries from Iran, and they accepted,” the minister says.
The “goods” that would be paid in kind included things like a thousand buses, pipelines and petrochemical products. “The generalities of these goods and equipment were agreed upon, and later the officials of the two countries also agreed on their prices…The process was that we in Iran would buy goods from Iranian companies, the National Gas Company would pay for it, and then we would calculate it in dollars instead of Turkmenistan's gas claims and send the goods to Turkmenistan. The agreement was in the best interests of both countries, as both Turkmen gas was paid for and Iranian producers were supported.”
Iran even did something more interesting. “In some cases, instead of delivering goods to Turkmenistan, we even gave them gold. I even remember that I once ordered Mr. Oji, CEO of the National Gas Company, to load the gold by plane and take it to Turkmenistan, because Turkmenistan had stipulated that the gold would be delivered only to the central bank of their country. Anyway, according to the agreements we had made, things were moving forward and we were importing cheap gas from Turkmenistan and exporting Iranian goods to this country.”
Later, under Rouhani, things fell apart. “The Turkmen complained a lot. For this reason, Mr. Zanganeh travels there and agrees to repay Iran's debt to Turkmenistan as a loan with a 5% interest rate. But it seems that the amount of debts increased a lot later, until the Turkmen took our case to arbitration and, as far as I know, the Turkmen fined and condemned us,” the minister says. 


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