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EAST-WEST-RESEARCH  February 2003

EAST-WEST-RESEARCH February 2003

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Subject:

Russia turns to Iran for oil exports

From:

Andrew Jameson <[log in to unmask]>

Reply-To:

Andrew Jameson <[log in to unmask]>

Date:

Tue, 11 Feb 2003 17:03:26 -0000

Content-Type:

text/plain

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Johnson's Russia List
#7055
10 February 2003
[log in to unmask]
A CDI Project
www.cdi.org

#13
Asia Times
February 10, 2003
Russia turns to Iran for oil exports
By Hooman Peimani
Dr Hooman Peimani works as an independent consultant with international
organizations in Geneva and does research in international relations.

As stated late last month by LUKoil spokesman Dimitri Dolgov, Russia has
taken steps to increase its crude-oil exports via Iran through swap deals
with that country. The Russians, who began such exports in November, are
working toward signing a long-term contract with the National Iranian Oil
Co (NIOC) to increase the volume of their annual swap deals with Iran to 1
million tons beginning next month.

In his reference to the ongoing negotiations between LUKoil and NIOC,
Dolgov stated, "We are going to supply oil to Iran," a clear indication of
confidence that the two sides will finally sign an agreement to that
effect. Among others, LUKoil's success in increasing the amount of oil
supplies to Iran to 45,000 barrels per day (bpd) in December when it made a
swap deal of US$167.45 million with NIOC should have been a major reason
for his confidence.

For Russia, swap deals with Iran are a new way to increase its oil exports
and decrease its costs, while diversifying its methods. In this case,
Russian crude oil will be used in Iran's northern refineries for domestic
consumption in return for an equivalent amount of Iranian oil delivered to
Russia's designated buyers at Iran's Persian Gulf oil terminals. This
arrangement will make Russian oil available to non-European buyers at a
competitive price by sharply decreasing the cost of exports currently done
by oil tankers loaded at Russia's Black Sea ports, such as Novorossisk.

For all Russian swap deals with Iran, Russian crude oil produced by
LUKoil's subsidiary, Nizhnevolzhskneft, will be shipped from the Russian
Caspian ports of Astrakhan and Volgagrad to the Iranian Caspian port of
Neka to be carried farther down into Iran through the 16-inch Neka-Sari
pipeline. A Chinese consortium led by China Petroleum and Chemical Corp and
China National Petroleum Corp built the pipeline last year.

Having a recently enlarged oil terminal, Neka has been the destination for
swap deals for other Caspian countries, mainly Kazakhstan and Turkmenistan.
These countries transfer their oil by small sea tankers to Neka to be used
in the northern part of Iran. Neka is already connected to Tehran via an
old pipeline with the capacity of 40,000 bpd, which limits the amount of
transferable oil. To remove this barrier, the Chinese consortium is
building another pipeline with a much larger capacity.

The Neka-Sari pipeline is the first phase of the three-phase Neka-Tehran
pipeline (392 kilometers) to connect Neka's oil terminal to Tehran's oil
refinery in the southern part of the capital in the municipality of Ray. By
next month, the Neka-Sari pipeline's capacity will reach 50,000 bpd, as
announced in December by Ali Reza Baba-i, NIOC's person in charge of
transferring Caspian oil from Neka. The second phase, the 32-inch
Sari-Veresk pipeline, will add about 115,000 bpd to that capacity to be
increased further by 270,000 bpd when the last phase, the 32-inch
Veresk-Ray pipeline, is online.

According to NIOC, the total capacity of the Neka-Tehran pipeline will
reach about 500,000 bpd through the construction of additional pumping
stations. Thus, once the pipeline is fully operational, Iran will be able
to increase significantly swap deals with the Central Asian oil exporters
(Kazakhstan, Turkmenistan and Uzbekistan).

Oil is not the main attraction of swap deals for Iran, a country with the
fifth-largest proven oil reserves (about 99 billion barrels). In fact, its
reserves may well be far larger than that, as indicated by new oil
discoveries over the past few years, such as those in the central part of
the country. However, swap deals make sense for Iran, whose main operating
oil wells are in its southern regions. To supply their northern and central
oil refineries and petrochemical complexes, the Iranians have to transfer
oil from south to north via pipelines and land oil tankers. Swap deals
enable them to supply these facilities at a much lower expense, while
generating income for handling swap operations. Moreover, such operations
increase their regional and international political influence.

Having these considerations in mind, Iran began swap deals with the
Caucasian (Azerbaijan) and Central Asian (Kazakhstan, Turkmenistan and
Uzbekistan) countries in the mid-1990s when those land-locked states with
no direct access to international oil markets sought to find alternatives
to Russian pipelines for their oil exports. In particular, US opposition to
any major Iranian involvement in Caspian oil exports excluded Iran as a
major export route and made limited swap deals the only available means for
the Iranians to play a role in such exports. Prior to the initiation of the
Russian-Iranian swap deals, the domination of US oil companies on the
Caspian oil industry excluding that of Russia left a small amount of crude
oil available for swap deals. Being the product of non-US development
projects, their annual volume ranged between 200,000 and 300,000 bpd.

Russia's swap deals with Iran are a major development for both sides. Not
only will they help the Russians expand their share of international oil
markets significantly, they will enable Iran to turn itself into a major
player in Caspian oil exports, as Russia has decided to increase
substantially the amount of its oil exports via Iran. This development
demonstrates that country's efforts to consolidate its position as a major
global oil exporter by diversifying and expanding its export routes and
means.

Its existing westward oil pipelines and its Black Sea oil terminals put
Russia in a suitable position to supply European markets, while making its
exports to the growing Asian markets complicated and costly. The Iranian
Persian Gulf oil terminals address this problem by facilitating Russian oil
exports to those markets without requiring a heavy investment in Russia's
oil-export infrastructure.

Russia's growing ties with Iran in the oil field, as reflected in its
1-million-ton swap deal, indicate the Russians' determination to follow
their national interests despite US efforts to weaken Iran economically and
politically. Such ties also reveal Iran's attempts to establish itself as a
major transit route for all Caspian oil exporters, including Russia, its
strategic ally.

********

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