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Geopolitics

Russia May Hold The Key To Iranian Oil Reaching The West

With the agreement to limit Iran's nuclear program and end sanctions, a look at the energy economics of this new world order. With politics everywhere, as always.

 An Iranian woman walks at the South Pars gas field.
An Iranian woman walks at the South Pars gas field.
Gaïdz Minassian

-Analysis-

PARIS — After the announcement of a historic deal between Iran and the "P5 +1" — the U.S., Great Britain, France, Germany Russia and China — on the Iranian nuclear program, the countries are now considering the potential geopolitical dividends of Tehran's reintegration into the world order.

If Iran decides to normalize relations with the international community, its rich hydrocarbon deposits will become a priority for global investors. The Persian giant has the fourth-largest oil reserves in the world and the second-largest reserves of natural gas.

What will happen to these immense natural resources when the economic sanctions are lifted? First, Iran must modernize its dilapidated infrastructure and find an opening to export its resources to the West, although that route is currently blocked except for the southern Caucasus states of Armenia, Azerbaijan and Georgia.

Iran is surrounded by obstacles: to the west, swaths of ISIS-held territory prevent any pipeline projects, while the regional power rivalry with Turkey complicates the northwestern route. Pipelines to the south, via the Suez canal or the Cape of Good Hope, are deemed too expensive.

This leaves only the south Caucasus as a plausible direction for projects to transport hydrocarbons and communications to western and northern Europe. This south-to-north corridor presents two options: One goes through Armenia, Georgia and the Black Sea, while the other traverses Azerbaijan and Georgia before also reaching the Black Sea.

But both are similarly complicated by regional conflicts and rivalries. Azerbaijan and Armenia are still technically at war over the frozen conflict in Azerbaijan's breakaway Armenian-majority region of Nagorno-Karabakh, and Baku and Tehran have a tense relationship because of as many as 17 million ethnic Azeris in Iran and disputes over the Caspian Sea.

So that leaves Iran tilting towards the Armenia-Georgia axis, and many officials in Tehran consider this "Christian" option to be the safest and cheapest, as well as one that helps push a narrative of a "dialogue of civilizations," given that Armenia is Iran's only Christian-majority neighbor.

But in the absence of goodwill in either Iran or the West, Tehran is biding its time on making a decision, and the proposed south-north corridor has aroused suspicion from Russia. Observers of the nuclear talks have rarely compared the Iran negotiations with those between the European Union and the post-Soviet nations of the Eastern Partnership: Belarus, Ukraine, Moldova, Georgia, Armenia and Azerbaijan. In a certain sense, the signing of EU association agreements with these states is a prelude to the new world order characterized by normalized relations between Iran and the P5+1.

This has not gone unnoticed at the Kremlin, which has gone to great lengths to prevent Armenia and Ukraine from signing these cooperation accords with the European Union (EU).

In Ukraine, as we all know, Russia failed and Kiev signed a deal with Brussels. But in Armenia, one of Moscow's traditional allies, the Kremlin pressured the regime of President Serzh Sargsyan to join the Russia-sponsored "Eurasian Union." Armenia signed a 2013 deal with Gazprom that gave the Russian energy giant a monopoly on gas imports until 2043.

Despite its predatory actions in Ukraine and the Caucasus, Moscow hasn't completely shut the door on the project to export Iranian energy via Armenia. Russia wants to avoid being marginalized by the West as it was during the presidency of Boris Yeltsin from 1991-2000, when Western businesses won bids to build pipelines to Azerbaijan. For the Kremlin, reliving the nightmare of the east-west corridor with the new south-north proposal is out of the question.

Energy "supermarket"

As far as the West is concerned, there are three key objectives: profiting from Iran's natural riches to develop the south-north corridor, diversifying the energy supply in European markets, and finally transforming the south Caucasus into an "energy supermarket."

This last goal is especially important for the region's three post-Soviet states, as it would allow them to build links with Asia, notably with China, as it multiplies its development projects in Central Asia, the Indian subcontinent and Iran. Tehran enjoys a privileged relationship with Beijing, and its leaders are not opposed to Chinese President Xi Jinping's "New Silk Road" project, which is devoid of any dependence on the U.S.

If China manages to complete its projects in Central Asia, Pakistan and Iran, this would create a link to the south Caucasus, where Chinese investors are already present. The "New Silk Road" would also shorten the overland distance between China and European markets, allowing Beijing to avoid the pirates off Somalia's coast, the tense areas around the Bab-el-Mandeb strait and the Suez canal, and the long and expensive detour around South Africa.

The opening of the south-north corridor through the south Caucasus ultimately depends on how Iran's ties with the rest of the world change now that the nuclear deal has been signed. The outcome will help draw the contours of the emerging Sino-American world.

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