Caspian Energy Journal Caspian European Club
Monday, 09 July 2018 19:00

India – go ahead! Featured

India – go ahead!

Oil keeps rapidly losing its reputation as a “global energy resource”. Such has been implied in the latest world market events after President Donald Trump’s Administration made its statement late in June, saying that the USA “is insisting on cessation of oil import from Iran by November 4”. President of Iran Hassan Rouhani termed the US sanctions “crime and aggression” and said that “it is wrong to assume that Iran will stop oil export”. Iranian officials’ more stringent response followed last Wednesday with the threat of blocking of the entire oil export via the Strait of Hormuz in case the USA blocks Iranian oil export. The United States military responded to the threats of Iran, reaffirming that the American sailors and their allies are supporting the “safeguard of the freedom of navigation”. As the American media says, Iran’s disappointment is a by-product of the May decision of President Trump about withdrawal from JCPOA (an agreement cancelling sanctions against Iran in exchange for halt of its nuclear program) and imposition of sanctions on Iran, which will affect the capability to export oil.

In June, the administration of Trump threatened to impose sanctions on any country which continues exporting Iranian oil afterNovember 4, and called other producers to prepare to compensate the oil production cut in Iran. 

Besides, Brent oil price stayed practically unchanged, given the possible magnitude of implications for the world market from loss of 30% of export flow (about 32 mln barrels per day). The price teetered on $74.6 per barrel late in June while it totaled $76.8 per barrel according to the data as of July 9. Meanwhile, Saudi Arabia consented to compensate just about 8% of possible losses (2 mln barrels). Iran’s whole export in June totaled 2.28 mln barrels per day. The third world exporter abstained from concrete actions. Russia will assess the possibility of Iranian oil purchase after the US threats about imposition of sanctions on Iran, Minister of Energy of Russia Alexander Novak stated.

“We will assess this situation from the legal standpoint. The memorandum that we signed with Iran in 2014 still remains in force. We will assess this situation from the standpoint of legal basis”, he said.

The question is: why does the market, which responded almost with a 20% oil price growth after the explosion at Baku-Tbilisi-Ceyhan oil pipeline in July 2008 and further military actions in Georgia, now make practically no responses to the possibility of losing 30% of export? 

The threat of military actions in the Strait of Hormuz in 2012 after the imposition of the EU sanctions on Iran also maintained the average oil price at the rate of $111 per barrel….

Considering even the economic growth rate of the leading world economies, there is one answer - oversupply at the oil market remains, and even in case full loss of this market happens, strategic reserves of USA and EU can easily offset it in the near-term. In the medium term, shift to gas capacities and alternative energy resources can happen. As far as the long term is concerned, which is unlikely to happen, it implies show up of new producers. Apart from this, the market is so used to the US President deeds, eccentric at first glance, that it is does not believe in the consecutive seriousness of his intentions. However, his pre-election promises are coming true. Just three days after Donald Trump had taken the office, he signed an order about the withdrawal of the USA from the Trans-Pacific partnership, reconsidered North American Free Trade Agreement (NAFTA). Besides, new increased tariffs for import of steel and aluminum from EU and Canada have come into force since June 1 of this year. Canadian media declared about a 10 billion worth damage and loss of 6,000 working places.

Despite the $34billion worth tariff which has been imposed by the USA on import of goods from China and practically brought the two largest world economies into a state of trade war, China does not haste to impose counter-adequate sanctions, so do EU, Canada and Mexico. Chinese public media called the actions of the American administration as the actions of the “gang of hooligans”. It looks like Japan will soon join the list of victims «make America great again».  Japan is importing from Iran over 5% of its crude oil. On July 4, Secretary General of the cabinet of ministers of Japan Yoshihide Suga expressed anxiety that the government would continue discussing this issue with the USA and other concerned countries in order to avoid a strong impact on the Japanese companies.  The government has already conveyed the message to the United States, where it hopes to continue crude oil import from Iran. In response, the Trump Administration warned that it would not tolerate exceptions here as well.

However, exceptions do exist and India seems to top this list, since India is the second largest exporter of Iranian oil after disgraced China and is going to become the world's first consumer of natural gas, again leaving China ahead. In late June United States Ambassador to the United Nations Nikki R. Haley told Prime Minister of India Narendra Modi that the United States would support his country's Chabahar port development plan in order to open a trade route from India to Afghanistan and Central Asia, bypassing Pakistan.

India views Chabahar as the Iran’s only oceanic port, which is vital for transportation of goods directly across the Indian Ocean for further transit via Iran by rail and road transport to the landlocked markets of Afghanistan and Central Asia. The US wants to give India the opportunity to use the Iranian port and not impose sanctions on it in exchange for India's reduction of Iranian oil imports. According to analysts, at the moment India imports roughly 700,000 barrels of oil per day from Iran.

In February 2018, Iran announced its consent to lease operational control of Chabahar, located in the Omani Sea, to India for 18 months.

In 2017, India agreed to invest $150 million in the development of the Iranian port of Chabahar and the adjacent transportation infrastructure.

The Iran-Shah-Zahedan (262 km) gas pipeline connecting the Chabahar port with the production facilities of Iran was commissioned in the same year.

At the same time Iran has commissioned the 6th nationwide gas trunkline (IGAT-6) at full capacity, which will expand the country's export potential. National Iranian Gas Company (NIGC) CEO Hamidreza Araqi said on July 2, 2018.

According to him, the gas pipeline will be instrumental in securing stable gas exports to neighboring Iraq.

By 2025 the length of the Iranian gas pipelines is expected to add 9,000 km, and the annual gas throughput capacity will be 400 billion cubic metres per year instead of current 200 billion cubic metres.

Currently Iran produces roughly 830 million cubic meters of gas per day, of which 45 million cubic meters of gas per day are exported to Iraq and Turkey.

Iran and Qatar share the ownership of South Pars - the world's largest natural gas field in the Persian Gulf.

According to the data of the International Energy Agency, this field holds 51 trillion cubic meters of natural gas and about 50 billion barrels (7.9 billion cubic meters) of gas condensate.

Will the cooperation between Azerbaijan and Iran, as well as the entire Caspian region where new gas projects are planned to address the age-old Caspian Sea status problem, become an exception to the US sanctions policy? At least, the example of India is indicative. Azerbaijan has invested $60 million into development of the Astara railway freight station in the west of the Iranian province of Gilan.

“The station was handed over to Azerbaijan for a period of 15 years”, Vice President for Operation and International Transportation of the Iranian Railways Hossein Ashouri said during the inspection of the Astara (Azerbaijan) - Astara (Iran) railway project.

Moreover, Azerbaijan will allocate another $500 million to support the construction of the Resht-Astara railroad project.

The Kazvin-Resht-Astara (Iran) - Astara (Azerbaijan) railway is part of the North-South transport corridor, which will connect Northern Europe with South-East Asia, at the same bringing together the railways of Azerbaijan, Iran and Russia.

Freights will move for 14 days via India and further through the Persian Gulf, Iran, Azerbaijan and Russia towards the Scandinavian states and Northern Europe.

The International North-South Transport Corridor (ICB) is based on the agreement originally signed between Russia, Iran and India in 2000. The 7,200-km North-South corridor connects Europe with India and the Persian Gulf countries, using sea, road and rail transport.

Time will tell how far USA will go with regard to the impact on the gas and transport projects of Azerbaijan, Russia, India and Iran, and this entire part of the world market in general. At least, the governments of these countries refrain from harsh comments, and state media refrain from statements in terms of this matter. India, go ahead!


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