Belmont Club

Pars for the course

Just as Iranian Revolutionary Guard general was boasting that Teheran’s “finger is always on the trigger and we have hundreds and even thousands of missiles ready to be fired against predetermined targets”, the French energy giant Total was pulling out of the South Pars (the modern name for ancient Persepolis) gas project. RIA Novosti described the scope of the project:

Stages 2 and 3 of the Southern Pars gas field in the Persian Gulf were initiated by the international consortium of France’s Total (which holds a 40% stake), Malaysia’s Petronas (30%) and Russia’s Gazprom (30%) in 1997. The consortium built two offshore platforms with 10 production wells each, two 100-km (62-mile) underwater gas pipelines and an onshore gas plant with annual capacity of 20 billion cubic meters.

Total CEO Christophe de Margerie told the press “Today we would be taking too much political risk to invest in Iran because people will say: ‘Total will do anything for money'” With gas prices rising and no sign of demand abating, Total’s withdrawal from the consortium represents a huge opportunity loss that would only be borne if the French company felt that the risk of proceeding was too high. The Times Online says:

Tehran needs the technology that only the western groups possess in order to extract and liquify gas from the field. It could turn to Gazprom but the Russian energy mammoth at present lacks the expertise to exploit the fields, industry experts said. Russia may also not be keen to help Iran create a rival to its own domination of Western Europe’s gas supplies.

Total had been hoping to continue with South Pars, which has been in suspension since 2006, but it bowed to months of pressure from Washington and from President Sarkozy, a strong supporter of the drive to force Tehran to stop enriching uranium. The group was not given an order but it was told that further involvement in Iran would be unwelcome, a French official said. …

Tehran expected the South Pars field to produce 751 million cubic meters (26 billion cubic feet) of natural gas a day when completed by 2014.

The Great Game has many players at cross purposes. The recent attack on the Indian Embassy in Kabul highlighted the struggle around Iranian attempts to pipe its gas to the East. India had been part of the $3.1 billion Turkmenistan-Afghanistan-Pakistan pipeline project aimed at providing Iranian fuel for its growing economy. In the days before the US invasion of Afghanistan, Teheran had been concerned about the machinations of the Pakistani-influenced Taliban on its eastern marches. Pakistan and India had only recently resolved pipeline transit issues. What effect the recent attack on Indian interests in Kabul will have only time will tell. But the terms of the Pakistani-Indian deal speak volumes not only for the magnitude of the issues but also the mistrust involved.

Madrid, Jul 03, 2008 (Asia Pulse Data Source via COMTEX) — India will host the next meeting on the 1,680-km gas pipeline, planned from Turkmenistan through Afghanistan and Pakistan to India in October, even as it expects an agreement on the Iran-Pakistan-India pipeline to be signed by next month. …

India and Pakistan have resolved all bilateral issues, including transit fee which saw New Delhi boycotting IPI pipeline talks for about a year. India has more or less agreed to give Pakistan a transit fee of USD 200 million per year, which is equivalent to USD 0.60 per million British thermal unit for allowing passage of the pipeline through that country.

Delivery point of gas or the place where custody of gas will be transferred to India will also be discussed at the trilateral meeting, he said. India wants the delivery point of gas at India-Pakistan border against Iran’s position that that the delivery point should be at Iran-Pakistan border to cut transit risks in Pakistan. …

As for the pipeline length, the shortest distance through Pakistan is 750 km but Islamabad wants the southern route which involves an extra 286 km with consequent increase in costs and transport tariff.

The plain geographic fact is that Iran’s petroleum resources — the source of its livelihood — must pass through seas and land masses that are either heavily influenced by the United States or by Sunni-influenced countries which are hostile to it. By keeping Iranian supplies off the market, oil producers with access to the shipping lanes and secure pipelines can benefit from high prices. The Ayatollah’s loss is their gain. Teheran can turn to Russia for help to some extent. But Moscow cannot supply all the technology Iran needs nor can it overcome the fundamental constraints of geography without undue cost.

Oil, nuclear power, religion and international politics are tied together in the Iranian Gordian Knot. Throttling Iran means keeping energy prices higher than they would be if the restrictions were lifted. Throttling Iran means stunting Afghanistan economically, because that landlocked country’s primary overland transportation routes run to its West. It means pushing Afghanistan onto dependence on Pakistani ports and roads, despite the antagonisms between the two countries. Throttling Iran means objectively enriching Sunni Arab countries which are ideologically hostile to the United States. But lifting restrictions would supercharge Teheran’s nuclear program and enrich its proxies. It would strengthen Hezbollah in Lebanon.

Barack Obama claims that American efforts to stop Iran’s nuclear program and aggression have failed because it has avoided direct negotiations with Teheran, as if the act of an American President going to Iran would by itself make a difference. But it would only make a difference if that President had something extra to offer the Ayatollahs; something never offered before. That extra goody would most likely be a guarantee of Iranian access to foreign markets and a promise not to react in ways that created the political risk that stopped France Total in its tracks.

The inherent risk in that strategy is that once Iran acquires unfettered access to the outside it would have every incentive to cheat and restart its shenanigans, knowing that the Western world would then be reluctant to disrupt its energy markets. The essential calculation that must be solved in dealing with Teheran is whether to make regime change a precondition for loosening the noose or whether the noose can be loosened today in exchange for a promise for the Ayatollahs to behave themselves in the future. There’s no way of knowing for sure which road Obama will take, or even if he has thought about the issue in any depth. The candidate’s positions on many significant issues has been blinking on and off like a Christmas light for some time. Maybe Total was right to pull out until things became clearer.

Tip Jar.