An Iranian pipeline through Europe

By Zvi Bar'el

Everything was seemingly coordinated in secret: Iranian Oil Minister Kazem Vaziri Hamaneh's visit to Ankara two weeks ago; the signing of the memorandum of understanding with his Turkish counterpart, Hilmi Guler; the final phrasing of the then-unpublished agreement, and the benefits allocated to each country. Everything was completed a mere week before the Turkish parliamentary elections, in which Prime Minister Recep Tayyip Erdogan's Justice and Development Party (AKP) won with 47 percent of the vote.

An AKP member thought that publicizing the Iranian-Turkish natural gas agreement before the elections would help bolster the ruling party, and the anti-American approach indeed encouraged the Turkish nationalists from the National Movement Party to cross over and vote for Erdogan's Islamist party.

The Iranian-Turkish agreement is one of several deals that demonstrate the paradoxes of the Middle East, and serves as further proof that the big money, major financial interests no less, can dwarf ideology. This time, a triple paradox is at play: U.S. ally Turkey signs a major deal with Iran; Iran, Israel's enemy, is not concerned by Turkey's relations with the Little Satan, and Israel does not protest Turkey's part in the deal. When Turkey buys drones from Israel, the U.S. needs Turkey to exert calm over Iraq and Iran aspires to strengthen its position in the Middle East - ideology tends to lose its luster.

According to the memorandum of understanding, Iran, home to the second-largest petroleum reserves in the world (after Russia), will provide Turkey with the natural gas to transfer and sell to Europe via the proposed Nabucco pipeline. The proposed pipeline, expected to cost 4.5 billion euro and be 3,300 kilometers long, will be based in Iran, Azerbaijan, Turkmenistan and Kazakhstan. Gas supplies for a secondary branch of the pipeline, which will pass through Jordan and Syria, are supposed to come from Egypt. Turkey will receive an unknown amount of gas from the pipeline, which is ultimately supposed to yield 31 billion cubic meters of gas for sale in its territory; and Ankara will also receive a concession allowing it to develop three gas fields in Iran, and all without a tender.

This agreement, worth billions, seriously erodes the importance of the economic sanctions imposed on Iran over its nuclear program. According to a law the U.S. Congress passed this year, sanctions will be imposed on anyone who invests a total of $20 million in the development of Iran's petroleum industry. Turkey was clearly not moved by the White House's official statement that it was not wise to renew confidence in Iran as a country supplying or transferring natural gas when sanctions have been imposed on Tehran. This heavy hint led Erdogan to issue a statement saying: "We import petroleum and gas, and we want to reduce the amount of money we pay for the import. Iran has made us an attractive offer. Are we not obligated to think of the interests of our country? I think that the U.S. will understand why we did not ask for its approval."

It's tough to talk about an understanding between Washington and Ankara regarding the deal with Iran. One can assume that if the agreement had been limited to Iran and Turkey, the official American representatives would make sure their voices were heard. But the deal goes a lot further than that: It has to do with a competition between Russia and the United States and with the continued European dependence on Russian-derived natural gas.

Russia is one of Europe's main suppliers of natural gas, with close to a quarter of the natural gas consumed by Europe originating there. Russia provides a larger proportion to some of the new members of the European Union, like the Czech Republic and Poland; Hungary gets some 80 percent of its gas from Russia.

Russia aims to increase its sale of gas to the rest of Europe, in effect making Old Europe dependent on Russian gas, at whatever price Russia sets, just about unilaterally. However, Europe wants to diversify its sources of gas, especially after Russia decided, at the beginning of last year, to stop selling gas to Ukraine after "misunderstandings" over gas prices.

Russia had been providing Ukraine with some 8 percent of its gas, at a subsidized price of $50 per 1,000 cubic meters - $200 less than the market value. In return for allowing Russian gas to go through Ukrainian territory to Europe, Ukraine also took some 15 percent in royalties for the gas passing through the country. In March 2005, the Russian government-owned Gazprom informed Ukraine that the subsidy was about to end and that gas prices would rise by about 300 percent. Ukraine was ready to accept a price hike, as long as it received increased gas royalties. But Ukraine failed to reach an agreement with Gazprom, and the company decided to halt its gas supply to Ukraine. The Gazprom maneuver appeared to be political as well as economic, based on Russia's opposition to the pro-European Ukrainian government, which declared an interest in working more closely with NATO and distancing itself from Russia. But this is hard to prove, especially since the price of gas not only did not fall, but actually rose even after the government fell and was replaced by a pro-Russian one.

One way or the other, after Russia raised its prices in Ukraine, as well as in Belarus, Europe realized that it had to diversify its gas suppliers. The solution arrived in the form of the Nabucco pipeline project, which is meant to bring gas from Iran and Turkmenistan (which is to send its gas to Iran through an existing pipeline), via Turkey to Bulgaria, Austria and the rest of Europe. The European Union appears to have no problem investing in such a large project involving Iran, as long as it receives its gas supply in full.

The United States, on the other hand, has a dual problem. It doesn't see eye-to-eye with Russia on world events, especially those involving the Middle East, and prefers that Europe be less dependent on Russia. But the alternative is not ideal. A gas pipeline to Europe that depends on Iranian supplies is the last thing the Bush administration wants. Such a project not only puts to the test the American policy of sanctions and the effort to free the region of the threat of a nuclear Iran, but also turns Iran into the determining factor in the rivalry between the United States and Russia.

Russian President Vladimir Putin, who understands the value of preemptive action, is rushing to sign contracts with Hungary and Italy regarding the establishment of huge gas reserves in Hungary and the transferal of Russian gas to Italy, and from there, to the rest of Europe. This was the opening shot in the big gas race, in which the winner takes all - for if the Russian pipeline reaches Europe before Nabucco does, then the Iranian project, which is scheduled to start in 2009 and be completed by 2012, will be rendered irrelevant.

The Nabucco project director promised over the weekend that it would begin on time and receive the necessary funding, but experience shows that similar projects - like the proposed Turkmenistan-Turkey and trans-Caspian gas pipelines - began with impressive visions and grandiose statements, but were abandoned somewhere along the way. Indeed, the project is already beset by concerns that some of the gas suppliers, including Egypt and Turkmenistan, won't be able to provide the expected amount of natural gas.

Whether or not the Nabucco project takes off, it provides an important lesson by demonstrating the difficulty of imposing meaningful sanctions on Iran.