Monday, April 27, 2009

US promotes Iran in energy market

US promotes Iran in energy market
By M K Bhadrakumar

Last week, the Barack Obama administration made its first major move in the geopolitics of Eurasia with the appointment of Richard Morningstar as the special envoy for Eurasian energy. The brilliant, devastatingly effective diplomat of the Bill Clinton administration is back on his old beat.

Curiously, despite its extensive ties to Big Oil, the George W Bush administration's performance in energy politics reads dismally. Russia's Vladimir Putin outsmarted the United States in the Caspian. Enter Morningstar. He served the Clinton administration as special advisor to the president and secretary of state on the former Soviet Union, special advisor on Caspian basin energy diplomacy and ambassador to the European Union (EU). He was a key figure in pushing through - against great odds - the Baku-Tbilisi-Ceyhan oil pipeline, which stands out as an enduring achievement for US energy diplomacy in the post-Soviet period.

Moscow should take note that a formidable adversary has re-entered the arena. With a career background in EU affairs and Caspian energy diplomacy, Morningstar's appointment signifies that Washington is going to take a shot at the Nabucco gas pipeline project. Resolute action to get the project going includes lining up funding, securing the necessary gas supplies, beating back Russian countermoves and least of all rallying European support. Nabucco has the potential to rewrite Russia-EU relations and consolidate the US's trans-Atlantic leadership. The 3,300 kilometer-long pipeline from the Caspian via Turkey to Austria would reduce the EU's growing dependence on Russian energy.

Morningstar said in a major policy speech in 1998, "The fundamental objective of the US policy in the Caspian is not simply to build oil and gas pipelines. Rather it is to use those pipelines, which must be commercially viable, as tools for establishing a political and economic framework that will strengthen regional cooperation and stability and encourage reform for the next several decades."

Indeed, conditions have since changed. Today Russia is a resurgent power, unlike the weak, stumbling player Morningstar tackled in the 1990s. The other energy producing countries of post-Soviet space - Azerbaijan, Turkmenistan, Kazakhstan and Uzbekistan - also can no longer be hustled. They know how the market works; they have negotiating skills and are not overawed by international diplomacy. Again, China has appeared on the landscape as a player with killer instincts and financial muscles hard to match. Iran, too, is poised to enter the ring and Turkey is no longer a docile follower of American wishes.

Equally, major European powers like Germany, Italy, the Netherlands and Austria have extensive energy ties with Russia and are disinclined to see lines drawn between the West and East. Alas, there is complete disunity in attempts to formulate EU foreign policy. Member countries do not trust the EU to protect their interests and instead prefer bilateral national initiatives on issues of energy security. The financial and economic crisis discourages projects of long gestation that need heavy investment.

Furthermore, Nabucco poses problems. As a pipeline proposing to transport Caspian gas to southern Europe, it faces stiff competition from the Russian-sponsored South Stream. The rivalry was on display in Sofia, Bulgaria, at the "Natural Gas for Europe" conference on Friday, attended by 28 European, Caspian and Central Asian countries - and Morningstar. The conference steered clear of endorsing either project.

Besides, there is a three-way split in European opinion regarding Nabucco. Neither Germany nor Italy - which have secured bilateral energy tie-ups with Russia - are keen to make further investments in energy diversification projects, whereas the countries of "New Europe" see Nabucco as a means to escape dependency on Russian gas. Meanwhile, the Balkan states want both Nabucco and South Stream as they can pocket hefty transit fees. And Turkey, which fancies itself as Europe's energy hub if Nabucco comes through, hopes to leverage it for accession to the EU, a prospect "Old Europe" loathes.

Securing upstream reserves for Nabucco also remains a vexed issue. Azerbaijan, which is a potential supplier for Nabucco, has recently moved closer to Moscow and signed an agreement to supply Azeri gas to Russian pipelines. Morningstar will need to persuade Baku to return to the US fold. He has excellent contacts in Baku, but Baku has strong compulsions to seek Moscow's goodwill.

The fraternal ties between Azerbaijan and Turkey have chilled lately as a consequence of the Turkish-Armenian rapprochement (which Washington encourages). Baku has warned that the expected opening of the Turkish-Armenian border "could lead to tensions in the region and would be contradictory to the interests of Azerbaijan". It counts on Moscow's support for the withdrawal of Armenian troops from regions surrounding Nagorno-Karabakh, while insisting that the "normalization of Turkish-Armenian relations must proceed in parallel with the withdrawal of Armenian troops from the occupied lands of Azerbaijan".

If Moscow brings about an Armenian troop pullout, the Caucasian great game will transform beyond recognition. Significantly, during his visit to Moscow on April 17, Azerbaijan President Ilham Aliyev said he saw no obstacles to a deal for the supply of gas to Russia's largest energy company, Gazprom.

Without Azeri gas, Nabucco may languish. This has spurred the US to secure access to the gas reserves of Turkmenistan. Unsurprisingly, there is elation in Brussels and Washington that while addressing an energy conference on Thursday in Ashgabat, Turkmen President Gurbanguly Berdymukhammedov said, "Today we are looking for conditions to diversify energy routes and the inclusion of new countries and regions into the geography of routes ... A key component of securing the reliability of international energy deliveries is the diversification of routes, the creation of multi-branched infrastructure for delivery to consumers."

But it is too early to celebrate. As London-based think-tank Eurasia Group analyst Ana Jelenkovic put it, "I think a lot of Europeans and the US are trying to exploit what they think is a dip in Russia-Turkmen relations, but I wouldn't be so quick to say that it's going to be a significant geopolitical shift."

The US is indeed probing all options. In a hugely surprising move, while speaking to reporters after the Sofia conference, Morningstar spoke of Iran as a potential gas supplier for Nabucco. "Obviously, right now, gas from Iran creates some difficulties for the United States as well as for other countries involved," he admitted.

"We [US] reached out to Iran, we want to engage with Iran, but it also takes two to go to the dance and we are hoping that there will be positive responses from Iran," Morningstar said. He reportedly said Nabucco could well exist without Iranian gas, but the US was really trying to reach out to Tehran. He was hopeful about the prospects since a possible "carrot" would be the development of Iran's energy sector with Western technology if there is a thaw in US-Iran relations. He implied that Iran stands to hugely benefit as the Obama administration is deeply committed to Europe's energy security.

Interestingly, even as Morningstar spoke in Sofia, the US delegate at the conference in Ashgabat, Deputy Assistant Secretary of State George Krol, made yet another proposal involving Iran in his speech. He said the US remained open to the prospect of gas from Central Asia being exported to Europe via Iran, which borders Turkmenistan to the south. Krol's audience included Iranian delegates.

Evidently, Iran had anticipated the inevitability of such a shift in US thinking. In February, Iran signed a tentative agreement to develop the massive Yolotan-Osman gas fields near eastern Turkmenistan. Iran also sealed a deal to increase its annual purchases of Turkmen gas to 10 billion cubic meters (bcm), which itself amounts to one-fifth of what Russia buys from Turkmenistan. Iran has also been discussing with Turkey the routing of Turkmen gas to Europe via the existing Iran-Turkey gas pipeline. The US had earlier opposed Turkish cooperation with Iran on this front, but now there is a paradigm shift, with Washington promoting precisely such cooperation and itself soliciting Iranian gas to ensure the energy security of its European allies.

But, a question mark arises in terms of the US competing head-to-head with China for access to Turkmen (and Iranian) gas. China is close to completing a gas pipeline through Kazakhstan and Uzbekistan to Turkmenistan (which can also be extended to Iran) that will allow for natural gas exports of 30 bcm within the next two years. Beijing says it is confident that work on the 7,000 kilometer pipeline project could be finished by the end of the current year. Turkmenistan has promised to optimally supply 40 bcm of gas via this pipeline.

Curiously, Morningstar took a differentiated approach to China. With regard to the South Stream, he was unsparing in voicing his discontent. He bluntly said, "We have doubts about South Stream ... We do have serious questions." But when it came to China, he was an altogether changed man.

"We want to develop cooperative relationships with all the countries that are involved," said Morningstar. "We are living in a time of financial crisis that is really a problem for all of us. We can't afford to be fighting about these issues, and we need to try to be constructive, and try to deal with the common issues together.

"China is a country that I think we in the United States want to engage with, with respect to energy issues. I don't think it is a bad idea that China is involved in Central Asia. I think it helps the Central Asian countries. Maybe there are opportunities that we can cooperate - European companies, American companies, European countries, the United States - maybe we can cooperate with China in that part of the world and it's something that we at least need to explore as an area of possible cooperation."

Only a week into his new job, Morningstar has begun to sprint. He has outlined an ambitious blueprint of US energy diplomacy in the Caspian that all but takes EU energy security under American wings and aims at neutralizing Russia's gains in the Caspian energy sweepstakes during the Bush era. But he sees China's inroads into Central Asia positively as they serve the US's geopolitical interests in isolating Russia and rubbishing Moscow's claims over the region as its sphere of influence.

Clearly, Washington will adopt a highly pragmatic approach to Iran. It is signaling its willingness to jettison US sanctions against Iran and instead keenly promote Iran as Russia's competitor in the European gas market both as a supplier and as a transit country for Central Asian gas. Few annals of modern diplomatic history would match US realism.

Washington thereby hopes to build US-Iran relations as well. Tehran badly needs to modernize its energy industry and develop its liquefied natural gas sector, which provides highly lucrative business opportunities for hi-tech American oil companies. No doubt, it is a “win-win” situation for Washington and Tehran.....?