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    Removal of Sanctions from Iran: What Does it Promise for the Southern Gas Corridor?



Should the EU and US remove all sanctions on Iran, what impact would this have on the Southern Gas Corridor.

by: Ilgar Gurbanov

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Top Stories, Caspian Focus, Expert Views, Pipelines, Trans-Adriatic Pipeline (TAP) , Trans-Anatolian Gas Pipeline (TANAP) , News By Country, Iran

Removal of Sanctions from Iran: What Does it Promise for the Southern Gas Corridor?

Developments in the international relations system are unpredictable. It rapidly shifts from one phase to another, from cooperation to conflict or vice versa. The new alteration in the international order will be the Iran-West rapprochement, which has been initially observed following the interim nuclear agreement in November 2013 between Iran and P5+1 countries (the five permanent members of the UN Security Council - UK, China, France, Russia, and the US, plus Germany). Recently, after the signing of “Lausanne Agreement” between Iran and P5+1 countries, the EU indicated that it will withdraw sanctions from Iran’s oil and gas import if the latter will remain committed to its obligations defined with agreement.

According to the US Energy Administration, Iran holds the second-largest proved natural gas reserves in the world, after Russia. Since 2009, Iran has developed several upstream gas projects, including additional phases of its giant South Pars gas field. Moreover, there are huge gas reserves in the Iranian sector of the Caspian Sea. However, these reserves are located in the deepest (1000 m.) point of the Caspian and Iran does not have the required advanced technology for extraction. Therefore, Iran is eager to attract European energy companies into country, which left Iran’s oil and gas sector since 2005 due to the sanctions, impacting Iran’s ability to benefit from its own hydrocarbon resources. The possible removal of sanctions will open the pathway of Iran’s natural gas export toward Europe. 

Iran’s participation in the Southern Gas Corridor

The Iranian government has repeatedly declared that it is ready to ship its natural gas through its territories toward Europe. This was originally envisaged through the Nabucco pipeline project, which has been relegated to the history books. One branch of Nabucco had been proposed to start from Iran-Turkey border, since initially Iranian and Turkmen gas were also considered for Nabucco along with Azeri gas.

However, US and EU-imposed sanctions against Iran caused the withdrawal of European energy companies from country and made Iran’s possible contribution to the SGC unrealistic. The sanctions made Nabucco partners refrain from not only receiving Iranian gas, but also transporting Turkmen gas through Iran. Nabucco could be realized with additional Iranian and Turkmen gas.  US and EU imposed sanctions over Iran’s oil/gas exports, also raised concern on the implications of the sanctions for the Shah Deniz Consortium, as Iran was represented with 10% in Shah Deniz Consortium through Naftiran Intertrade Company (NICO), a subsidiary of National Iranian Oil Company and the US would take action against companies doing business with Iran. However, active lobbying from Brussels and London managed to keep the Shah Deniz field development exempted from the sanctions. Thus, according to “Iran Threat Reductions Act” that adopted by US Congress, there are can be an “exceptions for certain natural gas projects”, including “the development of natural gas and the construction and operation of a pipeline to transport natural gas from Azerbaijan to Turkey and Europe”, which provide their “energy security and energy independence from the Russia”.

Iran actually has several options to deliver its gas to Europe: through Turkish soil to Greece via (potential) Iran-Turkey-Europe Pipeline and Interconnector-Turkey-Greece-Italy or via Trans-Anatolian Pipeline and Trans-Adriatic Pipeline (in the expansion capacity), including Greece-Bulgaria Interconnector and Ionian-Adriatic Pipeline; to Bulgaria via former Nabucco-West or existing interconnectors in Southeast Europe. Azerbaijan’s SOCAR has not excluded the participation of Iran in the TANAP project, as well as bringing Iranian gas into the pipeline. The President of SOCAR, Rovnag Abdullayev said that, “After the decision on lifting sanctions over Iran, we are ready to consider offers for the sale of part of our shares in TANAP, if we get an advantageous offer”. SOCAR had earlier stated that it will keep at least 50% of shares in TANAP, which means company can sell some 8% out of its 58% shares to new shareholder. Turkey’s Minister of Energy and Natural Resources Taner Yildiz also said that, “It will be possible for Iran to take a stake in the TANAP project as long as certain commercial conditions are fulfilled”.Moreover, Head of Communications of TAP, Lisa Givert said that, “TAP is open to addition of new shareholders”, which means that after removal of sanctions, TAP Consortium might consider also Iran’s participation in the project. Actually, TANAP’s capacity is planned to expand from initial 16 bcm/a up to 24 bcm/a by 2023 and to 31bcm/a by 2026, while TAP’s capacity from 10 to 20 bcm/a. Moreover, the EU Commission’s Decision had left the 50% of the TAP’s total capacity for third party access for expansion capacity, in case there will be sufficient gas demand and gas supply from non-Shah Deniz sources. The expansion capacity of both TANAP and TAP might enable Iran to deliver its gas thereof by joining the projects with its NICO.

Therefore, it is likely that Iran is offered in exchange of removing sanctions to take part in the Southern Gas Corridor jointly with Azerbaijan to provide the viability of the SGC against Russian supply. Because, both the EU and Azerbaijan comprehend that the Southern Gas Corridor, which comprises the South Caucasus Pipeline, Trans-Anatolian Pipeline and Trans-Adriatic Pipeline (including its branches), currently is backed up with the reserves of Azerbaijan only. Given the amount Russia currently supplies to Europe and potentially with Turkish Stream, Azerbaijan’s gas alone cannot be an alternative to Russian one. Without Iran’s presence in the SGC, latter might face with serious problems regarding source of additional gas in the future. Thus, according to the BP Statistical Review of World Energy 2014, Iran holds 33.8 tcm of natural gas reserves, while Azerbaijan holds 2.8 tcm only.

Challenges to bring Iranian gas to Europe

Nevertheless, it is not clear yet whether Iran can supply big amount of gas for Southern Gas Corridor. First of all, even if EU Commission leaves the 50% of TAP’s total capacity for third party access, 100% of the initial capacity of TAP, as well as that of TANAP are secured by 25-year long-term agreements to pump Azeri gas. Thus, Azeri gas has already found its consumers, while Iran has not yet defined its potential customers and supply requirements. Consequently, there is still not a certain legal framework to transport Iranian gas to Europe.

Secondly, Iran’s participation in TANAP doesn’t mean that Iran will supply its gas via TANAP once it joins the TANAP Consortium. Because, since Iran is represented in Shah Deniz Consortium with its NICO, it enables Iran to participate in the transportation of Azeri gas only for the initial capacity of both TANAP and TAP. Third, in case Iran plans to deliver to Europe huge amount of gas in the expansion capacity of TANAP and TAP, its potential customers will need relevant interconnectors with relevant capacity. In this regard, Iran can revive the Nabucco-West pipeline, whose initial capacity was 20 bcm/a. Fourth, given the damages that sanctions left over Iran’s energy sector, including the delays in the development of its gas fields in the Persian Gulf and domestic consumptions issues, Iran need at least 5-6 year to prepare its export toward Europe, for construction of new pipelines and development of new fields.

Moreover, Iranian gas, exported to Turkey is set to be 490 USD per 1000 cm, which is more expensive than the Russian (425 USD) and Azeri (335 USD) gas prices. In this regard, given the current price of Iranian gas and potential transit fees, the price of Iranian gas for European consumers is vague for the time being. Furthermore, Iran’s gas export to Southeast Europe through Turkey can hit Russia’s Turkish Stream and its potential markets. In terms of volume and market diversification, Iran and Russia will be serious competitors in Europe once the sanctions are removed. Participation of Iran in the SGC means the weakening the Russia’s domination in the Southeast Europe. Gazprom is always reluctant to see other major gas supplier in Europe.

Alternative ways to transport Iranian gas to Europe

In November 2008, Turkey and Iran had signed an agreement according to which Turkish TPAO should develop a 5000 km. new pipeline, the so-called Iran–Turkey–Europe Gas Pipeline Project (ITE) with 35 bcm/a capacity to ship Iranian gas to Europe through Turkey. The realization of pipeline delayed because of the international sanctions. Turkey’s part of ITE pipeline would start from Turkey-Iran border and lead to Ipsala/Edirne at the Greece-Turkey border, where both Turkish Stream and TANAP are supposed to end up as well. From the Turkish border, the pipeline would go through Greece and Italy and then divided into two branches: the north, leading to Germany, Austria and Switzerland, and the southern, leading to France and Spain. After the pipeline become operational, Iran will not need to rely on existing Tabriz-Ankara Pipeline to pump additional gas to Turkey and onwards. However, Iran uses only 70-75% capacity of Tabriz-Ankara pipeline (with 10 bcm/a), though actual capacity of pipeline is 14 bcm/a. Whereas, Iran could just expand the volume of Tabriz-Ankara pipeline up to total capacity. Moreover, if Iran has chance to deliver its gas via TANAP, then it makes ITE pipeline option less favorable, as there will be extra pipeline with empty capacity. Furthermore, Iran’s geographical position, the long coastlines in the Persian Gulf along with huge offshore gas fields enable country to enter in lucrative LNG markets of Asian countries (given the high LNG prices) by developing its own LNG infrastructure in the Gulf. The withdrawal of sanctions from Iran opens the perspective of the Iran-Pakistan-India gas pipeline, which was delayed long because of financial reasons and sanctions. Alternatively, Iran could transport its gas to Europe through new Iran-Iraq-Syria-Mediterranean pipeline. However, the ongoing instability in Iraq and Syria makes this option less favorable.


The European Union seeks alternative sources and routes of natural gas to reduce geo-political risk and dependence on Russian supply. The recent framework agreement between Iran, P5+1 and possible removal of the oil and gas sanctions from Iran coincides with Ukraine crisis, deterioration of West-Russia relations, cancellation of South Stream and launching of Turkish Stream. This grants a historical opportunity to the world’s second largest natural gas owner – Iran, to enter European gas market and deliver its gas to Europe to lower EU’s gas dependence upon Russia. Iran and P5+1 agreed that the final agreement should be concluded by 30 June 2015.  Given the vagueness of Trans-Caspian Pipeline and insufficient amount of Azeri gas for the EU’s long-term energy consumption, Iran’s presence in the SGC project would give greater impact to the project. However, President of Iran, Hassan Rouhani said that, “We will not sign any deal unless all sanctions are lifted on the same day. We want a win-win deal for all parties involved in the nuclear talks”. Therefore, it is not a short-term process. As analyzed above, after total removal of all sanctions, Iran needs some 5-6 years to prepare its energy sector in order to transport gas to Europe.

Ilgar Gurbanov

IIgar Gurbanov, is a Contributing Columnist for Turkey-based Strategic Outlook on Energy Affairs. He is also running his Energy Corridors blog - Energy Corridors Review