Tough Negotiations with a Glimmer of Hope?
Greece and Iran share much more than the burden of undergoing tough negotiations in the past years. Over the past 30 years, the two nations have enjoyed excellent diplomatic relations in the fields of energy, security, education and culture. Historically, Greece has been a bridge between the EU and Iran, but also between Washington and Tehran. Iran, on the other hand ranked first among the suppliers of oil in Greece during the period 2006-2011, and was supplying oil to Greece on extremely favorable credit terms of approximately 35 percent - a great financial aid to Greece.
This indirect financial aid continued right until sanctions were imposed by the EU on Iran and a ban was placed on the import of Iranian oil in 2012. A policy designed to apply pressure on Iran with regards to its alleged covert pursuit of nuclear weapons. The current developments on this front, could prove to provide Greece and Iran with a rare opportunity to bolster their bilateral relations and play a strategic role in the region.
Earlier last week, Iranian President Hassan Rouhani entertained this view, stating that the enhancement of bilateral relations between Greece and Iran sees no barrier, underlining at the same time Greece’s abundant capacities in various fields, while calling for the promotion of Tehran-Athens’ economic cooperation. The Greek government, through its newly appointed Ambassador to Tehran, Georgios Aifantis, replied that “Iran is a key country in the region and Athens is determined to be Tehran’s friend and strategic partner.”
Where should Greece and Iran’s interests lie? In energy cooperation, of course, but in order to develop this link, each country’s situation needs to be examined separately.
Greece
Greece might be in a dire financial and social state, and negotiations between the country and its creditors at their lowest point since 2010 (when international financial assistance from Greece was requested and the First Economic Adjustment Programme for Greece was signed), however, all is not lost.
Greece is aspiring to become a major energy player in the region, by becoming a transit country as well as a producer of natural gas for the European market. This would allow Greece to take up the role of gate keeper of the South East EU natural gas imports, coupled with a potential domestic production. The country intends to achieve this in the following ways:
Firstly, through the Trans Adriatic Pipeline (TAP) which will connect with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border. TAP will cross Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian natural gas network. TAP is scheduled to begin construction in May 2016 at the latest. The project will essentially open up the Southern Gas Corridor and is planned to carry an initial 10 billion cubic meters (bcm) of gas per year from the Caspian Sea to Europe by 2020.
Secondly, Greece intends to exploit her own resources by giving investors an extension to submit their bids for test drilling in 20 offshore blocks in the Ionian Sea and off southern Crete by July 15.
Thirdly, the assumption of power from Alexis Tsipras’ leftist government has opened up additional channels of communication with Moscow, and provided the European link to Russia’s planned Turkish Stream gas pipeline. The proposed Turkish Stream project is suggested to carry 63 bcm of natural gas annually and construction would be aimed to begin before the end of 2016. This project would thus see natural gas being transported via a pipeline from Russia cross the Black Sea and taking route through Turkey in order to reach Greece and the EU energy market. Russia’s rebranded project also foresees the development of a natural gas hub on the Greek-Turkish border.
Enter Iran
On April 2, Iran and the E3+3 reached a framework deal which could make it possible for a gradual lifting of the sanctions on Iran ahead of the June 30 final agreement. This would in turn allow Tehran to proceed with its energy plans of supplying the European Markets with oil and gas from its South Pars natural gas field (accounting for about 35% of the total volume of gas produced from Iran). An intention, made very clear through the statement of Iran’s Foreign Minister Javad Zarif who voiced his belief that the Islamic Republic can serve as a reliable and steady partner for the European community in terms of natural gas needs. “Iran, on par with Russia, enjoys all the (needed) resources to provide gas to Europe,” he said.
According to the BP annual review, Iran possesses the world’s largest proven gas reserves, estimated at 33.8 trillion cubic meters (tcm). Russia’s reserves, in comparison, currently stand marginally lower, at 31.3 tcm. It is not a leap for any market analyst to identify that Iran’s best bet to pump its gas towards Europe would be the construction of an onshore pipeline that would connect initially with the TANAP pipeline. Turkey’s AKP government retains good relations with Iran. On the energy front, despite international sanctions aimed at crippling Iran’s financial sector and preventing Iran from developing nuclear weapons, in 2013, 25% of Turkey’s natural gas demand was provided by Iran through a controversial ‘gas for gold’ agreement between Turkey’s government and Iran. Turkey has a voracious energy demand and the easing of Iranian sanctions will cater to Turkey’s grand strategy to become an energy hub, receiving gas supplies from main suppliers such as Russia and Azerbaijan and potentially Iran, Iraq and Turkmenistan.
According to Rovnag Abduallayev, head of the State-Owned Oil Company of Azerbaijan (SOCAR), after lifting sanctions against Iran, the relevance of TANAP will grow even more. For future gas exports from Iran, the Trans Anatolian line would be the only commercially viable option to deliver it into the world markets, as any LNG solution would bring it fact to face with other international producers such as Qatar, Australia and even the US. Furthermore, the Turkish Energy Minister, Taner Yildiz, hinted that Iran might purchase shares in TANAP after having adhered to certain commercial conditions. TANAP shareholders include the Azerbaijani oil company SOCAR with a 58 percent stake, the Turkish state-owned company Botas with a 30 percent stake and the British oil and gas company BP with a 12 percent stake.
Conclusions
Energy relations and cooperation between Greece and Iran will prove difficult, despite the political will of both nations. The complications of this relationship are currently driven by third parties. At the same time, the EU is struggling to disengage itself from an over-dependence on Russian gas, and has planned to do so primarily via the Southern Gas Corridor. Should the Iranian gas volumes become part of the equation, then this would be a potential alternative in the diversification of Europe’s energy suppliers and morph the geopolitics of the region into a completely different picture. Furthermore, Iran could represent a formidable competitor to Russian gas in the EU energy market, and in conjunction to Azeri volumes, would weaken Moscow’s grasp on major US allies in Europe. It is no secret that many in the international community, including industrial stakeholders, see Iran’s role in global energy matters as a game changer.
Nonetheless, Iran will want to keep a balance, since its relations with Russia are much too important and European gas demand is notably waning. Iran will have to consider both its European aspirations as well as the option of shipping its gas to the East. This could still see Greece receiving Iranian natural gas exports in the form of LNG via the Suez Canal[1]. However, Greece would prefer to receive Iranian gas should it be appended to TANAP, the potential of the Turkish Stream could also see Russian volumes reaching its borders. However, one thing that is often overlooked is that significant infrastructure will have to be constructed in order to channel such volumes to the rest of the EU markets, as the South East Mediterranean markets are not large enough to absorb them.
What needs to be taken into account is that Europe consumes roughly 450 bcm of gas per year and imports roughly 30 percent of that from Russia. This means that if someone at the European Commission is doing the math, then they know that Russian gas will remain an essential element of the European gas market for the years to come.
By placing its greater faith in the Southern Corridor, the EU might be replacing Russian for Turkish dependence. Further to TANAP, a number of projected pipelines could transit via Turkey in the coming years, upgrading Turkey as an energy hub. Turkey is without a doubt becoming the gateway between East and West - between the world’s largest natural gas producers and importers. Turkey will be able to decide and dictate which projects it deems worthy of transit through its territory. For this reason, and for as long as the energy chapter in EU accession negotiations with Turkey remains unopened, the EU must hold Turkey accountable to the decisions made by the High Level Energy Dialogue, between Turkey and the EU. The High Level Energy Dialogue was launched by Turkey’s Minister for Energy and Natural Resources, Taner Yildiz, and Vice-President of the European Commission for Energy Union, Maros Šefčovič, on 16 March this year. In essence, the EU needs to ensure that Turkey’s legislation remains in line with the energy acquis and that Turkey does not overstep its new position.
By: Christos Brakoulias, Constantine Levoyannis and Dr. Angelos Gkanoutas-Leventis
Christos Brakoulias and Constantine Levoyannis are deputy heads of Greek Energy Forum in Brussels and Dr. Angelos Gkanoutas-Leventis is Vice Chairman of the Greek Energy Forum. The opinions expressed in the article are personal and do not reflect the views of the entire Forum or the companies that employ them. Greek Energy Forum is a Partner of Natural Gas Europe
Notes
1. Dr. Thrassy Marketos, EU Energy Geopolitics: The Potential Role of Iran and the Turkish Route, Natural Gas Europe, 13.12.2014.
Christos Brakoulias and Constantine Levoyannis are Deputy Heads of the Greek Energy Forum in Brussels. Dr. Angelos Gkanoutas-Leventis is Vice Chairman of the Greek Energy Forum. The opinions expressed are personal and do not reflect the views of the entire forum or the companies that employ the authors. Follow Greek Energy Forum on Twitter at @GrEnergyForum and the authors at @clevo275, @chrisbrako and @agkanoutas.