With Gazprom‘s gas exports dropping almost 50 percent since the start of the year, the Russian gas monopoly’s energy swap deal with Iran makes economic and strategic sense. Following a mid-March meeting, Russian Energy Minister Sergei Shmatko and Iranian Oil Minister Gholam Hossein Nozari signed a hydrocarbon memorandum that allows swap operations to Gazprom, which will deliver Turkmen gas purchased by Russia at a premium price to northern Iran in exchange for gas deliveries from southern Iran to Gulf countries. “(The agreement) seems to be rather attractive from the economic point of view especially now with the stagnating gas demand in EU and Russia,” Tatiana Mitrova, head of Moscow’s Centre for International Energy Markets Studies at the Russian Academy of Sciences, told New Europe on March 19.

Russia sits on the largest natural gas reserves in the world, nearly double that of Iran, which has the second-largest gas reserves. There are various options under consideration in the Russia-Iran swap deal signed on March 15. For instance, Gazprom may exchange Turkmen gas for crude, gas condensate, liquefying natural gas or other types of fuel from southern Iran. Northern Iran has a major deficit of energy resources and no infrastructure for carrying hydrocarbons from southern areas. There are several options in gas supplies to northern Iran, including the Turkmen gas pipeline and the gas pipeline from Azerbaijan, which is not being used at present. However, Azeri officials said this first requires signing of a respective inter-governmental agreement and agreeing on the transit fee.

Iran and Turkmenistan engaged in one of the nastiest natural gas pricing disputes in recent memory in 2008 (Energy Insider 766, Central Asian gas chain reaction won’t reach the EU).Even though Turkmenistan and Iran took steps in recent months to put the dispute behind them, Ashgabat will likely be happy not to have to deal directly with Tehran. The memorandum may also allow Russia to gain leverage over Turkmen gas exports, foiling the European Union’s diversification efforts (Energy Insider 752, Putin wants Iran and Caspian in his pocket).

While the dispute over Iran’s nuclear programme has prevented the EU from considering Iranian participation in the Nabucco pipeline, Russia has no qualms about increasing energy cooperation with Tehran. “It is a strategic issue. One of the things we are looking at is exports — how badly Gazprom exports have fallen in the first twoand- half months of the year,” Ron Smith, chief strategist at Moscow’s Alfa Bank, told New Europe. “If more suppliers came on board — Iran, etcetera — that were not linked strategically with Gazprom that would be a big threat to Russian exports overall,” Smith said.

The Russian-Iranian memorandum envisages the opportunity for Gazprom to take part in the construction of facilities for LNG in Iran as part of the South Pars project. Russia wants to increase its involvement in the Iranian field, which is one of the biggest gas fields in the world, while Tehran desperately needs investment in its energy infrastructure (Energy Insider 791, Gazprom to fill Iran’s investment vacuum). Meanwhile, increased Russian-Iranian energy cooperation could benefit Tehran by making it more difficult for the international community to tighten economic sanctions connected to the Iranian uranium enrichment dispute.

Generally, this Russian deal with Iran is much more about Russia- Iranian cooperation development that about any sorts of competition with the other projects, Mitrova said. Asked if the memorandum could help Russia preserve a stranglehold on natural gas exports to the EU by undermining Nabucco, she said, “Russia doesn’t need any special efforts regarding Nabucco.” The Russian economist noted that the financial future of the EU-backed pipeline remained uncertain “due to the absence of gas for it.”