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Research Report

A Post-Sanctions Iran and the Eurasian Energy Architecture: Challenges and Opportunities for the Euro-Atlantic Community

Micha’el Tanchum
Copyright Date: Sep. 1, 2015
Published by: Atlantic Council
Pages: 32
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Table of Contents

  1. (pp. 3-3)

    The removal of international sanctions on Iran will be one of the most consequential events for the global energy market in recent history. With the world’s second largest natural gas reserves and the fourth largest oil reserves, Iran’s unfettered participation in international energy markets will return it to the ranks of the world’s most important energy producers. Most critical for the Euro-Atlantic community, a post-sanctions Iran carries the potential to radically restructure the Eurasian energy architecture and, as a consequence, reshape Eurasian geopolitics.

    Iran’s natural gas exports, more than its oil exports, will be the central factor impacting the Euro-Atlantic...

  2. (pp. 4-10)

    The magnitude of Iran’s impact on the Eurasian energy architecture in the early post-sanctions period depends on the extent that Iran can increase its hydrocarbon energy production and how much of that additional production, particularly natural gas, will be available for export. According to the National Iranian Gas Company (NIGC), during the 2014-15 Iranian calendar year closing on March 20, 2015, Iran’s annual gas production was 202 billion cubic meters (bcm), representing 10 percent year-on-year increase.³ Iran experienced modest growth in its natural gas production in 2014 as output from the South Pars field increased 75 million cubic meters per...

  3. (pp. 10-14)

    Ankara and Baku are seeking to incorporate more suppliers into TANAP to ensure the SGC’s long-term sustainability as an energy transportation corridor to Europe. The central questions concerning Iran’s energy relationships with Turkey and Azerbaijan are whether and in what manner Iran will participate in TANAP and whether Iran will acquiesce to Turkmenistan’s participation in TANAP.

    With a 16 bcm initial capacity, TANAP will transport natural gas from the second development phase of Azerbaijan’s offshore Shah Deniz field (SD2).65 Expected to be fully operational in 2019, TANAP will provide Turkey with 6 bcm, leaving the remaining 10 bcm for sale...

  4. (pp. 15-16)

    Russia is one of the world’s largest energy producers, possessing the world’s largest natural gas reserves and the seventh largest oil reserves. However, without a sufficient number of year-round, accessible ports during long and severe winter conditions, Russia finds itself essentially land-locked and exports most of its energy via overland routes. Russia depends on transit states along its borders for transport of approximately 40 percent of its oil exports and the bulk of its natural gas exports. Politics often triumphs commercial interests when it comes to Russia’s decision-making related to the Eurasian energy architecture. Russia regards its political dominance of...

  5. (pp. 16-19)

    In April 2015, China overtook the United States as the world’s top crude oil importer for the first time.110 Eighty percent of China’s oil imports pass through the chokepoint of the Malacca Strait in the increasingly contentious South China Sea.111 The world’s third largest LNG importer,112 China also faces the same dilemma with its tanker-borne supplies of LNG. Eliminating this vulnerability in its crude oil and LNG supply lines is one of China’s highest priorities and will prompt China to seek Iranian piped gas imports to ensure the reliability of its supply.

    One of China’s most immediate prospects for bypassing...

  6. (pp. 20-21)

    India could prove to be the ultimate arbiter in the Eurasian energy architecture. The sheer size of India’s territory, its economy, and its population along with its youthful growth demographic and two strategic coastlines at the heart of the Indian Ocean render India the sole Asian nation posing an obstacle to China’s realization of its OBOR initiative to dominate the orientation of Eurasian energy and commercial markets. The World Bank’s June 2015 Global Economic Prospects report for the first time placed India ahead of China as the growth leader among the world’s major economies.152 The report estimates India’s growth rate...

  7. (pp. 22-23)

    The pattern of Iran’s gas exports in the immediate post-sanctions period will shape the relationship between two competing orientations in the Eurasian energy architecture: a system of energy relationships reinforcing the EU’s outreach to the “Eastern Neighborhood” alongside a system of energy relationships reinforcing China’s OBOR integration project. To ensure a Eurasian energy architecture more favorable to EU and NATO interests, Caspian natural gas suppliers besides Azerbaijan need to be included in the SGC, namely Iran and/or Turkmenistan.

    If Iran meets all its production and development targets, it will be able export an additional 68-88 bcm annually by 2020. One...