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Can Iran Replace Russia in the Global Gas Market?

The energy crisis in Europe resulting from the war in Ukraine has made its leaders think more about alternative energy resources including green energy. Russia plays an essential role in Europe’s energy security as it supplies about 40 percent of Europe’s natural gas, coal, and a quarter of its oil demands.

An EU plan, designed to reduce its reliance on Russian gas exports, is based on two short-term measures: increasing gas imports from countries other than Russia, and reducing gas consumption. In the first year of the plan, Europe eyes to reduce Russian gas imports to 50 million cubic meters per day, and in the third year to 80 million meters (55% of last year’s average daily imports).

As Russian tanks were marching through Ukrainian cities and while oil prices started to climb, many of the regime’s analysts and even officials have called on their leadership to cease the occasion and try to elevate Tehran as the major winner of the Ukraine crisis. The keyword “golden opportunity” decorated many headlines in Iranian state media. But how golden is this opportunity in practice?

Iran, with 33.4 trillion cubic meters of natural gas reserves, comes the world’s second after Russia, with natural gas reserves estimated at 34.7 trillion cubic meters- about 17 percent of the world’s total reserves.

Quality is also a serious factor. For instance, Canada’s oil reserves are reservoirs of bituminous sand and almost all of Venezuela’s oil reserves contain super heavy oil types. The cost of producing this type of oil is not only three to four times the cost of producing oil from Iranian fields, but also the cost of refining this type of oil is very high. As a significant part of Russia’s gas reserves is in deep water and areas near the North Pole, hence the production is several times more expensive than gas production in Iran.

Iran’s gas production last year was 250 billion cubic meters, after the United States (with 914 billion cubic meters) and Russia (639 billion cubic meters), and in this respect ahead of China (194 billion cubic meters) and Qatar (171 billion cubic meters).

But producing gas is only one part of the story, while consumption is another one.

According to British Petroleum, the United States consumed 22 percent of the world’s gas, followed by Russia with 12.5 percent and China with 5.5 percent, and Iranian gas consumption with 5.4 percent.

Currently, the daily production capacity of Iranian gas is about 800 million cubic meters per day which are equivalent to the daily consumption of gas in Iran. In other words, the country with the world’s second-largest gas reserves and the world’s third-largest gas producer lacks the power to produce more gas for export due to disproportionate domestic consumption. Would the Iranian regime decides to cut domestic use for more export, it would face a serious challenge domestically.

In recent years, during the cold winter nights as well as the hot summer days, Iran has faced serious power blackouts and the government has blamed the shortage of gas as the main cause. The crisis has led to several major protests and uprisings and thus became a security issue for Tehran.

The Ministry of Oil under Ebrahim Raisi has made efforts to manage the problem of blackouts in the domestic sector by cutting off gas to industrial plants and increasing the delivery of mazut to power plants. Though mazut causes environmental problems and experts, as well as ordinary people, have raised concerns about how the state’s solution is only adding to the unprecedented air pollution problem.

Lacking any interest in building up the country’s infrastructure, the regime has failed to put any serious effort to increase the gas production capacity since it took power following the 1979 revolution. If the necessary technology and capital were provided, Iran would be able to increase its natural gas production capacity to 1,500 million cubic meters today and enter the liquefied natural gas (LNG) industry along with Qatar.

In the last four decades, Iran’s oil and gas industry has repeatedly faced severe sanctions due to its foreign policy and nuclear program. Failing to invest in its infrastructure, coupled with sanctions on its oil, gas, and petrochemical industries, Iran has a hard time supplying gas for domestic use during cold seasons of the year, but it has also periodically cut off exports to Iraq and Turkey, Iran’s main natural gas export destinations.

At the beginning of Ahmadinejad’s administration, the so-called Peace Pipeline was built at a cost of more than $7 billion to supply 150 million cubic meters of gas per day (about 50% of current European gas imports from Russia) to Pakistan and India. But the regime gave in to Russia’s pressure while the US persuaded India and Pakistan and thus the pipeline is now rusting under the soil.

Another plan was launched to export 20 million cubic meters of Iranian gas a day from the Salman field to the UAE. The project ended up dead and the pipelines are now rusting under the Persian Gulf and Iran is facing a $20 billion lawsuit.

The most important challenge for the future of Iran’s natural gas industry is the pressure drop in the South Pars field, which supplies 70% of the natural gas consumed in Iran. If this problem is not solved with advanced foreign technology, in the medium term, with the continuation of increasing domestic consumption and reducing production capacity, Iran will become an importer of natural gas.

But even if the Iranian regime did have the resolve, the technology, and the intellect to invest strategically in the oil and gas sector, political reservations would have prevented Tehran to rob Moscow of its major lifeline. According to the state-run Tejarat News, “under no circumstances does Russia want Iran to enter the European energy market because in that case, Russia’s (energy) supremacy over Europe will be broken.”

Amid widespread global condemnation of Russia’s invasion of Ukraine, even Russian-influenced countries have opted for at least a policy of silence. Except for Belarus which sided with the Kremlin, the Iranian president, and foreign minister were among the few politicians who implicitly blamed NATO for the Ukraine crisis.

Simply put, in a very unlikely case scenario that all sanctions on the Iranian regime are lifted, while Europe is trying to find an alternative to Russian oil and gas and get rid of the Russian energy influence in Europe, the last option that may come to mind is energy dependency on Tehran.

Unlike Moscow, which has made full use of its gas export capacity as a means of generating wealth and economic weaponry for at least two decades, the Iranian regime has neglected the country’s resources and is now struggling with poverty and a broken economy. While short of funds, it seeks leverage through regional proxy warfare, nuclear blackmailing, and hostage-taking. If these methods continue to produce cash is indeed for the free world to determine.