“An enemy to whom you show kindness becomes your friend,” as the Persian poet Saadi wrote. Kindness between Iran and the GCC may be too much to expect, but advances on the nuclear negotiations have made constructive engagement more realistic.
Of course, a final accord between Iran and the P5+1 group on the nuclear issue – removing sanctions on Iran’s oil industry and financial system – may prove impossible to negotiate. A deal would still leave deep disagreements between Iran and its GCC neighbours regarding support for the contending factions in Syria’s civil war, Iranian influence in Iraq and disputed territories.
But in energy, Iran and its Arab neighbours are compelled by the logic of resources and economics to engage. They have both conflicting and complementary interests: competing for foreign investment, either cooperating or clashing in Opec, but potentially collaborating to great mutual benefit in joint energy projects.
Iran’s oil minister Bijan Zanganeh has given examples of the oil companies he hopes to attract to Iran – naming European and American super-majors such as Shell, BP, ExxonMobil and Chevron. He recently met the chief executives of Italy’s Eni and Austria’s OMV, of which Abu Dhabi’s International Petroleum Investment Company owns 24.9 per cent. Pointedly, he did not mention Asian companies, which have disappointed the Iranians by failing to deliver on projects.
This means that two major Opec members – Iran and Iraq – could be seeking tens of billions of dollars of international investment. That potentially creates more competition for Abu Dhabi, whose industry is in transition because of the expiry of its major concessions. Rising production means more pressure on Opec.
At last week’s meeting in Vienna, Opec reaffirmed its 30 million barrels per day production ceiling. Mr Zanganeh emphatically stated that Iran would regain its pre-sanctions exports, even if, in his words, that caused prices to fall to US$20 per barrel.
The media made much of his comments and a threatened “price war”. But what else was he to say – that Iran would passively surrender the markets and revenues it lost to Saudi Arabia over the past two years?
The Saudis can probably accommodate a returning Iran by cutting back on their own production, which remains at near-record levels. But a complicated three-way game is now emerging within Opec. Saudi Arabia and its Gulf allies must plan how to cope not only with an Iran boldly courting foreign oil companies, but also a rising Iraq.
Two sides may ally against the third – but which two? Saudi Arabia has engaged with Iraq on the issue, while Iran and Iraq are usually pictured as allies. But Iran has also expressed its unhappiness with growing Iraqi output – “Not friendly at all”, as Mr Zanganeh described it.
With a prospective relaxation of sanctions, joint GCC-Iran energy projects would allow a little kindness on both sides to create if not friendship, at least shared interests.
Iran has long talked of exporting its huge gas resources to its Gulf neighbours. But deals with Kuwait, Bahrain, the UAE and Oman all foundered on politics and unrealistic commercial expectations on both sides. Iran needs gas in the winter for its cold northern provinces; the GCC needs it in the summer for air conditioning. Iran and the UAE could also trade electricity. Such projects would improve leverage in negotiating for new gas from Qatar.
The Iranian president Hassan Rouhani’s government is probably the most competent and western-friendly the Islamic republic has ever had. Without being naïve about the power of the supreme leader Ali Khamenei and the hardliners, it is in the GCC’s interest to empower the axis of moderation. And as with Iraq, so with Qatar – Iran’s Arab neighbours have differing interests, and energy is not a simple matter of friends and enemies.
Robin Mills is Manaar Energy’s head of consulting and the author of The Myth of the Oil Crisis
