Virtues of diversity in Oman gas talks with Iran

Hassan Rouhani's visit to Oman shows the importance of mutual interests in energy diplomacy.

As Gandhi said: “Interdependence is and ought to be as much the ideal of man as self-sufficiency.”

He may not have been thinking of energy security. But the signature of a gas pipeline deal during the Iranian president Hassan Rouhani's recent visit to Oman shows the importance of mutual interests in energy diplomacy.

From Oman’s point of view, the pipeline is of crucial importance. It will carry 1 billion cubic feet per day of gas from Rudan in southern Iran, across the Gulf of Oman to the petrochemical centre of Sohar.

Oman today produces a little less than 3 billion cubic ft per day. But its domestic gas demand is rising sharply, and a new US$15bn industrial zone at Duqm on the south-east coast will boost consumption further.

The Sultanate’s liquefied natural gas plant has been running below capacity because of shortages of feedstock, losing valuable export revenues. By 2018, BP’s Khazzan field is expected to deliver a further 1 billion cubic ft, but it is a technically challenging and expensive project that might easily suffer delays.

Diplomatically, Mr Rouhani's offer can be seen in two ways. It may be another cunning ploy to divide the GCC, after the recent dispute between Qatar on the one hand and Saudi Arabia and the UAE on the other. Oman has played an important mediating role in US diplomacy with Iran and has long been discussing gas imports with Tehran.

In a more positive light, the pipeline deal could be seen as an outreach from Iran to build more constructive relations with the GCC. All of its Arab neighbours, bar Qatar, have at some point discussed buying Iranian gas.

The pipeline still faces some significant challenges. Oman is supposed to finance the $1bn cost of its section. Although not the most technically challenging project, the pipeline will have to cross waters of several hundred metres’ depth in the Gulf of Oman. International financial institutions and engineering contractors will not take part until sanctions on Iran are substantially eased.

The Omanis will remember previous failures, such as the Iranian pipeline to Sharjah that never delivered gas, dogged by technical failures and allegations of corruption and under-pricing. A pipeline to Pakistan remains incomplete as sanctions prevent the Pakistanis’ financing their half.

Rudan is not yet connected to the Iranian gas network, and it is not clear which fields will source the new gas. Most crucially, the price of that gas has not yet been agreed, the same problem that has dogged all previous Iranian gas deals, and one that makes Mr Rouhani’s “signature” rather theoretical. It’s like negotiating your new house’s wallpaper and the plants in the garden before discussing the purchase price.

In the past, Iran has always priced its gas too expensively, given its neighbours’ concerns over dependence on it, its somewhat shaky reliability on deliveries to its main customer Turkey, and the complications of sanctions. It remains to be seen this time whether Tehran can concede on price to gain a valuable economic and political success.

This deal also illustrates the dictum of Gandhi’s great adversary, Winston Churchill, that for energy security, “Safety and certainty lie in variety and variety alone”. Oman does not want to rely only on Qatar or its new unconventional gas resources. A deal with Iran creates a competitive dynamic the Omanis can use against other potential suppliers.

Even before the United States got started, Iran had sanctioned itself – by its failure to sign mutually beneficial deals with its neighbours. Although the sultanate may appear to grow more dependent on the Islamic Republic, the reverse is also true. “Energy independence” is a mirage – true security is assured by a network of inter-relationships.

Robin Mills is the head of consulting at Manaar Energy and author of The Myth of the Oil Crisis