Wednesday, August 6, 2014

Russia-Iran Oil-for-Goods: Deal/No Deal?

Months of talks between Russia and Iran on a major oil-for-goods deal were thrown into chaos when on Tuesday Russia first announced that the landmark deal had been agreed with Iran, only to withdraw the statement within hours, saying a new statement will be put forward on Wednesday. Today, the new statement gave no indication of volumes or the timeframe for the deal:

"Based on Iran's proposal, we can participate in arranging crude oil shipments, including to Russia. Volumes are to be determined by market needs," said Russia's Energy Minister Alexander Novak in a new statement. (Reuters, 6 August)

The proposed contract was for a five-year deal worth $20 billion. Under the terms of the proposed deal, Russia would buy 500,000 bpd of Iranian crude in exchange for Russian equipment/goods. But the new Russian statement indicates an oil-for-goods contract with no volumes agreed to; really not a contract but a memorandum of understanding under which Russia would buy crude oil from Iran, presumably to re-export it in the global markets, at volumes dictated by the market conditions, not 500,000 bpd for five years as originally proposed.

Russia and Iran are competitors in selling crude oil in global markets. It would be hard to imagine that Russia would sell Iranian oil instead of its own, unless the demands were so high that Russia runs out of its own oil first. But then, under those tight conditions, Iran should not have any problems selling its own oil, without Russia's help. It is unclear now how this agreement would or could work.

File photo: Iran's oil export terminal at Kharq Island. (Getty)


Mark Pyruz said...

Hard to tell without publicized details but it appears the Iranians are balking based on past Russian failures to live up to a deal (i.e. Bushehr, S-300, etc.This is a reason why Iran seeks independence and self-sufficiency in establishing its industrial-scale civilian nuclear power industry.

Also, the Iranians are genuinely interested in better relations with the West (particularly Europe), at a time where Russia and the West are experiencing a level of hostility. Given the choice of better relations with Western Europe or Russia, the Iranians are sure to pick the former.

So these might be factors that the Iranians are taking into consideration when determining whether to engage the Russians in this deal.

Anonymous said...

Russia is the main enemy of Iran.You can bet your bottom dollar that they will use Iran to suit themselves.The regime is selling Iran down the tubes to the Russians and the Chinese.When will people realize this?