Artículo European Energy Review, 24.06.2015 Irina Mironova
Russia is experiencing series of problems in its relations with the West; political contradictions, economic troubles exacerbated by the sanctions; diminishing demand for Russia’s energy recourse supplies in traditional markets are among reasons which justified Russia’s ‘pivot to Asia’. In this context, we are often discussing the role of growing economies in the Asia Pacific region as well as South Asia. What place does the Middle East take in this reorientation? In this article I will look at Iran in Russia’s overall policy in the Middle East.
The role of the Middle East in international energy
Historically the Middle East has been important for the world politics due to two basic reasons: as a battlefield for the great powers, and as the source of oil. After WWII, oil gained the primary position in this hierarchy of roles. Moreover, it was joined by natural gas to make the region central for international energy security: the region has 47,7% of proved oil reserves, 42,2% of proved gas reserves. The region provides 34,8% of world’s oil exports and 16,1% of cross-border gas supplies.  The region hosts headquarters and secretariats of several international organisations dealing with energy issues, including the International Energy Forum, International Renewable Energy Agency, Gas Exporting Countries Forum. The countries of this region are at the core of OPEC – the Organisation of Petroleum Exporting Countries, headquartered in Vienna, created back in the 1970’s in the wake of Middle Eastern resource nationalism movement, which completely changed the nature of world energy.
This set of well-known facts is shedding light on the importance of the region in terms of energy resources, energy supply and the architecture of international energy governance. Importantly, because of this ultimate role that the Middle East plays for the energy system – the blood system of current global economy – political relations within the region, crises as well as developments in the sphere of security and interstate relations have implications for the international energy system. This region directly influences the balance in international politics. Its strategic position and the concentration of new challenges (ranging from transnational terrorist networks to the crisis of nuclear non-proliferation) make it significant not only in terms of the supply of hydrocarbons, but for international security and international relations in general.  The implications for, let’s call it balance of powers, predetermine the involvement of these powers in settlement of regional problems. Such involvement can be constructive, aiming to find the ways out of the problems, like in the case of Syria, – as well as pursuing own interests, like in the case of Iran.
Russia’s role and approaches in the Middle East
The environment in the region can be described as volatile, and the activities of external powers here are (or should be) targeted at promoting stability. Russia is not an exception, and the problems of instability, the spread of radical Islamism, the fluctuations in international energy markets as a result of the ‘Arab spring’, the threats resulting from the activities of ISIS, are equally perceived as problematic by Russia. Despite the fact that the region is not among the top priorities in official documents, it does remain the source of substantial challenges to Russian interests and its national security.  This is the key justification behind Russia’s activities here.
The material foundations of the Russian presence in the region remain limited to its competencies in the energy sphere, as well as military and technical cooperation, cooperation in space, food supplies, and aviation supplies. Notably, the role of Middle East in the Russian arms trade grows, with the region accounting for 20% of total Russian arms export and being second after the Asia Pacific. 
One might agree with Georgy Mirsky, a Russian scientist specialising on the Middle East, this region allows Russia to come back as a great power.  The ‘Arab spring’ is only one of the symptoms of complex problems that the region faces. The case of Iran, to be discussed below, is in itself a regional power struggle, affecting nevertheless not only regional affairs, but global security (and energy security) dynamics.
The sanctions against Russia, which have been introduced throughout 2014 in response to the development of the situation in Ukraine and were just prolonged by another 6 months into the 2016, have already led to a range of difficulties not only for Russia’s oil and gas sector, which now lacks international (Western) financing, equipment and technology, but for Russia’s economy and well-being in general. In one of my previous columns I have discussed to what extent this situation was strengthened rather than caused by the sanctions.  In order to close the gap that has appeared, Russia is turning to the East – to China (oil supplies for China’s booming petrochemical sector as well as reorientation and geographical diversification of its gas strategy), but notably, also to the Middle East.
In this context, Russia has improved relations with Iran; the two countries started to revive their economic ties after a cool-down, which resulted from the re-set in Russia-US relations as well as Russia’s participation in the sanctions regime against Iran. In 2013, the two countries reached a deal to exchange oil supplies from Iran for Russian commodities such as foodstuffs and wheat. Oil would be resold to China by the Russian side. 
The type of sanctions against Russia and Iran differ in nature and by the type of imposing authorities; the two countries nevertheless both have contradictions with the Western powers. Would Russia’s current and future strategy actually lessen Iran’s motivation to reach the final agreement on its nuclear programme, and undermine the sanctions regime against Iran?
The case of Iran
Iran is at the centre of international attention because of its nuclear programme: the Islamic Republic claims that it has the right to develop peaceful nuclear power facilities, for which they have to conduct activities of uranium enrichment (see figure 1). The problem is that the technology, once mastered, can be used for higher-grade enrichment, resulting in production of material, which can be used for nuclear weapons. This is a breach of the Non-Proliferation Treaty – the core document in the sphere of non-proliferation of nuclear weapons signed in 1968 in order to limit the circle of nuclear states which had acquired nuclear weapons by that time; put forward the importance of disarmament; and ensure the peaceful use of nuclear power.
The activities of the Islamic Republic of Iran – building nuclear power sites and pursuing works in uranium enrichment – have led the UN Security Council to introduce a series of sanctions in 2006, 2007 and 2010 in order to force the country to commit to non-production of nuclear weapons.
Figure 1. Iran’s nuclear infrastructure
Source: created by the author based on data from [ , p. 6]
What did the sanctions lead to? If we look at the Iran’s hydrocarbon production profile (Figure 2), there is a clear decline in production of oil (still, compare the scale of decline with the aftermath of the Islamic Revolution!), but a steady rate of gas production increase. Iran has run into serious trouble with importing oil products (this has led to difficulties in the economy – imported fuel from other destinations was often more expensive; it also required a re-orientation of the Iranian oil processing industry toward the production of gasoline); finding investment for upstream projects (e.g. Total had to leave the South Pars, but later was replaced by the China National Petroleum Corporation); finding ways to receive equipment for the oil and gas sector. It is clear that sanctions create economic hardships; it is not clear, however, whether sanctions in fact achieve the political purpose. Consumption trends were not dramatically affected (Figure 3). Notably, in 2014 Iran has generated 4,4 TWh of electricity at Bushehr nuclear power plant .
Figure 2. Oil and gas production in Iran and some historic events
Source: created by the author based on BP 
Figure 3. Iran’s energy consumption by source
Source: BP 
The approach of forcing Iran to declare its refusal of the potential development of nuclear weapons seems highly ineffective: according to J. Sveshnikova of International Institute of Islamic Thought and Civilization (Kuala Lumpur, Malaysia), Iran is making maximum efforts to become the regional heavy-weight, while the ability to acquire nuclear weapons is seen as a condition of that. Importantly, the refusal and official declaration of refusal would undermine the domestic standing of the Iranian government. There is a number of unclarities concerning the nuclear programme of Iran: Do Iranian rulers indeed intend to produce the bomb, or would the condition of ‘5-minute readiness’ be sufficient for them? Would this ‘5-minute readiness’ be considered causus belli by Israel and the US? What stage would be considered the unacceptable crossing of the ‘red line’ by Israel and the US, after which military action must be taken? 
There is an overall inability of the sanctions to affect Iran’s position as well as a lack of clarity in relation to what type of break-through is actually expected in order for sanctions to be lifted. Indeed, “as Tehran has mastered uranium enrichment, little can be done about it, apart from coming to an agreement that will ensure peaceful use of the technology”.  Starting from 2013, when an intermediary agreement on Iranian nuclear programme was reached, perspectives have opened for normalisation.
Current talks between Iran and the P5+1 (the latter is a multilateral format working on proposals to resolve the Iranian nuclear issue, standing for five permanent members of the UN Security Council plus Germany) are expected to lead to a comprehensive agreement with Iran. The closest deadline for finding a solution is June 30, 2015. Russia – an important participant in the project – will benefit, if the deal is successfully implemented. For instance, it will make it possible to continue Russia’s cooperation in the construction of nuclear reactors or other forms of military-technical cooperation in Iran. “The Iranian market for nuclear technology is huge and demand is high,” says Vitaly Naumkin, director of the Institute of Oriental Studies (Russian Academy of Sciences).  This perspective, added to other – political and strategic – considerations, explains why Russia is active in P5+1 negotiations on the Iranian nuclear programme as well as the future of the sanctions regime against Iran.
Russia’s interests are not limited to the nuclear power sector. Let us look at the potential change in the gas markets, should the sanctions against Iran indeed be lifted in the near future. The Energy Research Institute of the Russian Academy of Sciences in its 2014 Outlook examined the scenario, in which the ‘new producers’ of gas massively increase their presence in the international gas markets.  One factor which has a high potential of influencing Russia’s position there is if Iran develops its LNG facilities and enters the LNG market (the other producers to impact this scenario include Qatar, Australia, East African countries, and Turkmenistan). One of the central conclusions is that Russia and Iran are playing at the same field, and events in Iran’s oil and gas sector will have implications for Russia’s potential. There are also trends of increased competition in the framework of international organisations, such as GECF. The potential of competition between Russia and Iran depends on the following factors: (1) Iran’s entry to markets which are key to Russia (primarily the European gas market); (2) potential of coordination within the existing institutions in the gas markets. Currently, these institutions do not allow aligning actions in the framework of cartel.  Cartel is the type of organisation allowing its participants to take collective action in order to affect the market functioning (e.g. increase the level of prices) by introducing production controls or implementing other profit-raising mechanisms. One clear historic example of such organisation is OPEC of the 1970’s; there were expectations and worries about GECF developing into a ‘gas cartel’, but they have not proved to be realistic.
Overall, Russia has strong interests in Middle Eastern affairs, ranging from nuclear technology, oil and gas to security challenges that are inherent to the region. Russia is driven and motivated to participate in various multilateral formats in order to settle these problems. The situation with Iran shows that Russia has a complex of interests, and bilateral relations are also beneficial, especially in the current conditions of worsened relations with the US and the EU. Importantly, Russia’s bilateral deals with Iran (especially in the oil sector) could not undermine the sanctions regime as well as the negotiation process on the Iranian nuclear programme.
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