ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter

Iran-Russia friendship turns sour over gas rivalry

Cheap supply from Moscow lures Tehran's traditional customers

Gas meters are on display at the 26th International Oil Gas Refining and Petrochemical Exhibition 2022 held at the expo center in Tehran on May 14.   © Getty Images

TEHRAN -- Iran's key liquefied petroleum gas exports face a wave of competition as cut-price Russian cargoes tempt its traditional customers in countries such as Afghanistan, Pakistan and Turkey.

The export of LPG, used in everything from heating and cooking to powering cars, is a much-needed source of income for the sanctions-hit Middle Eastern nation. But those shipments could be in jeopardy as a Western boycott over Russia's invasion of Ukraine forces Moscow to hunt out new customers for its resources, including LPG.

"We were selling liquefied gas to Afghanistan and Pakistan at about $600 to $700 [per ton], but the Afghans have recently said that they will only buy it from us at $450 a ton," Seyed Hamid Hoseini, chief of Iran's union of oil exporters, told the country's Entekhab newspaper.

The inflow of cheaper Russian gas has pressured other regional suppliers such as Kazakhstan and Uzbekistan to bring down their prices, with volatility also extending to markets for petroleum and diesel fuel.

Iran churns out 9 trillion cubic feet of dry natural gas a year, according to reference website Worldometer, making it the world's third-largest producer after the U.S. and Russia. Around two thirds of that is used domestically in places such as homes, factories and power utilities. The rest is exported.

The Asaluyeh Gas Field is seen in Iran's Bushehr Province. (Photo by Tala Taslimi)

Iran has contracts to sell gas to Iraq, Turkey, Afghanistan and Pakistan, as well as gas swap contracts with Azerbaijan. But analysts say only Iraq is likely to remain a customer in the long term.

Iraq has asked Iran for a contract renewal and is still eager to buy from its neighbor, according to Majid Chegeni, head of the National Iranian Gas Company. Meanwhile, negotiations over a fresh annual contract with Turkey are ongoing, with the existing deal due to finish soon, Chegeni said at a May 15 news conference on the sidelines of a major energy trade fair in Tehran.

In a recent tweet, Iranian journalist Seyed Sadegh Hoseini cited an industry insider as saying that Russia has rented Turkish gas reservoirs for the next three years as it prepares to supply Ankara with gas. Such moves will eat into Iran's business.

When asked by Nikkei whether Iran is losing customers such as Turkey and Afghanistan to Russia, Chegeni did not deny the suggestion. "Each and every country is free to secure its energy supplies from wherever it is more efficient and affordable," he said. "They can decide on which country they want to import energy from."

He added that the issue will not impact Iran's relations with these nations, noting that Tehran won't try to interfere in their decision-making.

The Taliban flag is pictured at the Dowqarun border crossing between Iran and Afghanistan in Razavi Khorasan Province, Iran, in August 2021.    © Reuters

Iran had high hopes of a financial windfall in the wake of the international sanctions on Moscow, as well as expectations that the shifting global order could accelerate talks in Vienna to restore Tehran's 2015 nuclear deal with major powers. However, that dialogue has stalled and, instead of seizing a potentially golden opportunity to help fill in for Russian energy supplies, Iran now has little choice but to cut its own gas prices to compete with Russia's discounts.

The gas rivalry is complicating Iran-Russia relations. Russia, along with China, had stayed on Tehran's side when former U.S. President Donald Trump left the Iran nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA).

When Joe Biden replaced Trump, efforts to revive the nuclear deal gained new momentum. But just when an agreement was thought to be within reach, Russia invaded Ukraine -- adding new complexities to the talks.

Initially, all parties of the JCPOA, including Russia, took the stance that the Vienna talks would not be influenced by the Ukraine war. But in early March, Moscow pressed Washington for guarantees that any sanctions on Russia would not be applied to its trade and investment with Iran.

Russia, in effect, was using the Iran nuclear deal as leverage to weaken sanctions it had been targeted with. That single announcement prompted a stalemate in talks over the past two months.

Enrique Mora, the European Union official mediating between Iran and the U.S., recently visited Tehran in an attempt to breathe new life into the Vienna talks. But over two days of discussions, the envoy saw little immediate progress, with Iran and the U.S. both blaming each other for the deadlock.

Iran's Deputy Foreign Minister and Chief Nuclear Negotiator Ali Bagheri Kani, right, meets with Deputy Secretary General of the European External Action Service Enrique Mora, in Tehran on May 11.   © Reuters

Josep Borrell, the EU's foreign policy chief, said on May 13 that he believed there was enough progress during his envoy's consultations with Iranian officials to revive the Vienna talks. Iran's response had been "positive enough," Borrell said.

Ali Shamkhani, secretary of Iran's Supreme National Security Council, tweeted that if the U.S. and EU have the will, "we are ready [and] an agreement is available."

Meanwhile, Russia's envoy to the Iran nuclear talks, Mikhail Ulyanov, expressed his disapproval of any kind of agreement with the U.S. in a tweet. "Being realists, we understand that we can't expect resultative dialogue on #JCPOA with the US who has entered a proxy war against Russia," he wrote. Under different circumstances Russia could have helped push JCPOA over the finish line, "but not now," he said.

Frustration is mounting in Iran over Russia's use of Tehran as a bargaining chip with the West.

During the negotiations over the nuclear deal, it was agreed that Iran will export surplus nuclear material, including heavy water and yellowcake, to Russia through Oman. But, an Iranian official, who did not want to be named due to the sensitivity of the issue, said Russia is not accepting the deliveries.

JCPOA allows Iran to produce these substances but keep only a portion of them. Now that Russia is refusing to purchase the nuclear material from Iran, the U.S., and European parties to JCPOA have to agree on a new buyer. That is adding to the difficulty of reaching a broader deal in Vienna.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more