Russia Inks Expansive New Energy And Weapons Deal With Iran

oilprice  |  Iran’s Supreme Leader, Ali Khamenei, gave his official approval on 18 January to a new 20-year comprehensive cooperation deal between the Islamic Republic of Iran and Russia, according to a senior energy source in Iran and a senior source in the European Union’s (E.U.) energy security complex, exclusively spoken to by OilPrice.com last week. The 20-year deal – ‘The Treaty on the Basis of Mutual Relations and Principles of Cooperation between Iran and Russia’ - was presented for his consideration on 11 December 2023. It will replace the 10-year-deal signed in March 2001 (extended twice by five years) and has been expanded not only in duration but also in scope and scale, particularly in the defense and energy sectors. In several respects, the new deal additionally complements key elements of the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order.

In the energy sector to begin with, the new deal gives Russia the first right of extraction in the Iranian section of the Caspian Sea, including the potentially huge Chalous field. The wider Caspian basins area, including both onshore and offshore fields, is conservatively estimated to have around 48 billion barrels of oil and 292 trillion cubic feet (tcf) of natural gas in proven and probable reserves. In 2019, Russia was instrumental in changing the legal status of the Caspian basins area, cutting Iran’s share from 50 percent to just 11.875 percent in the process, as also detailed in my new book. Before the Chalous discovery, this meant that Iran would lose at least US$3.2 trillion in revenues from the lost value of energy products across the shared assets of the Caspian Sea resource going forward. Given the newest internal-use only estimates from Iran and Russia, this figure could be a lot higher. Previously, the estimates were that Chalous contained around 124 billion cubic feet (bcf) of gas in place. This equated to around one quarter of the gas reserves contained in Iran’s supergiant South Pars natural gas field that account for around 40 percent of Iran’s total estimated gas reserves and about 80 per cent of its gas production. The new estimates are that it is a twin-field site, nine kilometres apart, with ‘Greater’ Chalous having 208 bcf of gas in place, and ‘Lesser’ Chalous having 42 bcf of gas, giving a combined figure of 250 bcm of gas. 

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The same right of first extraction for Russia will also now apply to Iran’s major oil and gas fields in the Khorramshahr and nearby Ilam provinces that border Iraq. The shared fields of Iran and Iraq have long allowed Tehran to side-step sanctions in place against its key oil sector, as it is impossible to tell what oil has come from the Iranian side or the Iraqi side of these fields, which means that Iran is able simply to rebrand its own sanctioned oil as unsanctioned Iraqi oil and ship it anywhere it wants, as also analysed in full in my new book on the new global oil market order. Former Petroleum Minister, Bijan Zanganeh, publicly highlighted this very practice when he said in 2020: “What we export is not under Iran’s name. The documents are changed over and over, as well as [the] specifications.” Another advantage of the shared fields is that they allow effectively free movement of personnel from the Iranian side to the Iraqi side, and the utilisation of key oil and gas developments across Iraq is a key part of Iran’s longstanding plan, fully supported by Russia, to build a ‘land bridge’ to the Mediterranean Sea coast of Syria. This would enable Iran and Russia to exponentially increase weapons delivery into southern Lebanon and the Golan Heights area of Syria to be used in attacks on Israel. The core aim of this policy is to provoke a broader conflict in the Middle East that would draw in the U.S. and its allies into an unwinnable war of the sort seen recently in Iraq and Afghanistan, and which may soon be seen as the Israel-Hamas War escalates.

The price of all manufactured items traded between Russia and Iran, including military and energy hardware, has been formalised in the new deal, although also not in Iran’s favour. For Iranian goods exported to Russia, Tehran will receive the cost of production plus 8 percent. However, these export sales to Russia will not be transferred to Iran, but rather they will be held as credit in the Central Bank of Russia (CBR). Moreover, Iran will receive a huge markdown on US dollar/Rouble or Euro/Rouble exchange rates used to calculate its credits in the CBR. Conversely, for Russian goods exported to Iran, Moscow will receive the payment in advance of delivery and at a much stronger exchange rate that benefits Russia. Moreover, the base price before any exchange rate calculations are made, will be founded on the highest price that Russia has received in the previous 180 days for whichever product it is selling Iran. This system has informally been in place for several weeks now, and according to the senior energy sector source in Tehran exclusively spoken to by OilPrice.com last week, Russia has ensured itself the highest possible price by selling to Belarus at a very large premium whichever product it intends to sell later to Iran, so establishing the required pricing benchmark. Payments for goods and services falling outside the direct finance route between the central banks of the two countries can now be done through interbank transfers between Iranian and Russian banks. Those also involving renminbi can also be done through China’s Cross-Border Interbank Payment System (CIPS) system, its alternative to the globally-dominant Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. 

In many cases, the expansion of military cooperation between Iran and Russia is tied into the energy sector elements of the new 20-year deal. Progress is earmarked to be made on upgrading the facilities at the key airports and seaports that have long been targeted by Russia as being especially useful for dual-use by its air force and navy, and which are also close to major oil and gas facilities. Top of the list of Iranian airports that Russia regards as the best for dual-use by its air force are Hamedan, Bandar Abbas, Chabahar, and Abadan, and it is apposite to note that in August 2016, Russia used the Hamedan airbase to launch attacks on targets in Syria using both Tupolev-22M3 long-range bombers and Sukhoi-34 strike fighters. Top of the list of seaports for use by its navy are Chabahar, Bandar-e-Bushehr, and Bandar Abbas. Similarly linked to Russia’s gaining the first right of extraction in the Iranian section of the Caspian Sea is that it will also be given a joint command capability over the northern aerospace defense section of Iran’s Caspian area.