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Iranian interests

One of the key players in the regional game was Iran. When it was planned initially, the idea was to acquire gas resources from Azerbaijan, Iran as well as Turkmenistan, Azerbaijan time to time made calls to incorporate Iran into the project, which was refused by U.S. for the known reasons of sanctions. For Azerbaijan, it makes more economic sense in long-run to be an energy hub and for that transfer of gas from Turkmenistan and Iran is crucial. April 2015 breakthrough in anti-sanction deal with Iran has changed the policy constellations of the region. That will surely affect the energy politics where Azerbaijan is an important actor. Lift of sanctions opens the way for Iran to be included in regional projects. Choosing TAP project Azerbaijan has secured its minimum energy interest which was to have a promising market for the 10bcm gas resources it will have to sell. Given fact that new explorations can add up to this number, and then Nabucco-West can be realized as well.

At the same time, Iran has a difficult relationship with Azerbaijan. One of the key elements in the relationship is North Azerbaijan which is South Iran. Iran has suspected that Azerbaijan would be used by the United States to launch and attack on Tehran—this led to a non aggression treaty in 2005, Azerbaijan suspect Iran of inciting Shia radicalism in Azerbaijan, part of historical Azerbaijan is in Iran and Iran is deeply suspicious of any Azeri nationalism.¹¹⁸

The Nabucco issue initially complicated things as it came during a time of heightened suspicion. When Azerbaijan announced its willingness to support Nabucco project, Iran was one of the countries that expressed its opposition to the project. As another fierce opponent of Azerbaijan’s energy cooperation with the EU, Iran spoke against any trans-Caspian pipeline project. Deputy Minister of Oil Hossein Noqrekar-Shirazi said that “Iran is against the construction of pipelines under the seabed of the Caspian sea, because it might damage the environmental balance of the sea”.¹¹⁹ Without such pipelines, including the gas pipeline from Turkmenistan, Nabucco’s fate would be questionable. Turkmenistan, with the fifth largest gas reserves in the world, is seen as one of the main elements in the Nabucco pipeline. So far with the backing of USA and EU, Azerbaijan has been implementing regional energy projects and also continuing explorations in its coastal waters despite the fact that the legal status of the Caspian Sea is not yet settled. In case of full support given by the ‘west’ and Russia remaining neutral, a trans-Caspian pipeline project is possible. With the current political changes of the region, even Iran’s incorporation into the project would rule out the incorporation of Turkmenistan. But this will be known once new power constellations are shaped in the region which will take some more time. From the beginning it was known that Azerbaijani gas alone was not enough to fill Nabucco pipeline. Resources from Turkmenistan, which is the fourth largest gas reserves, and Iran (has 16% of world gas deposits, second in the world after Russia) were considered very important.¹²⁰ Resources from suppliers like Azerbaijan (according to different estimates holds 0.6% of world gas deposits), Egypt (1.2% of world gas deposits) and Iraq (1.7% of world gas deposits) were also important but cannot compete with that of Iran’s and Turkmenistan’s.¹²¹

If Iran’s gas had been piped into Nabucco pipeline that could have solved many problems. However, obviously Iran was ruled our because of US extraterritorial sanctions and it was never addressed how to deal with the U.S. extraterritorial sanctions that hindered Iran from involvement in the regional cooperation.¹²² In fact back in 2010 Azerbaijan’s former Energy Minister Natig Aliyev expressed his opinion about the incorporation of Iran as a precondition for the realization of the Nabucco saying that “I think in a few years, when the Iran and Iraq situation is more stable politically, we will be able to implement the Nabucco project very speedily...I don't think construction will be in one or two years. Countries like Iraq, Iran and Turkmenistan need to join this project”. ¹²³ However, right after that US. State Department’s special envoy for Eurasian energy policy stated that Iranian participation in the Nabucco project is ruled out.¹²⁴

Although time to time tension between the “West” and Iran softens, the sanctions still remained in power. However, a big change is in tube after P5+1 made a deal in Lausanne on April 2, 2015, agreeing on a roadmap to solve the “Nuclear question”. This deal, if finalised, will open doors for incorporation of Iran into regional energy projects. With that Iran can transfer its energy sources through existing pipelines in Azerbaijan to the West. Consequently, if Iran cooperates with Azerbaijan on energy transfer to West, then Nabucco will certainly come back as TAP does not have a large capacity to meet large gas supplies to Europe.

It is interesting that just two days after the Nuclear deal with Iran, the president of SOCAR, Mr. Rovnag Abdullayev talked about Iran’s interest in buying SOCAR’s shares at TANAP project, and stressed that SOCAR is ready to consider this interest. He added that “After the decision on lifting sanctions against Iran, the relevance of TANAP has grown even more. Iran will increase gas production, and apart from TANAP there is no alternative for Iranian gas to enter the world markets”.¹²⁵ As already implied more natural gas supplied into TANAP and possibilities of more to be transferred, means greater chances for the revival of Nabucco, or at least implementation of Nabucco-West.

Iran also has plans to increase gas import from Turkmenistan to supply the northern part of the country. In 2009 Iran agreed with Turkmenistan to develop the promising South Yolatan gas field, and increase the volume of gas transfer to Iran from 8 bcm up to 20 bcm¹²⁶. It was seen as a blow for the realization of big projects like Trans-Caspian or Nabucco. However with the changing ‘game’ after the Nuclear deal, indeed it can serve in favour of the Nabucco.

Nevertheless, Iran has also other options including using Turkey directly through Pars pipeline project. But there is also tension between Turkey and Iran at the moment because of politics in Yeman and Syria. That in return increases chances for Iran going for Southern Gas Corridor rather than Pars project. Given the highly dynamic regional politics, currently it is not possibly to predict which option will be used. We need some more time to make an accurate assessment about it. So much depends on the new power constellations in the South Caucasus. If U.S. and the EU decide to take Iran as a main energy supplier of Europe to undermine Russia’s most important power, namely manipulation of energy resources, then Iran’s incorporation into regional projects can be realised. All these political developments are surely out of Azerbaijan’s control, but they will without any doubt impact Azerbaijan’s position either as an energy supplier or transit country.