EDITORIAL: Subverting Iran sanctions

By | Wednesday, August 13, 2008

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While the United States emphasizes the need to halt investment in Iran's energy sector, Russia and China continue to forge ahead with billions of dollars in new investments that will enable Iran to finance its military buildup and fund terrorist groups. During the past year, Washington has had some success in persuading European allies not to go forward with projects that would provide capital for Iranian weapons-of-mass-destruction programs and terror. U.S. diplomatic pressure caused firms such as the French firm Total and Royal Dutch Shell to delay energy investment projects in Iran and has led European banks to withdraw financing for oil exploration there. The opposite appears to be the case with Russia, which is determined to expand its oil and gas investments in Iran.

Between 2000 and 2007, the Russian state-controlled energy giant Gazprom invested $4 billion in Iran, and since the beginning of the year Moscow has taken steps to further expand its energy connection with Tehran. In February, Gazprom announced that it would expand its involvement in developing Iran's South Pars natural-gas field in the Persian Gulf and would aid Tehran's oil-exploration efforts. Just days after Total announced that it would not participate in a project to help Iran develop South Pars, Gazprom last month signed a multibillion-dollar agreement with the Iranian National Oil Co. to help Iran develop its oil and gas fields. Iran has the second-largest natural-gas reserves in the world after Russia. But thus far, its antiquated technology and inability to attract financing for its energy sector have hampered Tehran's efforts to play a major role as a gas exporter.

In a July 13 meeting with Iranian President Mahmoud Ahmadinejad, Gazprom CEO Alexei Miller expressed interest in participating in the development of Iran's biggest onshore oil field at Azadegan. That field, with an estimated 42 billion barrels of crude oil, started production in February. But progress has been hampered by the fact that Iran had to go forward with the project using only Iranian firms after a Japanese partner pulled out.

Two weeks after the Iran-Gazprom announcement, the Iranian government announced that it had reached a $100 billlion agreement with the Chinese oil giant Sinopec, in which the firm agreed to purchase Iranian natural gas and help develop one of Iran's largest oil fields. In exchange, Tehran agreed to export 150,000 barrels of oil per day to China at "market prices." The bottom line is that, even as Washington and its allies work to tighten sanctions against Tehran, Russia and China - permanent members of the U.N. Security Council - are doing everything they can to negate any beneficial effect that sanctions could have.

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