Despite the easing of U.S. trade sanctions on Iran, some analysts doubt there will be any change in the fierce competition for Caspian pipeline routes. RFE/RL's Michael Lelyveld examines the issues involved:
Boston, 20 March 2000 (RFE/RL) -- As relations warm between the United States and Iran, the two countries are still pursuing competing plans for Caspian oil routes with varying degrees of success.
Although the United States made progress with a series of agreements in November, its plan for the Baku-Ceyhan oil pipeline has been slowed by stubborn problems in resolving Georgia's transit demands. Iran has also struggled with a series of delays.
Last week, a top Iranian oil official promised that work would begin on a 336-kilometer pipeline from the Caspian in less than two months. The line from the coastal city of Neka to Tehran's main refinery, will allow Iran to handle a far greater volume of oil swaps with its neighbors, said Hossein Kazempour Ardebili, deputy oil minister for Caspian affairs.
Iran has been trying for three years to promote the oil swap scheme. The system involves the trading of imported oil from Caspian nations in the north for exports of Iranian oil through Persian Gulf ports. The swaps could save hundreds of kilometers of transport, competing with the Baku-Ceyhan line from Azerbaijan to Turkey.
So far, Iran's progress is only on the first stage of the process. Last week's signing of a $103-million contract with Chinese and Swiss firms will allow port expansion at Neka to proceed. Iran plans to build the pipeline itself, paying for the project in four years through the transfer of oil. Companies including the China National Petroleum Corporation will undertake later stages of the plan, including the upgrading of Iranian refineries to process Caspian oil.
But the progress follows a long series of difficulties. Some experts warn that the problems may not be over yet.
The latest assurance that work on the pipeline will start comes more than a month after Iran's ambassador to Azerbaijan, Ali-Reza Bigdeli, told a press conference that work had already begun. Iran has also apparently decided to build the $360-million line on its own after more than two years of negotiations on the job with Chinese firms.
An earlier version of the plan failed due to lack of financing after a contract was awarded to the Iran Power Plant Project Management Company, known as Mapna, in 1998. Further delays followed as Mapna tried to involve China National Petroleum and several French companies.
Despite the latest announcement, the London-based Petroleum Argus newsletter said last week that funding could still be a problem. It said: "European banks have expressed doubt over the ability of the companies to attract project finance."
Reliance on the China National Petroleum Company may also continue to cause difficulties. The Chinese state-owned firm has delayed projects in Kazakhstan for several years due to a shortage of funds. Last week, the company's operating arm, PetroChina, was forced to cut back an initial stock offering in the United States because of sharp reaction to its investment in Sudan, which is under U.S. sanctions.
So far, China's planned project in Iran, which is also a target of U.S. sanctions, has not drawn much notice. But there could be implications if funds raised on the U.S. market are used for the project in Iran.
A larger question is whether costly projects like the swap line and Baku-Ceyhan will be affected if investors believe that U.S.-Iranian relations may improve. With the easing of sanctions on some Iranian products announced by U.S. Secretary of State Madeleine Albright last week, the future of policy toward pipelines is hard to predict. But some analysts doubt that changes involving pipelines will come anytime soon.
Laurent Ruseckas, a Caspian analyst with Cambridge Energy Research Associates, a U.S.-based consulting firm, said: "Realistically, this Albright announcement is the next step in what I think is a long and slow process, and change in oil policy may be at the end of that road."
Ruseckas doubts that investors will wait to see whether all sanctions will eventually be dropped before proceeding with pipelines that are already planned. He said Iran and the United States may also turn out to be peaceful competitors in the Caspian, offering alternate routes.
For the moment, the U.S. and Iranian plans face a common problem. Both need higher volumes of Caspian oil to justify construction and attract finance. Iran is seeking 430,000 barrels of oil per day for its swap project, far less than the 750,000 barrels it initially said it could handle. Reports indicate that Iran's current volume of swaps is only 8,700 barrels per day.
Backers of Baku-Ceyhan are seeking 1 million barrels per day for their line. Ruseckas said if Iranian swaps are successful, they could subtract from the volumes needed for Baku-Ceyhan. Russia will also try to draw oil away with its line to Novorossiysk and its northern pipeline connection with Kazakhstan.
Ruseckas says the competition could keep the separate projects on their current courses, regardless of long-term prospects for political change. But ultimately, the future of the projects may depend on which progresses faster -- the pipelines or the politics.