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Iran: Caspian Oil Exports Ground To A Halt

Iran's export plans for Caspian Sea oil have suffered a new setback because of access problems at its northern port. The trouble is one of many for Iran's campaign to promote oil swaps as an alternative to pipelines supported by Russia and the United States.

Boston, 27 March 2002 (RFE/RL) -- Iran's oil exports from the Caspian Sea have ground to a virtual halt after years of investment and effort to promote the route.

The immediate problem is that Caspian tankers can no longer reach Iran's northern port of Neka, because of a buildup of sand in the channel. The "Petroleum Argus" newsletter reported this month that water depths have been reduced to as little as 3.2 meters from the usual 6 meters of draft.

The restriction means that ships can only sail into Neka with half-loads, making passage impractical. "Petroleum Argus" quoted Iranian Deputy Oil Minister Hossein Kazempour Ardebili as saying that oil imports from Turkmenistan have slowed to 2,000 barrels per day. Dredging work on the channel has reportedly started, but trading sources believe that the oil traffic has stopped, the newsletter said.

While the trouble seems to be temporary, it is the latest in a long series of problems that have kept Iran's route from living up to its promise of competing with Caspian pipelines backed by Russia and the United States.

Iran has invested heavily in port facilities and a pipeline from Neka that can carry up to 50,000 barrels of Caspian crude per day to its main northern refinery near Tehran. The project is part of a plan to promote oil swaps with Caspian nations to give them an export route to the Persian Gulf.

The swaps allow Turkmenistan to ship some of its oil to northern Iran for local refining use. Iran then exports equal amounts of crude through its southern ports for a fee. The arrangement offers Caspian countries the benefit of an outlet to the Persian Gulf. But in practice, the benefits have been only rarely realized.

In December 2000, Iranian Deputy Foreign Minister Said Kharrazi told the Interfax news agency that the country had already invested $450 million in swap facilities. The total included $250 million in pipelines and $200 million for refinery upgrades to process highly sulphurous Kazakhstan oil. It is unclear how much more has been invested since then.

Iran has envisioned an increase in swap capacity to 370,000 barrels per day with a line joining Neka to a second northern refinery in Tabriz. But import volumes have been so low that it is hard to see how the investments will pay. Farther in the future, Iran hopes to build a direct line from the north to its southern port of Bandar Abbas.

The success of swaps may depend on Kazakhstan, which produced over 850,000 barrels per day of oil and gas liquids last year, compared with 160,000 for Turkmenistan. Kazakhstan and Iran reached a swap agreement in 1997, but the terms of the pact were never fulfilled.

Kazakhstan now has several other export outlets available, including the Caspian Pipeline Consortium route to the Black Sea, which opened last year.

Although Iran's oil trade with Kazakhstan is still the subject of hope, the situation looked brighter a year ago, when Iranian oil officials predicted that swaps would start with the return of warm weather. One month later, the deal was called off again. Iran blamed technical problems with Kazakhstan's oil. Despite cuts in Iran's swap fees, Kazakhstan continued to balk at the price.

The standoff has left Dragon Oil, a Dubai-registered company with projects in Turkmenistan, as the only user of Iranian swaps. But "Argus" said Dragon stopped supplies at the end of last year because of the problem at Neka. A second small producer in Turkmenistan dropped out last September, the newsletter said.

A recent decision by U.S.-based ExxonMobil to end its operations in Turkmenistan was seen as another setback for the Iran route, "Argus" reported. But it is unlikely that the U.S. government would have licensed a deal with Iran, in any case. An earlier application by Mobil to conduct swaps three years ago was turned down.

It is also uncertain how much of the refinery work has been done. Iran has relied on several Chinese oil companies for the swap project, although at least one of the deals fell apart, creating a two-year delay.

During a visit by Chinese officials of a joint economic commission this month, the swap project was notably missing from a list of active investments.

Vice President Mohammed Sattarifar, who heads Iran's Management and Planning Organization, may have referred to the refinery progress in speaking about a pending dam project. Sattarifar said pointedly that "Iranian companies insist on the quality and timely fulfillment of commitments by the Chinese party," IRNA reported.

Iran's effort to promote its export option may also be suffering from its long dispute with its Caspian neighbors on a legal division of resources. Iran may soon clear the channel at Neka, but more obstacles seem to remain in its way.