Iran-Europe Dialogue on Central Asia and Caucasia

(CA&A)

Abbas Maleki Roundtable on “Iran and European Union Cooperation in Caspian Sea, Central Asia, and CaucasusInstitute for Caspian StudiesMarch 11, 2007

Sources of Instability

-Radical approaches to Islam-The lack of sustainable economic development-Energy and its Route-Effort to change the lifestyle of the peoples in

the region-Corruption-Policies of dominated powers in the region-Ethnic violence -Drug Trafficking

Radical approaches to Islam

Different interpretation of Islam in the CA&C is one of instability sources. Specifically, the extreme perceptions of Islamic culture as different groups like Hizbuttahrir are proposing.

A rigid, radical and unpopular version of Islam which is very hard for the people to obey it.

Lack of sustainable developmentTotal population of the CA&C is 73 millions: -68% of 8 million in Azerbaijan, under the poverty line -35% 15 Kazakhstan -51% 5 Kirgizstan -GDP/Capita: -Tajikistan $180 -Kirgizstan 270 -Uzbekistan 360 -Armenia 520 -Azerbaijan 600 -Georgia 630 -Turkmenistan 750 -Kazakhstan 1260

Energy export is not very high Armenia 0.3 US billion Dollars Georgia 0.3 Kyrgyzstan 0.5 Tajikistan 0.8 Azerbaijan 1.8 Turkmenistan 2.7 Uzbekistan 3.0 Kazakhstan 9.1 Compare with Saudi $135 and Iran $55 US billion

Orchestrated efforts by West to change the lifestyle of the peoples in CA&C

Activities of rulers to weakening traditions, customs

Neglected NGOs Example: Kazakhstan advertisement in IHT, Nov. 12, 2003

title: "Kz is the outpost of struggle against fundamentalism". Kz is the only country in the region in which Islamic opposition does not really exist. Religion has never played an important role in Kz, while Muslim organizations have been influential in neighboring Uz and Td…..This means that the Kazakhs are catching on to Western lifestyle and values.

The question is who is living with Kazakh lifestyle and values in future?

Corruption

There is no good governance in the region-Most of the Governments are totalitarian

regimes-Most of the rulers are the former Secretary

General of local Communist Parties.-Corruption Index shows -Azerbaijan is the 4th most corrupted country -Russia is the 7th

-Kazakhstan is the 20th

Energy in CA&C

Energy is one of the resources that could support the development

But the geopolitics of pipelines is the key factor for the phenomenon of new dependency to other countries

Russia is trying to dominate all of energy infrastructure in Eurasia

Energy Routes at a Glance

Middle East Sub Region

Asian Identity

ECO (Economic Cooperation Organization)

Iran and CA&C Iran has shown a rational, modest and economic

oriented model in the CA&C. Iran’s activities for -Establishing ceasefire in Nagorno Karabakh in

1994. -Success to end the Tajik civil war is among them. -Iran was eager to see more cooperation among

CA&C, proposed them the membership of ECO, establishment of CASCO in 1992.

-An observer in Shanghai Cooperation Organization -Road and Rail networks for landlocked countries

Iran:A look at the energy sector

Iran has very ambitious plans in oil, gas and petrochemicals;

Though the strategy on oil production capacity increase remains a key debate topic, major investments in this sector are inevitable;

The legal framework remains an issue, though slow changes are taking shape;

Iran’s focus in the next decade will be on gas and also gas-intensive industries;

Next important event: Restructuring of NIOC and consequent corporatization of the energy sector companies.

Sector Investment Volume (in $ billion)

Oil 40

Gas 45

Petrochemicals 25

Power Generation 20

Investments needed in Iran’s energy sector 2005-2020

KTI

Odessa

Novorossiysk Makhachkala

Atyrau

Actual

Baku

Neka

1

Samara

2

3

4

Ceyhan

Supsa

5

1.1

2.1

1.2

2.2

2.3

Omsk

Pavlodar

Shymkent

Chardzhou

1 – Atyrau-Samara1.1 – BPS1.2 – Druzhba-Adria

2 – CPC2.1 – Odessa-Brody-Gdansk2.2 – Constanta-Trieste2.3 – Burgas-Alexandroupolis

3 – Aktau-Baku-Tbilisi-Ceyhan4 – Kazakhstan-China5 – Kazakhstan-Turkmenistan-Iran

Kazakhstan-Turkmenistan-Iran Pipeline

• Study in process in accordance with the Agreement on Joint Studies concluded between KazMunayGas, Total, Japan National Oil Corporation, and Inpex

• A Long-Term Export Option for Delivering Kazakh Oil to Asian Markets via Persian Gulf

Caspian Oil Terminals and Neka

Neka-Ray Old and New Pipeline (370 000 b/d)

Iran’s Free Zones in the North

North-South Corridor

Great Central Asia Routes

11%

13.6%

20%

Iran-Europe Energy Dialogue

The gas pipeline from CA to Iran then Europe is a key project in trilateral cooperation among three regions.

The study of the two routes from Iran to Europe via Turkey and Ukraine had been done.

Energy

Iran is energy giant, one of its feet on the Persian Gulf, another on the Caspian, with geostrategic advantages.

Europe is surrounded by the sea of gas, most important of them: Russia, Iran and Qatar.

For Europe, the importance of CA&C is dramatically increased, because member ship of each central or Eastern Europe countries to EU means a new demand for Energy.

Energy (2)

-Iran can decrease isolation of central Asia dramatically.

Iran now imports gas from Turkmenistan to consume in the Northern part of Iran, as imports oil from Kazakhstan.

Iran is end-user of the produced oil and gas in the CA&C

Potential New Supplies to Europe with Diversification of Supply

Caspian Sea region: Azerbaijan, Turkmenistan, Kazakhstan, Uzbekistan

Middle East region: Iran, Iraq North Africa region: Egypt, Libya

Iran-Europe Energy Dialogue Restraints

Freidman Muller has discussed, in the past with political motivation, Europe preferred to follow the Soviet gas pipeline instead of the cheap and costless Iranian gas. Now again, because of US extraterritorial rules like 1995 ILSA, the oil and gas companies can not invest more than 20 million dollars in Iran's energy industries.

World NG Consumption

EU NATURAL GAS DEMAND & SUPPLY OUTLOOK 2003 - 2025

Source: EUROGAS Report 2004

0

100

200

300

400

500

600

2003 2010 2015 2020 2025

( b

illi

on

Nm

3 )

Indigenous production Contracted imports Additional supplies Demand

6

Proved natural gas reserves at end 2006

Sources of Natural Gas Supply - European Union

Source: Eurogas

2030Indigenous Imports 80% Production 20 %

2003Indigenous Net Imports 51% Production 49 %

2002Indigenous Net Imports 47% Production 53 %

Import Norway

Import Russia

Import Algeria

Import Others

Indigenous Production

Indigenous Production

Imports

Source: EU-forecast, EU Energy, Issue 86, July 2nd, 2004

14%

19%

12%

49%

6%

80%

20%

14%

18%

12%

53%

3%

Forecast of Gas Supply – OECD Europe

OECD European gas balance, 1990 - 2030

0

200

400

600

800

1.000

1990 2000 2010 2020 2030

bcm

y

Indigenous production Africa Transition economies

Middle East Other

Source: „Security of Gas Supply in Open Markets - LNG and power at a turning point“, Edition 2004 (OECD/IEA)

Nabucco

New gas supply route to Europe from

Turkey to Austria

via Bulgaria, Romania and Hungary

Project Partners

– OMV • OMV Gas GmbH, Austria

– MOL• MOL Natural Gas Transmission Ltd., Hungary

– Transgaz• S.N.T.G.N. Transgaz S.A., Romania

– Bulgargaz• Bulgargaz EAD, Bulgaria

– BOTAS• Botas Petroleum Pipeline Corporation, Turkey

Nabucco corporate structure

NabuccoInternational

Company

Nabucco InternationalFINCO

OGG MOL TG BG Botas NN

NabuccoAustria

NabuccoHungary

NabuccoRomania

NabuccoBulgaria

NabuccoTurkey

Missing link between giant gas sources (in bcm) and potential markets

4,00047,570

1,770

4,520

33,530

Supply Sources for Nabucco

Azerbaidschan10-14 bcm

Egypt Iran10-20 bcm

Iraq8-10 bcm

Nabucco Gas Pipeline Strategic Goals of Project

– Opening a new gas supply corridor for Europe from Middle East and Caspian regions

– Raise transit profiles of participating project countries

– Contribution to security of supply for partner countries and for Europe as a whole

– Strengthening the turntable position of Austrian pipeline grid and the Hub Baumgarten within the European network

VIENNA

BUCHAREST

SOFIA

ANKARA

ISTANBUL

BUDAPEST

Feasibility Study Phase - Findings Technical Study

Project istechnically feasible

Routing corridor defined

Border crossings fixed

Pipeline Diameter: 56“

Distance: 3,300 km Investment: 4.6 bill. €

08 09 10 11 12 13 1403 04 2005 06 07

Project Phases

Feasibility Study

2ndstep

Operating& Marketing

Constr.1st step

Develop-ment

US military around US military around IranIran

Final thoughts...

Central Asia and Caucasus are neighbors of Europe and Iran

Europe is surrounded by sea of gas, Iran is one of them

Divergence is important in energy supply

Instability in CA&C has impacts to the both sides

Interpretation of Islam is a key factor in these areas.

Iran’s path to the free world is Europe via North, during tight situation.