Iran announced on Sunday that it will resume oil swaps with Caspian nations after a five year hiatus. It will import crude oil into its Caspian ports in the north of the country, and export equivalent barrels on behalf of its partners in its southern ports in the Persian Gulf. The arrangement will formally restart “in the next coming days” when an oil cargo arrives from a Caspian country, probably Kazakhstan, Mehr news reported.
Iran first began oil swaps in 1997, but Caspian producers suspended deliveries in June 2010 after Tehran raised fees on operations. (This was done to avoid a glut following lower sales of Iranian crude oil in the face of tightened Western sanctions.) It also didn’t help that the government of former president Mahmoud Ahmadinejad was opposed to Caspian oil swaps.
But the current administration of President Hassan Rouhani supports the resumption of oil swaps, since Iran will benefit twofold. Tehran will once again collect transit fees (which totaled $880 million between 1997 and 2009), and the arrival of oil in the north avoids the need to internally distribute oil for winter heating from the country’ south.
Renewed oil swaps will be an important geopolitical reality following the West’s nuclear deal with Iran in July, which is expected to lift many sanctions on the Iranian oil and gas industry. According to Naser Sajjadi, Chief Executive of National Iranian Oil Products Distribution Company, Iran plans to resume swap of oil products, primarily natural gas liquids, with Turkmenistan and Kazakhstan. Furthermore, last week Iran and Azerbaijan signed an oil swap MoU that will entail Iran using Azerbaijani gas tanks and the two countries launching a joint venture in the Caspian Sea.
Additionally, Russian state energy giants Gazprom and Rosneft are also studying oil and gas swap deals with Iran. This too would have regional ramifications beyond the Caspian. Rather than transiting Georgia (a perennial thorn in Moscow’s side), Russia might supply gas to its landlocked ally Armenia via Iran. And signing such deals might also make Tehran more receptive to granting Russia preferential access for jointly developing the country’s huge oil and gas reserves.
As the regional pieces come together, Iran has already prepared its infrastructure, with port repairs completed before these oil swap arrivals, and major capacity increases set for the near future. If sanctions are lifted soon, as anticipated, it will be full steam ahead.