www.NEWSBASE.com| May 2015
A NewsBase Research Briefing
Iran is home to around 34 tcm of gas, but at present it lacks extra production capacity for export.
FOR the past 30 years, Iran has lived in a more or less self-imposed geopolitical isolation. From Tehran, the view has been of a hostile US, its no-less hostile sidekick the UK, less-hostile Europeans usually aligned with the Anglo-Saxons, hostile Sunni Arabs across the water to the west, troublesome Sunni Pashtuns and Pakistan lurking in the east, Iraqi Sunnis dominating on its western border, and a chaotic semi-secular collection of ‘stans to the north.
Less hostile Russians and Chinese have not been so unwelcome, especially when bearing hi-tech weapons, nuclear energy technology, chequebooks and a thirst for oil, but in sum Tehran might be forgiven for seeing the world as generally a hostile and godless place.
This era of isolation now looks likely to end. Concessions on its nuclear weapons agenda have brought Iran back into the geopolitical party, and it is looking for a partner. We are seeing signs that Tehran may have already quietly made its choice.
An obvious early question is “why any partner at all”? After a generation of fierce independence why would Tehran choose to submit to the constraints of a serious committed relationship? The answer lies in two obvious, and two less obvious, areas. The obvious benefits are old-fashioned – guns and money. Iran’s economy has suffered under sanctions. Long-term real growth of around 3% has more than reversed (2012 saw a 6.6% recession), and its foreign currency reserves are largely locked up in sanctioned accounts.
Neither Iran’s private nor public sectors are in a state to invest serious capital in its hydrocarbons industry, so we expect an early item on the Iranian agenda to be talks with external oil and gas investors (see our Iran Investment Special Report). Political top-cover will be important, pushing Iran to the formation of a high-level alignment with, well, someone. That “someone” is unlikely to be Western. Historically Iran has traded a lot with China and very little with Russia, but there is evidence and logic that might see this change. In Iran “money” means hydrocarbons. Here, the sensitive agenda is not Liquids (our projections show that Iran’s return to the market will not destabilise it much) but gas.
At present, Iran is not a gas exporter in any meaningful sense, consuming pretty much all of its 160 billion cubic metre annual production domestically. However, Tehran has plans to add at least another 160 bcm to output – the majority of this will come from South Pars, the world’s largest gas field – for export. Whether that gas heads east or west, its volume is likely to trash gas prices for Iran and other exporters. Therefore Iran has a clear agenda to co-operate with other gas exporters to protect its margins.
Second, Iran has a power agenda that includes militaristic elbow-jostling in its near-abroad. During its isolation Iran’s Sunni neighbours have built large and well-equipped first-rank military forces, which are presently demonstrating a surprising degree of capability and co-operation in Yemen. Iran has neither the technical depth nor the money to design and build weapon systems able to meet those forces head-on, but others do.
For littoral sea control Iran needs very fast, very agile and very large anti-ship missiles, while the control and defence of its own airspace needs, at a minimum, fast, agile and long-range SAM systems. Supply of first-rank weapons usually comes with relationship strings attached, and we see signs that Tehran is willing to sign up to a relationship to get them.
Our two less-obvious reasons to commit to a partner lie in two relatively new areas of power projection: cyberwarfare and space. Tehran discovered at Natanz how vulnerable a state can be to cyber-attack, when Stuxnet hit its centrifuges. While it could play catch-up (Iran has geeks too, and they are much less expensive than missiles), a preferable strategy is probably to partner with someone who is already in the Premier League.
In space, Iran has no chance of leaping into the first rank by itself. Whether it needs reconnaissance, positioning systems, communications or intelligence gathering, Iran knows that its old opponents across the Persian Gulf can reasonably expect to piggy-back on US space assets, giving a winning C4I advantage at any level of face-off. Iran will want to align with a space-capable partner if it wants to win anything more than a low-level insurrectionist struggle.
So, if Iran wants to compete effectively on the international stage it pretty much has to pick a partner. There might be three willing candidates. The third, in status and appeal, is India. Proximity, a mutual antipathy to Pakistan, a common feeling about global superpowers, a natural connection of Liquid hydrocarbon supply and demand, a shared view of the economic power of the state and some moderately interesting Indian weapon systems (including nascent space assets) provide a motley collection of small reasons for an Iran/India Alignment.
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