Can Iran offer Europe strategic relief with its energy potential?

Al-Monitor Pro Members

Dr. Bijan Khajehpour

Managing Partner, Eurasian Nexus Partners, Vienna, Austria 

July 18, 2022

Iran is a significant gas producer on a global scale, but most of its production is used for domestic consumption. The reserves and potential exist for Iran to become a long term exporter of gas to Europe.  However, sanctions, political tensions as well as operational challenges will prevent this scenario in the medium term.

Scenario 1: If Iran and the world powers manage to sign their agreement to return to the JCPOA, then a process of using Iran as a source of energy could be initiated. However, it will be difficult to mobilize the investments needed in the short run. 

• European energy majors such as Total, Statoil, ENI and Shell have worked in the Iranian gas sector before and could return to the market, but they would only do so, if external sanctions are lifted and if there is some sort of a guarantee that their investments would not be sanctioned during the life of their project, i.e. a minimum of 10 years including development and operation of a gas field. 

• Considering the uncertainty about the behavior of future US administrations, no energy major would risk investing in Iran, even if sanctions are lifted in the medium term. 

Scenario 2: Iran could source investments from Asian countries, especially China and India, and use non-western resources to create the capacity to export gas to Europe in the medium term. 

• In the absence of European commitment through new investments, Tehran would be concerned about future US sanctions that would also make gas exports to the European Union impossible, mainly due to a re-imposition of banking sanctions. As such, Tehran would not go out of its way to invest in a capacity where there is uncertainty about the long term sustainability of the market. 

Scenario 3: Iran could start exporting gas condensate and other liquid petroleum products to Europe. There is sufficient production and export of gas liquids in Iran which are currently going to Asian markets. 

• Similar to the above scenario, Tehran would be hesitant to shift its exports to help Europe without having the certainty that there would be long term demand for its products. 

Scenario 4: One potential scenario would be to take Iranian gas to Oman and to use the idle capacity at Oman LNG to produce LNG for the European market. 

• The implementation of this scenario would also require investments in a gas pipeline taking Iranian gas to the existing Oman LNG plant. It is quite feasible, but would only represent a small quantity in the short run. 

Scenario 5: Once sanctions are lifted, Iran could also opt to export more crude oil and petroleum products to Europe.  

• Here the capacity would be available, once US sanctions are lifted, but environmental considerations would push the European Union to look for more environmentally friendly solutions including natural gas and renewable energy sources. 

Bijan Khajehpour is the managing partner at Eurasian Nexus Partners, a Vienna-based international consulting firm. He is also a member of the board of the Europe Middle East Research Group. He is considered an expert on geopolitics of energy and the Iranian economy and energy sector.