Iran’s reentry into the global energy market has been marked with the formation of a new level of strategic cooperation with Russia, UK-based energy consultant Mehrdad Emadi says; instead of becoming a competitor for Moscow, Tehran has become an important partner. This, analysts suggest, has important geopolitical implications.
On Wednesday, Iran joined in on a proposal tabled by Russia, Venezuela, Saudi Arabia and Qatar to freeze oil production following a ministerial meeting on the issue.

The news, which resulted in Brent futures rising by over 7% to nearly $35 a barrel, followed on reports over the weekend that Iran had begun the delivery of four million barrels of oil to Europe, with three massive oil tankers setting sail out of Iran for European ports. That move came after news last month that Europe and the United States would lift sanctions against Tehran following an agreement on the country’s nuclear program.

The crude, it was noted, was delivered to French, Spanish and Russian oil companies, including Litasco, a subsidiary of the Russian oil giant Lukoil. The oil sold to the company was delivered to a refinery of the Russian-owned Romanian refining company Petrotel.

Speaking with Azerbaijan’s Trend News Agency, Mehrdad Emadi, a consultant at the UK-based BetaMatrix International Consultancy, suggested that contrary to some oil experts’ expectations that Iran’s reentry into the global energy market would harm Russia’s prospects by putting a further damper on prices, its entrance has, on the contrary offered Moscow major benefits on a strategic level.

​The analyst told the news agency that, in light of the latest wave of Brussels’ anti-Russian sanctions, Russia has faced new challenges in selling energy on the European continent.

“Furthermore, because of sanctions, refineries which have been sourcing their crude from Lukoil or Rosneft are facing legal issues when they try to supply the refined output to EU member countries,” Emadi added.

“Now,” with the sanctions against Iran lifted, “with the approval of Russian oil companies, these European refineries find Iranians both willing and able to fill the gap left by the reduced supply from Russia.”

In the broad strategic context, Trend writes, citing the analyst, that what has developed is effectively “a win-win situation for Iran and Russia.”

“Russian oil companies can continue business arrangements with European refineries and hence avoid being displaced by competitors from Saudi Arabia, Kuwait and Iraq,” Emadi noted. “As for the Iranian side, it is very keen to increase its presence in Europe, and this allows it to achieve this objective with a smaller cost.”

Paraphrasing Emadi, Trend noted that “the deepening of [the] split in OPEC between Saudi Arabia and its tactical allies – who are flooding the market and have inflicted immeasurable harm on the interest of oil exporting countries – and Russia and Iran, who perceive oil as a commodity with [a] strategic value beyond its pricing significance, has resulted in new forms of cooperation between Russia and Iran.”

“This is one of the many indications which we will see in the next 18 months,” Emadi predicted.

For their part, Russian experts welcomed Emadi’s analysis, suggesting that the Iranian National Iranian Oil Company’s moves were pleasant, but also somewhat predictable.

“The fact,” Energy Development Fund director Sergei Pikin told the independent Russian newspaper Svobodnaya Pressa, “is that during the period of sanctions, Iran had accumulated a large reserve of oil.”

“At the moment when the restrictions were lifted, Iran’s reserves comprised about 40-50 million barrels. It is necessary to sell these volumes. It’s a good thing that Tehran is coming out onto the market gradually, instead of simply gutting prices completely. These tankers going to European ports with 4 million barrels were contracted by different buyers, and Russia’s Lukoil was one of them.”

With Iranian oil coming with a nearly $7 discount (being sold for about $20 a barrel), Pikin notes that Lukoil, “when it purchases the cheap Iranian oil for its refining capacities in Europe, achieves a good cost savings. The alternative is to purchase the Russian Urals-brand, which costs about $28 per barrel.”

The fact that Eastern European refineries are geared toward refining heavy oil, extracted in Russia and Iran, is another factor worth taking into account, the analyst says.

Asked about the prospects for Russian energy firms’ cooperation with Iran inside the country itself, including Tehran’s efforts to increase its much-needed refining capacity, Pikin noted that for the moment, the issue of sanctions has left everything up in the air.

“As the saying goes – a step to the right, a step to the left, Washington may not like it, and reintroduce restrictions against Tehran. In this situation, no one wants to risk billions. The price situation on the oil market is not conducive to this. Yes, the Iranians are in talks with many companies, but so far, they have only managed to sign a contract with a division of GE on the supply of spare parts and equipment for oil production.”

At the same time, the expert said, if an opening were to emerge, “Lukoil would have a good starting position. The company has already worked in the Iranian market, knows the region and its particularities.”