Russia and Iran enhance energy ties as Gazprom walks off with fresh gas supply deal

Russia’s Gazprom has signed a strategic memorandum of understanding (MoU) on facilitating pipeline supplies of Russian natural gas to Iran with the National Iranian Gas Company (NIGC). As both countries are subject to heavy sanctions by the U.S., the EU, and its allies, albeit to varying degrees for different sets of reasons, their growing partnership is interpreted by some as another way to dodge those restrictions.

The MoU was signed during the visit of a Gazprom delegation headed by Alexey Miller, Chairman of the company’s Management Committee, to the Islamic Republic of Iran, which was attended by Mohammad Mokhber, Acting Executive Head of Iran. The two sides believe this will help them develop their cooperation further.

The visit also included a working meeting between Miller and Javad Owji, Iran’s Minister of Petroleum, to examine the priority steps to be taken for the implementation of the MoU. Other areas of cooperation in the energy sector were also discussed.

This meeting comes on the heels of the 14th package of sanctions the EU imposed on Russia due to its war of aggression against Ukraine. The latest set of sanctions is the first one to include liquefied natural gas (LNG), banning all future investments in, and exports to, natural gas projects in Russia. Moreover, the transshipment of Russian LNG in the EU’s ports will also be prohibited after a transitional period.

Two years ago, Gazprom signed an MoU with the National Iranian Oil Company (NIOC)  covering the development of several oil and gas projects in Iran. Under the $40 billion deal, the Russian energy player was set to help NIOC develop two gas fields, provide pressure enhancements to the giant South Pars development, which is said to be the world’s largest offshore gas field and help develop six oilfields.

However, as both countries were, and still are, under sanctions imposed by the West, it was assumed that sourcing the required materials, such as oil country tubular goods (OCTG) or steel, would be difficult. South Pars’ gas is highly sour and therefore corrosive, with all wells drilled requiring very high grades of nickel alloy OCTG tubing that neither of the two countries was believed to have the capacity to produce.

Perceived obstacles notwithstanding, a few months later NIOC shared that permits were obtained for drilling 35 new wells in the South Pars field – known as the North field in Qatar, with which it is shared – over the following two to three years. The field was estimated to contain 410 trillion cubic feet of gas on the Iranian side.

This was followed by the NIOC’s subsidiary, Pars Oil and Gas Company (POGC), installing the South Pars (SP) Phase 11 platform in the Persian Gulf together with Petropars Company and Iranian Offshore Engineering and Construction Company (IOEC) at the end of June 2023. Phase 11, 20 years in the making, was expected to produce 15 million cubic meters per day (mcm/d) in the first stage, gradually reaching 50 mcm/d, coupled with an estimated profit of around $4–$5 billion per year.