The Geopolitics of Pipelines (long and interesting)

Over the past 90 years Iran, with its huge oil reserves representing 9 percent of those of the world, has founded its strategic and economic interests in the Persian Gulf on oil. Its economy is based on oil export revenues, which contribute as much as 80 percent of its total export earnings and 40-50 percent of the government budget.

In recent years, Iran has held a share in the Organization of Petroleum Exporting Countries (OPEC) production of 13-14 percent. In order to maintain this share, it needs not only to counterbalance the natural decline in the present production, but also to meet the requirements for additional production capacities. But many things are changing.

One important development is in the prominent role of natural gas as the preferred fuel in world energy demand. This has affected the economic and strategic interests of Iran since the country also has the second largest gas reserves in the world. Gas exports to Turkey, which only started in December 2001, was the first case.

Thus, Iran began the development of its huge gas resources very late, also because of difficulties in finding gas markets abroad. Previously, Iran had mainly wasted its large amount of gas in flaring, open burning and pumping it back into the reservoirs to enhance oil recovery.

Another important factor of change in the past decade has been the discovery of large oil reserves in the Caspian Sea. In view of such discoveries, Iran's geographical position has the high privilege of being the only country linking the two strategically hydrocarbons regions of the Caspian Sea and the Persian Gulf.

Thus, in principle, Iran could have the opportunity to play a central role in the competition for new pipeline networks, offering an important waterways to the landlocked Central Asian countries. However, up to now, United States opposition and "Iran-Libya Sanctions Act" (ILSA) sanctions, have strongly hindered projects for an Iranian route. To this end, the approval of the controversial Baku-Ceyhan pipeline construction in the summer of 2002, involving Azerbaijan, Georgia, and Turkey, has been a highlight confirming this tendency to Iranian exclusion.

Meanwhile, important internal developments have contributed to altering Iranian perspectives on energy policy. On the one hand, the shift of the center of gravity of the Iranian economy and demography, from the south to the north of the country, has increased the role of Central Asia and the Caspian region in Iranian foreign policy. On the other hand, Iran itself needs to satisfy its growing national energy demand, besides enhancing oil recovery in old oil reservoirs.

Another factor affecting Iranian policies is the strong increase of energy demand in India. Iran has been discussing with India possible gas exports for 12 years now. And in early May, Iran and India quietly reached a major long-term gas agreement under which Iran will supply India with 5 million tonnes of liquefied gas (LNG) annually for 25 years, and with 100,000 barrels of oil per day for a trial period of one year.

The domestic situation Iran was the first country in the Middle East to export gas via pipelines. Therefore, it has an already existing internal pipelines network of almost 4,000 kilometers of major lines, covering both the south-north and east-west regions. This could represent a basis for a new enlarged pipelines system. Along a south-north axis, the Persian Gulf is connected via pipelines to the Caspian Sea. On the other side the existing east-west pipelines extend from Sarakhs on the Turkmenistan border to Rezaieh near Turkey. The convenient transit routes, linking the landlocked Caspian Sea to the Persian Gulf, are those via Sarakhs, Dargas, Astra and the northern port cities of Neka, Noshahr and Anzali towards the southern ports of Chabahar, Bandar Abbas and Bandar Imam Khomeini.

The Iranian constitution (1979) strictly bans any concession to foreigners in production or commerce, thus prohibiting any sharing on energy investments or operations. However, a 1987 petroleum law permitted contracts between the Ministry of Petroleum, state companies and "local and foreign individuals and legal entities".

Buy-back contracts date to the time of president Akbar Hashemi Rafsanjani and the post-Iraq-Iran war years. They were introduced to foreign companies in 1995, during the first post-revolutionary oil and gas seminar that was held in Teheran, but at first they did not receive much attention. Since President Mohamed Khatami's election in 1997, some criticism started to come from the faction opposed to the new government.

In buy-back contracts, the contractor funds all investments and is responsible for performing all activities including drilling, exploration and pipeline execution. The contractor receives investment plus interests and profits from the Iranian state oil company (NIOC) in the form of a production share. Then, after the contract is completed, the investor transfers all the operations of the field to NIOC. The advantage of the contractor company depends on the fixed rate of return, which prevents both from possible lowering of the oil price and geological risks. In fact, in the first case, NIOC would sell a larger amount of oil and gas to meet the compensation, while, if reserves were overestimated, the rate would remain the same.

On the other hand, the company has no guarantee that it will be allowed to develop the fields. Since strong objections have been made to the buy-back arrangements in Iran, some changes have recently been introduced. A first objection among Iranian opposers of the mechanism concerns the danger that foreign countries could tend to maximize output extraction in the first few years of the operation in order to get back their investment on schedule, without taking care of an overall optimization of the reservoir development, or even cause possible permanent damage to the reservoir.

Other objections regard the absence of any obligation or incentive for foreign companies to employ their state-of-art technology since no long-term investments are involved. Similarly, no interest to transfer know-how is induced in foreign investors.

As a consequence, in 2001 Italian ENI signed a new form of buy-back contract where incentives and penalties, based on performances, were introduced. Any oil project, along with its budget, needs to be approved by the majlis, the Iranian parliament, as a first step, before passing through a more specialized commission, still including three members of the majlis, but also the board of directors and the trade commission from NIOC.

While Iran has been successful in concluding buy-back contracts on new oil and gas projects, more difficulties have been encountered in attracting direct foreign investments to Iran.

In the years following the war with Iraq, war damages in the south were not totally compensated and large parts of the southern population left for the north. Meanwhile, the northeastern regions developed faster than in the south and the west of the country. This caused a gradual shift of the center of gravity of the Iranian economy and demography from the south to the north, thus increasing the relevance of Central Asia and the Caspian region.

Thus, in the game of the various possible pipelines to connect the landlocked Caspian Sea, Iran has claimed its role not merely as a transit route, but also as a final market for Caspian oil. Tehran not only claims to have offered the cheapest transit route in its region for oil and gas, but also to be competitive from a security point of view. This is because, as regards transnational pipelines, the role of Iran also as a final user of Caspian oil and gas could represent a further guarantee that oil and gas flows would not be interrupted. Heating and productive activities in the northern provinces would immediately be affected in case of interruptions.

However, as regards transnational pipelines, price is just one argument among others, and strategic issues are often dominant. The ILSA sanctions and strong US opposition to any Iranian influence in the Caspian Sea are still playing a leading role, as the Baku-Tiblisi-Ceyhan pipeline seems to show. A debate over whether this pipeline would be commercially viable took eight years, since there are serious questions as to whether there is enough oil volume from Azerbaijan to justify the high costs; human rights and environmental issues have been bypassed.

The proposed Iranian alternative - a Baku-Tabriz-Ceyhanoption route - has been defeated for cost/benefit factors, and the completion of the Baku-Tiblisi-Ceyhan pipeline is scheduled for 2004, with flowing oil planned for 2005. From the United States point of view, the strong political attraction of such an energy corridor from the Caucasus to the West depends on the denial of a significant role for Iran as a Caspian energy exporter, and because it reduces the dependence of Caucasus and Central Asian countries on the Russian pipeline network.

To improve its overall cooperation in central Asia, Iran relies also on the Economic Cooperation Organization (ECO), which is based in Iran. ECO was founded in Islamabad on November 1992 and its member are Iran, Turkey, Pakistan and the Central Asian countries. At present, Iran's infrastructure and population are located primarily in the northern part of the country, while nearly all its oil and gas reserves are in the south. Thus, over 700,000 daily barrels of oil are currently refined in refineries located in the northern provinces for local consumption, even though such refineries have considerable excess capacity. Over 40 billion cm3 of gas are currently pumped daily from the southern part of the country to the northern provinces. In Iran there is also a high internal demand for cheap oil. This could be fulfilled by means of the Caspian oil. Thus, Caspian oil could be transported towards the northern refineries of Iran and consumed in the northern Iranian provinces. Meanwhile an equivalent amount of oil produced in the reservoirs of southern Iran would be shipped to the Persian Gulf from the Iranian coasts.

Iran complains that oil from Kazakh sources is of inconsistent quality (paraffinic and sulfurous) while Kazakhs firms are pressured by the US not to use the route even if it is much cheaper. This kind of route for Caspian oil has been widely considered much cheaper than any other possible transportation via new pipelines. Washington has opposed large-scale oil swaps with Iran by American companies, even though the ILSA does not prohibit foreign companies from trading in Iranian crude oil and gas.

Another big concern for Iranian policy towards the Caspian region is the unresolved legal status of the Caspian Sea. Up to 1991, Iran and Soviet Union were the only two countries overlooking the Caspian Sea and therefore there were only bilateral treaties between them, which envisaged a joint sharing of the Caspian sea. No distinction was made between seabed and water surface. Since the collapse of the Soviet Union in 1991, the existence of new riparian Caspian Sea states - there are now five in all Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan - has imposed an urgency for defining a new legal status for the Caspian Sea, especially since the discovery of new huge offshore hydrocarbon reservoirs.

If the Law of the Sea Convention (1982) were applied to the Caspian Sea, an equal division of the sea and undersea resources should be considered among the riparian states. If instead the Caspian Sea is not treated as a sea, its resources would be developed jointly, based on a "condominium" approach.

In the past, the two extreme positions were the one of Azerbaijan and Iran: the first advocated a full division both of the water surface and the seabed, while Iran's preference was the full "condominium approach", without any division among national sectors.

However, the partial development of some Caspian underwater resources by countries in the offshore regions, generally considered as their own national waters, has gradually reduced the probability of a joint regime. The original positions also seem to have evolved, and since 1997 Iran has apparently abandoned the joint sovereignty option, starting to favor a full division of the Caspian Sea as regards both water surface and sea floor.

Thus the principle of a seabed shared among the five littoral countries now seems to be commonly accepted. It is the criteria for such division that is still to be agreed. The main problems are the different sizes of the shared sectors and the overlapping of some offshore reservoirs. As regards the surface, many options are still open: from full division to the establishment of national waters, the widths of which can again give rise to many different possible options. The water surface regime involves passengers and cargo navigation, environment, fishing (including the fishing of the world's largest population of sturgeon-producing caviar), besides warship navigation.

The most recent document where official borders are mentioned dates back to 1957, in the Soviet Union era, where Astara and Hasan-Guli were indicated as the land-based border points between Iran and the then USSR, but without clarifying if the undersea dividing line should simply correspond to a straight line between the two landings. Such an enclosed area would represent 11 percent of the whole Caspian Sea area, not accepted by Iran given the entirely different situation in which it was agreed.

A basic principle to divide the Caspian Sea is the one of the "median line": where national zones meet in the middle of the sea, borders would be equidistant from the facing coastlines. However, by such a principle, the sea division would favor those countries with coasts that are convex with respect to the Caspian Sea. Thus Kazakhstan would receive 28-29 percent of the Caspian Sea, followed by Azerbaijan with 21 percent, Russia with 19 percent, Turkmenistan with 18 percent and last Iran, which would receive the smallest sector of Caspian Sea with 13-14 percent. But Iran is willing to accept a sharing option only if based on equal 20 percent sectors.

Meanwhile, several countries have signed bilateral agreements, often ascribing different regimes to the seabed and to the water surface. Iran rejected as illegal all unilateral and bilateral agreements, arguing that only the old Soviet-Iranian agreements could be considered valid until a new legal status of the Caspian Sea is achieved among all the states.

Nevertheless, besides development of off-shore reservoirs lying in seabeds of undisputed national ownership, exploration operations were also started in some contested area, giving rise to strong tensions in the region, so that they were eventually forced to a halt. Both Iran and Turkmenistan oppose efforts to develop natural resources in the disputed area until a final legal status is achieved for the Caspian Sea.

The project of laying trans-Caspian pipelines, strongly opposed from the start by Iran and Russia, and then abandoned by all the Caspian countries, could now be revived following the approval of the Baku-Ceyhan pipeline, in order to "fill" the expensive pipeline.

And for the first time in centuries, Iran does not have a common border with Russia. The Russian counterweight disappeared in 1991, precisely when the Gulf War provided the impetus for a long-term American military buildup in the Persian Gulf.

Iran had tried to prevent the collapse of the Soviet Union. During the Azeri crisis, Rafsanjani warned Baku against a Soviet dissolution, which would have favored the West and Islam. Indeed, the deterioration of Russian influence around the Caspian Sea has been combined with a growing American - and even European - political and commercial involvement in the area. Containing their influence has been since then a common interest of Russia and Iran, especially after the buildup of American military influence in the region following September 11.

Russia and Iran have begun to share the same strategic alignments. In the Nagorno-Karabakh conflict in Azerbaijan, while claiming a neutral position, both Iran and Russia have not hidden their pro-Armenian stance. Only in Tajik conflicts have their interests diverged, so that they have supported antagonist groups. In March 2001, during a meeting in Moscow, President Vladimir Putin and Khatami signed the first broad cooperation agreement since Iran's Islamic revolution in 1979.

As regards energy policy, Russia and Iran are strong regional rivals, possessing the two largest gas reserves in the world and being respectively the third and fourth oil producers in the world. Thus they represent alternative routes for pipelines in the Caspian Sea and alternative suppliers of energy.

Moreover, Russia and Iran have often clashed on crude oil prices. In fact, while Russia was looking to increase its market share, Iran seemed more inclined to promote production cuts to sustain oil prices. Until the dissolution of the Soviet Union, only relatively old bilateral treaties signed between the two countries determined the Caspian Sea legal status: the one signed in 1921 between Persia and Russian Soviet Federative Socialist Republic and the one signed in 1940 between Iran and the Soviet Union. In these treaties no differentiation was emphasized between warships, passengers and cargos, and a joint sharing of the Caspian sea resources was established, without any distinction between seabed and surface.

Since neither Russia nor Iran have found any offshore reservoirs, in principle they had no interest in abiding by the old rules after the Soviet collapse. However, in 1998 Russia signed a bilateral treaty with Kazakhstan, in which the latter's right to its subsea resources was recognized, while joint control of water surface was agreed upon. It was de facto an abrogation of the original Iranian-Russian condominium, and Russia did it without consulting Iran.

Another energy policy issue between Iran and Russia regards nuclear reactors. Following the meeting with Khatami of March 2001, despite opposition from the United States, Putin promised closer cooperation with Iran over its nuclear energy program. In the meeting of April 2002, Putin reaffirmed his intention to sell Iran a Russian-built nuclear reactor.

Starting from a conservative and cautious attitude towards the newly independent countries, Iran evolves towards a more assertive policy as new perspectives are coming to Iran in Caspian oil transportation.

Turkmenistan. Turkmenistan is not at all a country with particular affinity with Iran: secular, with close ties with the US and Israel (the companies of which play an important role in the Turkmen economy) it had also conducted a long dialogue with the Taliban regarding the trans-Afghan pipeline towards Southeastern Asia. However, Iranian-Turkmen ties have been characterized by high pragmatism and economic cooperation. Thus, besides the many efforts by the post-Soviet republics to create hydrocarbon exporting markets, alternative to Russia, only one pipeline has been constructed since the collapse of the Soviet Union: this was in 1997, to export Turkmen gas towards the northern provinces of Iran. Thus Iran imports some natural gas from Turkmenistan, for use in Iran's northern areas, but represents less than 1 percent of Turkmen non-CIS imports.

In April, Turkmenistan signed a framework agreement on gas cooperation with Putin as well as a 25-year contract on gas supplies to Russia with Russian natural gas monopoly Gazprom. Turkmenistan pledged to supply up 100 billion cubic meters of gas to Russia from 2010 onward or a total of 2 trillion cubic meters in 25 years. Russia would pay Turkmenistan US$44 per thousand cubic meters, 50 percent of the payment in barter and 50 percent in cash.

Kazakhstan. Iran was the second country to recognize Kazakhstan and open its embassy in Almaty - at the time still Kazakhstan's capital. Kazakhstan and Iran have been cooperating in the contexts of the Islamic Conference Organization, in the Afghanistan and Tajikistan regional questions, in oil cooperation, despite harboring different positions on the Caspian legal status.

Kazakhstan considers transportation and communications as the basic levels of cooperation with Iran. In 1997, an agreement was signed between Iran and Kazakhstan concerning an oil swap of 2 megatons of oil per year. Kazakh officials pointed out that the Iranian route provided the most economical and secure option.

In April 2002, during Khatami's tour of the region, he signed a protocol for commercial, technical and cultural cooperation with Khazakstan. On that occasion the country invoked again the possibility of building a pipeline to Iran while, at the very same time, the Kazakh foreign minister was declaring to parliament that the US commercial involvement in the Caspian Sea also had national security implications for Kazakhstan. In any case, since the Baku-Ceyhan pipeline construction began in summer 2002, things may have changed as Khazak oil could in future be transported towards Western markets through the oversized Baku-Ceyhan pipeline, thus making it profitable. A passenger train service on a 3,000 kilometer railway from Almaty to Tehran, passing through Tajikistan, Uzbekistan and Turkmenistan, will allow easier connections between the people of the two countries.

Azerbaijan. Iran and Azerbaijan, having historical and cultural affinities, share about 618 kilometers of land borders, besides bordering in the Caspian Sea. One specific situation characterizes and affects in complex ties between the countries: in Iran there are many more Azeri - a population of Turkic ethnicity and language - than in Azerbaijan itself. Iranian foreign policy has never played on ethnicity because it could have backfired in a multi-ethnic Iran, possibly giving rise also to ethnic Azeri feelings inside the country.

President Haidar Aliyev (currently in power) has dismissed Azeri claims on "southern Azerbaijan", and the idea of a "Great Azerbaijan" lacks appeal among the Iranian Azeri, despite the 1994 riots demanding the creation of a separate province. There are still some Iranian Azeri in favor of a return of northern Azerbaijan to the "motherland", from which they were detached in 1823. Things might change if Azerbaijan can become an oil-rich pole of attraction and a bridgehead for Turkey and the West, in the presence of an economically depressed Iran.

From a religious point of view, Azerbaijan has the second largest Shi'ite population in the world, (after Iran) being the only other country with a Shi'ite majority. Although Shi'ites strongly identify with Iran, this affinity has not avoided tense relations between the two countries. Even if officially neutral, Iran supported Armenia over the Nagorno-Karabakh conflict, following an Iranian tradition of Armenian support against Turks. Moreover, Iran also opposes Azerbaijan's connections with Turkey, the United States and Israel.

From a commercial point of view, the two neighboring countries have jointly managed various hydro projects straddling their common border on the River Aras. In the mid 1970s the Iranian gas network was connected to the Soviet network in Azerbaijan to export Iranian gas to the Soviet Union, by means of the pipeline Baku-Astara. Through this route, gas swaps could take place from Azerbaijan.

However, in July 2001 diplomatic tension arose between the two countries. Vessels belonging to oil conglomerate BP-Amoco, charged by an Azeri consortium, were threatened by an Iranian warship while they were conducting explorations in a field lying in an Iranian-Azeri contested area. British Petroleum, operator for this field by an agreement between Azerbaijan and an international consortium, then announced that it would suspend its surveys in the disputed area until the Caspian Sea controversies were clarified. Armenia. Armenia has no internal petroleum resources (hydropower and nuclear power being the only local sources of energy) and has to rely on foreign gas imports. In 1992, Iran and Armenia signed a general agreement on connecting their gas networks by constructing a new gas pipeline. The entire pipeline should be 141 kilometers long. According to the project, the pipeline should start near Tabriz and lie in Iranian territory for 100 kilometers. Then the remaining 41 kilometers should end near Magri. Here it could be connected to the already existing gas pipeline network.

The European Union supports an extension of the projected pipeline to Georgia's Black Sea coast, from where gas could be delivered to Europe through a route alternative to the Iran-Turkey-Greece route. Thus EU plans to devote US$30 million to prepare the technical and legal documentation for this pipeline. One reason why the EU is in favor of this project is its concern about the Medzamor nuclear power plant which had already been closed in 1989 because of seismic and safety fears. Facing an acute energy crisis, Armenia started operating the plant again, but Europeans are now pressing for closure.

Such a pipeline could give the Turkmens a new avenue to export their hydrocarbon resources, alternative to the trans-Afghanistan one. Pipeline construction had been planned for 2001, but the project has been postponed because of two main obstacles. The first one, claimed by Armenia, regards the price of the Iranian gas. In fact Russia has always supplied gas to Armenia at a cheaper price than the international one and therefore cheaper than the Iranian price. The second obstacle, on the Iranian side, regards Armenia's payments, which could be made by supplying electricity to Iran.

By a 1996 agreement, Turkey was supposed to start importing Iranian gas by 1999 for 23 years. The deal was strongly opposed by the Bill Clinton administration for fear that it could have hampered the efforts to isolate Iran, while recognizing that Turkey had important energy needs and not a lot of good options. In order to avoid US sanctions, each country was responsible only for work on the pipeline portion lying on its own soil. The gas transportation costs for Turkey were lowered because the pipeline use, from the Iranian side, was shared with the gas delivered to Iranian users of the northern provinces. The gas flow was postponed several times because of work delays on both sides. Reportedly, US opposition also seemed to have played some role in the delays by blocking the delivery of powerful compressors for the project.

In the end, in December 2001, Turkey started importing gas from Iran, via a 2,577 kilometer pipeline, from Tapirs to Ankara. Iran had previously threatened to seek fines against Turkey because of the delays. Turkey is recovering less quickly than expected from its own economic crisis, and consequently, since the gas flow started, the amount has been so small that it hardly seems to have been worth the investment. In fact Turkey imported less than it promised to buy. Thus, at the end of March 2002, Iran stopped its electricity exports to Turkey. In summer-autumn 2002, Turkey suspended its gas imports from Iran for four months, claiming fuel quality problems. In November 2002, the gas flow from Iran to Turkey was resumed, after negotiating a lower gas price.

Energy requirements for both India and Pakistan have been rising at the rate of 6-7 percent annually during the past decade, and expected to double at the end of the next decade. Iran has been negotiating with India on a pipeline since the early 1990s. And in early May, Iran and India quietly reached a major long-term gas agreement under which Iran will supply India with 5 million tonnes of liquefied gas (LNG) annually for 25 years, and with 100,000 barrels of oil per day for a trial period of one year.

Iran has just two basic options here: either to lay a pipeline overland from Iranian gas fields to India, via Pakistan, or to lay a pipeline under water from the fields to the final destination, thus bypassing Pakistan. India has always insisted on avoiding Pakistani territory.

On its part, Pakistan has always favored the passage of pipelines on its soil to get annual revenue in terms of royalties. At the moment Pakistan is not interested in getting gas from any pipelines. However, unless domestic exploration programs result in new discoveries in the next few years, the Pakistani shortfall in gas supplies anticipated by 2005-06 could be met only through new imports. In this case, a possible supplier could be Iran, or alternatively Qatar, Turkmenistan or the United Arab Emirates.

In February 2002, in spite of a new India-Pakistan crisis following the December 13 attacks on the Indian parliament, a memorandum of understanding to undertake a feasibility study on an onshore route for the transfer of Iranian gas to India via Pakistan was signed between the Iranian oil minister and his Pakistani counterpart. A feasibility study will be conducted by an Australian company, while a feasibility study for the deep sea pipeline has been commissioned to an Italian company.

In August 2002 the Russian company Gazprom revived its project of an underwater pipeline, previously abandoned for its high cost. Following the "Blue Stream" model, the pipeline should lie at a depth of 2 kilometers in Pakistan's territorial waters, thus well protected against any possible terrorist attack. However, at the end of 2002, India's prime minister raised strong objections to this project because of the unresolved tensions with Pakistan.

The alternative route, excluding Iran, remains the trans-Afghan pipeline, which has seen the long time involvement of the Argentine company Bridas and the US company UNOCAL over the period 1994-1999.

With regard to Pakistan, the country is importing crude oil from Iran, toward which it exports motor gasoline. Its import of light crude diesel from Iran started in the summer of 2000. In 1991, Iran and Pakistan signed an agreement for the establishment of a refinery in Balochistan. Over the past two years the common issue of cross-border smuggling of petroleum products was undertaken: Pakistan has asked Iran to help in the control of motor spirit smuggling from Iran, while Iran wants Pakistan to help it contain drug smuggling.

Since 1993, when the Clinton administration took office, the United States has pursued the so-called policy of "dual containment", aimed at isolating Iraq and Iran, in particular to deter Iran from destabilizing the pro-American regimes of the Persian Gulf.

However, although Iraq has been subjected to UN embargoes, which were supported by European countries, sanctions against Iran were not shared by all European allies. In 1995, Clinton signed executive orders prohibiting at first only US companies but then also their foreign subsidiaries from conducting business with Iran, while also banning any "contract for the financing of the development of petroleum resources located in Iran".

The US Iran-Libya Sanctions Act (ILSA) of 1996 imposes mandatory and discretionary sanctions also on non-US companies investing more than $20 million annually in the Iranian oil and gas sectors. Notwithstanding comprehensive unilateral sanctions against Iran and Libya (1986), the ILSA is different in jurisdictional scope, involving not a primary sanction, as the previous embargoes did, but a secondary boycott.

Thus, US-based CONOCO was forced by the ILSA to abrogate a big contract in Iran. When in autumn 1997 France's Total and Malaysia's Petronas signed a $2 billion (well beyond the $20 million threshold) agreement on the largest gas field in Iran, ILSA was openly violated.

Meanwhile, in May 1997, Khatami was elected president of Iran and on January 1998 in a CNN interview he proposed a "dialogue among civilizations". In 1997 the US government decided that the new pipeline from Turkmenistan to Iran did not technically violate the ILSA, while in May 1998 the Clinton administration granted a waiver to the companies involved in order to avoid clashes with its European allies.

Following this, ENI, Royal Dutch Shell, TotalFinaElf and British Petroleum have agreed to large projects in Iran without any reprisal from the US government. In March 2000, then US secretary of state Madeleine Albright announced the lifting of certain sanctions against Iranian luxury goods, such as carpets and caviar. In 2001, the US Department of State singled out Iran as "the most active state sponsor of terrorism in 2000", and in July 2001 the US Congress voted overwhelming to renew the ILSA for five more years. The ILSA has angered the US's allies as they see it as an affront to their sovereignty and their independence in trade policy. Given the situation, various companies have tended to delay commitments, thus slowing down the development of Iran's energy sector.

After September 11, 2001, Khatami strongly condemned the episode, defining it as an "anti-human and anti-Islamic" atrocity. Iran, although a strong opposer of the Taliban, sharply criticized the US air strikes on Afghanistan, and argued that efforts to lead a global war against terrorism should be left to the United Nations. Relations became tense again following the State of the Union address by President George W Bush on January 2002 which referred to Iran as belonging to an "axis of evil", alongside Iraq and North Korea.

More recently the US has accused Tehran of continuing to pursue a nuclear armaments program, and now in the latest pressure, Tehran is accused of harboring al-Qaeda members.

Paola Ceragioli, Landau Network, Centro Volta, Como, Italy and Maurizio Martellini, secretary general of the Landau Network.

Good article, thanks.

Tehran not only claims to have offered the cheapest transit route in its region for oil and gas, but also to be competitive from a security point of view.

Not the cheapest. As for gas it would have to be liquified for transport by ship from persian gulf ports. Also, having the "pipeline" earns transit fees and allows them, essentially OPEC, to control the valves of non-members.

As for a security point of view, since they quietly help the jihad and other disturbances in the Caucasus and Central Asia, this argument on their part is a product of their foreign policy. As for trans-Caspian pipelines this article mentions Russian opposition. I've noticed a possible Russian turn to the Iranian position that by whatever legal means and delay Central Asian resources should be denied their markets. Same reasoning for their support of Iraqi sanctions - defeat and keep a hold on competitors to increase the value of their own resources.

I find the struggle to control the Caspian oil and gas interesting. It seems inevitable that South Asia and later South East Asia will be big markets for gas as soon as it can be economically delivered. This means pipelines to the south and east. The Chinese haven't stuck their oar in that I can determine. Figure they are negotiating with the Russians. Waiting for the other shoe to drop!

And have been since at least Peter the Great! Although I wouldn't use the term "suspicious", since Russian involvement is so certain.

Russian politics and culture are the products of extremely violent intereactions with subjugated peoples and with neighboring tribes of Germanic, Turkic, and Asiatic peoples (if you will allow such 19th Century descriptions). They are a profoundly suspicious lot with good reason.

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