VZCZCXRO2667
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0011/01 0721305
ZNY SSSSS ZZH
P 121305Z MAR 08
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0234
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0227
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0208
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0176
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0004
RUEHAH/AMEMBASSY ASHGABAT PRIORITY 0001

S E C R E T SECTION 01 OF 03 IRAN RPO DUBAI 000011 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
E.O. 12958: DECL:  3/11/2018 
TAGS: ECON ENGR EPET PREL IR
SUBJECT: THE POLITICS OF IRANIAN NATURAL GAS 
 
REF: A. 2006 DUBAI 6919; B. RPO DUBAI 0002; C. ASHGABAT 0007; D. ASHGABAT 0075 
 
RPO DUBAI 00000011  001.2 OF 003 
 
 
CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence 
Office, Department of State. 
REASON: 1.4 (d) 
 
1.(S//NF) Summary:  Iran has oversubscribed its natural gas 
commitments by 20%, given current extraction and transportation 
capabilities, according to a reliable Iranian energy analyst. 
He added that Iran and UAE's Dana Gas still have not agreed on a 
pricing structure for Iranian natural gas (ref A).  Deputy Oil 
Minister Ali Kordan's lack of experience is reportedly to blame 
for the bungled renegotiation of the Iran-Turkmenistan gas 
contract (ref B,C,D).  The resulting gas shortages during the 
winter months may have cost President Ahmadinejad some support 
among his base, although the government attempted to shift blame 
to internal enemies.  The analyst argued that Iran is not 
seriously contemplating a gas OPEC and that statements to that 
effect are part of a greater public relations strategy to retain 
Russian support for Iran's nuclear program while it competes 
with Gazprom for the European market.  He said Iran's February 
2008 deal with the State Oil Company of Azerbaijan to receive 
gas in exchange for Iranian deliveries to the Nakhichevan 
exclave is simply a gas swap with little net gain for Iran. 
Iran is seeing a greater advantage in providing power to 
regional power grids as opposed to exporting its gas resources, 
claimed the analyst.  It is possible that Iran oversubscribes 
its gas deals because it knows some deals will die from external 
pressure (as well as internal mismanagement).  The winter's gas 
shortage could cost allies of the president votes in this week's 
parliamentary elections, unless Iranians buy the conspiracy 
theory spread by the government blaming other factions.  End 
Summary. 
 
Iran over-commits gas resources 
 
------------------------------- 
 
2.(S//NF) A reliable energy analyst from Tehran claimed in a 
conversation with IRPoffs March 9 that Iran has oversubscribed 
its gas domestic and export commitments by 20%, given current 
extraction and transportation capabilities.  He said this was 
their finding in a recent study his company did for a European 
client considering investment in Iran's natural gas industry. 
The analyst claimed that former Deputy Oil Minister for 
International Affairs Mohammed Hadi Nejad Hosseinian told him 
recently that he believed Iran has over committed its gas 
exports by 1.5 times its actual capabilities.  (Bio note: 
Hosseinian was also Iran's Ambassador to the UN prior to Javad 
Zarif.  Endnote)  Although the analyst did not blame 
oversubscription for some of the protracted gas contract 
negotiations Iran is involved in, he noted that Iran and UAE's 
Dana Gas still have not agreed to pricing terms (ref A). 
 
Iran, Turkmenistan gas deal 
 
---------------------------- 
 
3.(S//NF) The analyst also claimed that the shut-off of Turkmen 
gas exports to Iran since 29 December 2007 is a result of Deputy 
(so called Acting) Oil Minister Ali Kordan's lack of energy 
experience and inept negotiation strategies (ref B,C,D).  Kordan 
reportedly got his current position because of his close ties to 
the president, not his qualifications.  The analyst said that 
just prior to the expiration of the previous Iran-Turkmenistan 
gas contract, Iran sent Kordan to Ashgabat to work out the terms 
of a new deal.  When Turkmenistan asked Iran to match a much 
higher price offer from Russia, Kordan reportedly insisted on a 
price far below market value.  Turkmenistan declined the offer. 
(Bio Note:  Ali Kordan was appointed Deputy Oil Minister in 
October 2007.  His previous positions include:  Deputy Labor 
Minister, President of Iran's Technical and Vocational 
Organization, Deputy Head of the Islamic Republic of Iran 
Broadcasting (IRIB) Provincial and Parliamentary Affairs, Deputy 
Culture and Islamic Guidance Minister for Administrative and 
Financial Affairs.  Endnote) 
 
4.(S//NF) The resulting gas shortages in harsh winter weather 
negatively impacted President Ahmadinejad's popularity among the 
lower class, traditionally his base of support, according to the 
analyst.  The source said this was the most direct impact of 
government mismanagement that people in remote provinces had 
felt.  He added that Iranian government spokesman Elham had 
 
RPO DUBAI 00000011  002.2 OF 003 
 
 
publicly blamed domestic Iranian politics for the breakdown of 
negotiations.  According to a Tehran reformist daily, Aftab-e 
Yazd, Elham said February 6, "Some currents within the country 
have formed a financial partnership with Turkmenistan and, in 
order to achieve their political and personal interests, they 
have tried to put the people under pressure by cutting 
Turkmenistan's gas supply in the recent period of unprecedented 
cold weather.  The Intelligence Ministry is currently looking 
into this matter."  The analyst felt Elham's remarks were a 
veiled attempt to accuse Assembly of Experts head Rafsanjani of 
secretly maneuvering to kill the deal to embarrass the 
 
SIPDIS 
president. 
 
5.(U) Despite the fact that Turkmenistan has yet to resume gas 
exports to Iran, a March 8 article from the Iranian Students 
News Agency (ISNA) reported that Turkmenistan plans to expand 
its oil, gas and petrochemical industries through a contract 
with Iran.  According to ISNA, Turkmen President Berdimuhamedov 
asked his country's oil and gas industry to sign a $29 million 
contract with Iran's Pars Energy Company, allowing Pars to 
develop Turkmenistan's oil and gas industry. 
 
Iran, Russia gas relations 
 
-------------------------- 
 
6.(S//NF) When asked how Iran is managing its relationship with 
Russia, given the fact that on one hand it is looking for 
Russian backing to its nuclear program and on the other, it is 
trying to break Gazprom's stronghold over the European market, 
the analyst claimed that Iran puts on a show to keep Russia 
happy.  Specifically, he said, Iran has no interest in forming a 
gas OPEC with Russia but makes statements of interest to woo the 
Russians.  The source said that in general, Gazprom-Iranian 
relations are sensitive.  Russia would like Iran to focus on 
supplying the eastern market and leave Europe to Gazprom.  In 
light of this, it is noteworthy that in mid-February 2008, 
Iranian Oil Minister Nozari announced that Gazprom and Iran 
decided to jointly develop several phases of Iran's South Pars 
gas field.  While final agreements have not been signed, the two 
sides are reportedly in the process of concluding a deal.  The 
announcement came just one week after Iran had announced, what 
Russian press termed an "unpleasant surprise for Moscow," its 
possible participation in the Georgia-Ukraine-EU "White Stream" 
gas pipeline that will transport natural gas from the Caspian 
via the Ukraine to Poland.  Iran's Foreign Minister Mottaki had 
also indicated early February 2008 that Iran would potentially 
join the Nabucco gas project which will transport gas from 
Turkey to Austria. 
 
Iran, Azerbaijan gas swaps 
 
-------------------------- 
 
7.(S//NF)  According to the analyst, Iran's February 2008 deal 
with the State Oil Company of Azerbaijan (SOCAR) to receive gas 
in exchange for Iranian deliveries to the Nakhichevan exclave is 
simply a gas swap with little net gain for Iran. 
 
Iran sees advantages to synchronizing regional power grids 
 
--------------------------------------------- ------------ 
 
8.(S//NF) The analyst maintained that Iran has now concluded 
that it is more advantageous to export electricity to regional 
power grids than to try to export natural resources.  Energy 
Minister Fattah said February 19 that Iran and Russia signed a 
MoU to synchronize their electric systems, adding that "the port 
systems of Iran and Russia are technically very similar so that 
Iran's power grid can benefit its neighbors like Turkmenistan, 
Azerbaijan and Armenia."  Additionally, Iran is becoming an 
important supplier of electricity to bordering areas in Iraq. 
 
9.(S) Comment:  Perhaps because Iran knows that international 
pressure (as well as internal mismanagement) will end up killing 
some of its energy deals, it explores more export deals than it 
could fulfill, with current capacities.  Most likely the Gazprom 
investment in South Pars will serve a two-fold purpose:  1) 
appease Russia by allowing it to become involved in Iran's gas 
production and therefore a background player in Iran's projected 
cooperation in the Nabucco and White Stream projects; and 2) 
give Iran's gas sector a technological upgrade, thereby reducing 
 
RPO DUBAI 00000011  003.2 OF 003 
 
 
oversubscription. 
 
10.(S) Comment continued:  The results of the March 14 
parliamentary elections in areas hit hardest by the gas cut-off 
may indicate whether allies of Ahmadinejad suffered by 
association.  Elham's clumsy attempt to blame internal 
machinations for the gas cut-off seems a desperate attempt to 
shift blame away from the administration.  That said, Iranians 
tend to put great stock in conspiracy theories. 
BURNS