Iran + Russia + Venezuela = Dissent at OPEC Summit

On November 18, 2007, Iranian President Mahmoud Ahmadinejad said members of the Organization of Petroleum Exporting Countries (OPEC) have expressed interest in converting their cash reserves into a currency other than the rapidly depreciating U.S. dollar.

The meeting was held in the Saudi capital Riyadh, with heads of states and delegates from 13 of the world's biggest oil-producing nations, was the third full OPEC summit since the organization was created in 1960.

Ahmadinejad's comments at the rare OPEC summit meeting also highlighted the growing challenge that Saudi Arabia, the world's largest oil producer, faces from Iran and its ally Venezuela within OPEC.

Oil is priced in U.S. dollars on the world market, and the currency's depreciation is a significant source of concern to oil produces as it has played a role in the increase in crude prices and the decrease in the value of their dollar reserves.

Saudi Arabia's King Abdullah had tried make the environmental impact of the oil industry on the environment the topic of the summit, but faced continual interference from both Iran and Venezuela.

Iran and Venezuela proposed trading oil in a basket of currencies to replace the historic link to the dollar, but they had not been able to generate support from enough fellow OPEC members. Many OPEC members, such as Saudi Arabia, are U.S. allies.

Both Iran and Venezuela are currently at odds with the U.S., and their proposal may have political, as well as economic motivations. Iran is in a dispute with Washington over its nuclear program, and Venezuela’s President Hugo Chavez is an open critic of U.S. President George Bush. U.S. sanctions on Iran have made it increasingly difficult, if not impossible, for the country to do business in dollars.

A day earlier, Saudi Arabia opposed a move by Iran on Friday to have OPEC include concerns over the falling dollar included in the summit's closing statement after the weekend meeting. Saudi Arabia's foreign minister even warned that even talking publicly about the currency's decline could further hurt its value. But by Sunday, it appeared that Saudi Arabia had compromised.

Though the final declaration delivered Sunday did not specifically mention concern over the weak dollar, the organization directed its finance ministers to study the issue. Iran went a step further and said OPEC will form a committee to study the dollar's impact on oil prices and investigate the ramifications of a currency basket.

Algeria's Oil Minister, Chakib Khelil, said he would urge Russia, the second-biggest oil supplier, to join OPEC when he became president of the organization.

Russia attends OPEC meetings as an observer nation.

Khelil will become OPEC president on January 1, 2008.

Black Sea Oil Spill: Ukraine's Yanukovich Intervenes for Environmentalists

On November 11, 2007, the Volgoneft-132, a small Russian tanker, broke up and spilled between 1,300 and 2,000 tons of oil.

The result is that Russia's Black Sea coast could face an ecological catastrophe. Three seamen were drowned.

A search was under way for five others missing, though hopes of finding them alive were dwindling.

The spilled fuel oil coated birds in a thick black sludge along a vast expanse of coastline in the northern mouth of the Black Sea, near Russia's border with Ukraine.

Sunday’s storm sank the tanker and at least four freighters while crippling other vessels in the narrow Kerch Strait between the Black Sea and Azov Sea.

On Monday, rescuers found the bodies of three of the sailors missing since the storm. Helicopters and rescue vessels continued to search for the five seaman still missing, but with a new storm on its way later in the week, officials said hopes of finding them alive were dwindling.

Environmentalists, backed by Ukraine's Prime Minister Viktor Yanukovich, said the incident raised questions about safety standards for shipping in the region. This incident has the potential to exacerbate Russian-Ukrainian relations, which often become difficult as winter approaches.

Russian officials said the captains of several vessels had put to sea despite storm warnings. The tanker that was the source of the spill was built in the 1970s, and was not designed for heavy seas. At Novorossiisk, Russia's No. 2 port for exports of oil and oil products, officials had ordered tankers not to dock because a new storm was on its way later in the week.

Oil: Compulsion and Defiance

It is widely recognized that China and India have the potential to develop into economic superpowers in the 21st century. A key component of their growth is oil, which both nations are compelled to import.

This compulsion is not without its geopolitical costs, especially with oil prices at record highs. Iran and Venezuela, for example, can continue to enjoy more protection from outside political pressure as their oil revenues increase and non-oil producing nations find it necessary to come to terms with them.

In Russia, the lower house of Parliament voted unanimously in early November to suspend the country's participation in the Conventional Forces in Europe Treaty. This is yet another of Putin’s shows of defiance to the west. The higher demand for oil will lead to increased reliance by consuming countries like the U.S. and European allies on imports of oil and gas from the Middle East and Russia.

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Is America Using Iran In A Dangerous Game With Russia?

On October 25, 2007, the Bush administration announced sweeping new sanctions against Iran. These are the harshest since the takeover of the U.S. Embassy in 1979 as part of the Islamic Revolution led by Ayatollah Khomeini. America claims that Tehran supports terrorism in the Middle East, exports missiles and is engaging in a nuclear build up.

Secretary of State Condoleezza Rice, joined at a State Department news conference by Treasury Secretary Henry Paulson, said the moves against Iran's Revolutionary Guard Corps, an element of its defense ministry and three of its largest banks are designed to punish Tehran for weapons proliferation and alleged support of terrorist organizations in Iraq and the Middle East.

The sanctions will cut off more than 20 Iranian entities, including individuals and companies owned or controlled by the Iranian Revolutionary Guard Corps (IRGC), from the American financial system and will likely have ripple effects throughout the international banking community.

State-owned banks Bank Melli, Bank Mellat and Bank Saderat were named supporters of global terrorist groups for their activities in Afghanistan, Iraq and the Middle East.

Iran's Iranian Revolutionary Guard Corps and its Ministry of Defense and Armed Forces Logistics were designated proliferators of weapons of mass destruction and ballistic missile technology.

The IRGC is the largest component of Iran's military and has influence in business and other spheres. The defense ministry entity is the parent organization for Iran's aerospace and ballistic missile operations.

The Revolutionary Guards organization, formed to safeguard Iran's 1979 Islamic revolution, has pushed well beyond its military roots, and now owns car factories and construction firms and operates newspaper groups and oil fields.

Current and former members now hold a growing role across the country's government and economy, sometimes openly and other times in shadows.

The guards have gained a particularly big role in the country's oil and gas industry in recent years, as the national oil company has signed several contracts with a guards-operated construction company. Some have been announced publicly, including a $2 billion deal in 2006 to develop part of the important Pars gas field.

Now numbering about 125,000 members, they report directly to the supreme leader and officially handle internal security. The small Quds Force wing is thought to operate overseas, having helped to create the militant Hezbollah group in 1982 in Lebanon and to arm Bosnian Muslims during the Balkan wars.

The administration accuses the Quds Force of sending fighters and deadly roadside bombs, mortars and rockets to kill American troops in Iraq in recent years — allegations that Iran denies.

These sanctions come in the wake of a strong show of support of Iran by Russian President Vladimir Putin. Russia and the US are at odds over a system to defend against Iranian missile attacks. The US wants the system based in Poland and the Czech Republic, Russia wants it in Azerbaijan, and does not appear to be as convinced as the US as to why it is needed. Putin has also encouraged oil producing nations such as Iran to bolster their militaries against possible US aggression.

Russia Will Defend Its Oil

Russian President Vladimir Putin, responding to questions on a TV broadcast on October 18, 2007, continued his recent criticism of the United States.

Putin suggested that the U.S. military campaign in Iraq may have been attempt to seize its oil reserves. He said that resource rich countries such as Russia needed to have strong militaries to defend themselves against those who might try to steal their resources.

He also called for the U.S. to announce an exact date for the departure of troops from Iraq.

With respect to his own future, he said that Russia will have a different president next year. This would appear to lay to rest any notions that he would seek both a third term and constitutional crisis, but it was not clear what role he would play in Russia’s new government.

Warnings from the Caspian Summit

On October 16, 2007, Russian president Vladimir Putin met with Iranian President Mahmoud Ahmadinejad and implicitly warned the U.S. not to use a former Soviet republic to stage an attack on Iran.

At a summit of the five nations that border the inland Caspian Sea (Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan), Putin said none of the nations' territory should be used by any outside countries for use of military force against any nation in the region. It was am obvious reference to long-standing rumors that the U.S. has planned to use Azerbaijan, a former Soviet republic, as a staging ground for any possible military action against Iran.

Putin, whose trip to Tehran is the first by a Kremlin leader since World War II, also warned that energy pipeline projects crossing the Caspian could only be implemented if all five nations that border the Caspian support them. The legal status of the Caspian — believed to contain the world's third-largest energy reserves — has been uncertain since the 1991 Soviet collapse, leading to tension and conflicting claims to seabed oil deposits. Iran, which shared the Caspian's resources with the Soviet Union, insists that each coastal nation receive an equal portion of the seabed. Russia, Azerbaijan and Kazakhstan want the division based on the length of each nation's shoreline, giving Iran a smaller share.

Putin's visit took place despite warnings of a possible assassination plot and amid hopes that personal diplomacy could help offer a solution to an international standoff on Iran's nuclear program. Putin's trip was thrown into doubt when the Kremlin said Sunday that he had been informed by Russian intelligence services that suicide attackers might try to kill him in Tehran, but he ignored the warning.

Iranian Foreign Ministry spokesman Mohammad Ali Hosseini dismissed reports about the purported assassination plot as disinformation spread by adversaries hoping to damage the good relations between Russia and Iran.

Putin has warned the U.S. and other nations against trying to coerce Iran into reining in its nuclear program and insists peaceful dialogue is the only way to deal with Iranian defiance of a U.N. Security Council demand that it suspend uranium enrichment.

Iran's rejection of the council's demand and its previous clandestine atomic work has fed suspicions in the U.S. and other countries that Tehran is working to enrich uranium to a purity usable in nuclear weapons. Iran insists it is only wants less enriched uranium to fuel nuclear reactors that would generate electricity. Putin's visit to Tehran is being closely watched for any possible shifts in Russia's carefully hedged stance in the nuclear standoff.

Even though Russia has shielded Tehran from a U.S. push for a third round of U.N. sanctions, Iran has voiced annoyance about Moscow's delays in building a nuclear power plant in the southern port of Bushehr under a $1 billion contract.

Moscow also has ignored Iranian demands to ship fuel for the plant, saying it would be delivered only six months before the Bushehr plant goes on line. The launch date has been delayed indefinitely amid the payment dispute. Any sign by Putin that Russia could quickly complete the power plant would embolden Iran and further cloud Russia's relations with the West.

Is Turkmenistan Neutral?

Turkmenistan’s late President Saparmurat Atayevich Niyazov (1940-2006) created a personality cult that will survive him and probably several successors, including Gurbanguly Berdimuhammedow. The motto he established: Halk, Watan, Turkmenbashy (One Nation, One People, One Leader) can still be seen everywhere throughout Turkmenistan, from the most remote villages to monuments in the capital of Ashgabat.

Even though Berdimuhammedow has promised various reforms, it seems change is slow to come. The Internet is somewhat more available, but access is by no means widespread. One of the best indicators may be the Tolkuchka (“shoving”) market outside Ashgabat, where people come from all over the country to buy and sell, and the selection of carpets remains nothing if not spectacular. The problem, however, is that all but the smallest carpets require an export certificate, and these are still difficult to come by.

Turkmen Customs officials are friendly and have even been known to offer a traveller a drink of vodka, but they still search luggage looking for one thing in particular: carpets!

Turkmenistan’s future lies in its vast natural resources. Turkmenistan ranks fourth in the world to Russia, the United States, and Canada in natural gas and oil extraction. The Turkmenistan Natural Gas Company (Turkmengaz), under the auspices of the Ministry of Oil and Gas, controls gas extraction in the republic. Gas production is the youngest and most dynamic and promising sector of the national economy. Turkmenistan's gas reserves are estimated at 8.1-8.7 trillion cubic meters and its prospecting potential at 10.5. trillion cubic meters. The Ministry of Oil and Gas oversees exploration of new deposits. Sites under exploration are located in Mary Province, in western and northern Turkmenistan, on the right bank of the Amu Darya, and offshore in the Caspian Sea. Turkmenistan has always described itself as neutral, but this neutrality may not extend to oil and gas. In April 2003, Niyazov signed a 25-year gas deal with Russian President Vladimir Putin under which Russia gained the right to buy most Turkmen gas starting in January 2007.

In 2006, under the contract, Russia was to buy 7 billion-10 billion cubic meters of Turkmen gas. Then on 29 December, Aleksei Miller of Gazprom signed a new contract in Ashgabat to buy 30 billion cubic meters of gas from Turkmenistan in 2006 at $65 per 1,000 cubic meters. The result is a decidedly pro-Russian and anti-Ukrainian arrangement. Given Ukraine’s pro-European inclinations, the situation could become quite complex if things do not change.

What If Gazprom Becomes A Russian National Asset?

Gazprom is the largest Russian company and the biggest extractor of natural gas in the world.

With sales of US$ 31 billion in 2004, it accounts for about 93% of Russian natural gas production and with reserves of 28,800 km3, it controls 16% of the world's gas reserves. After acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels of reserves, ranks behind only Saudi Arabia, with 263 billion barrels, and Iran, with 133 billion barrels, as the world's biggest owner of oil and oil equivalent in natural gas.

By the end of 2004 Gazprom was the sole gas supplier to at least Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, and provided 97 percent of Bulgaria's gas, 89 percent of Hungary's, 86 percent of Poland's, nearly three-quarters of the Czech Republic's, 67 percent of Turkey's, 65 percent of Austria's, about 40 percent of Romania's, 36 percent of Germany's, 27 percent of Italy's, and 25 percent of France's. The European Union gets about 25% of its gas supplies from this company.

On July 4, 2007 the Russian State Duma passed a bill giving Gazprom and Transneft the authority to create their own security forces with greater powers than other private security firms. Gennady Gudkov, a deputy in the State Duma who opposed the bill, raised concerns by calling it a “Pandora’s box... This law envisages the creation of corporate armies. If we pass this law, we will all become servants of Gazprom and Transneft.” If Communist Party proposals for renationallization of certain assets are realized, Gudkov’s concern may be part of a larger issue as the newly formed security forces would have to be re-integrated with existing Russian security forces.

In June 2007, TNK-BP, a subsidiary of BP Plc agreed to sell its stake in Kovykta field in Siberia to Gazprom after the Russian authorities questioned BP's right to export the gas to markets outside Russia. On June 23, 2007, the governments of Russia and Italy signed a memorandum of understanding to cooperate on a joint venture between Gazprom and Eni SpA to construct a 558-mile (900 km) long gas pipeline to carry 1.05 Tcf (30 billion cubic meters) of gas per year from Russia to Europe.

The South Stream pipeline would extend under the Black Sea to Bulgaria with a south fork extending to Italy and a north fork to Hungary. Following the alleged violation of previous agreements and the failure of negotiations, on August 1, 2007 Gazprom announced that it would cut gas supplies to Belarus by 45% from August 3 over a $456 million debt. Talks are continuing and Belarus has asked for more time to pay. Although the revived dispute is not expected to hit supplies to Europe, the European Commission is said to view the situation “very seriously.”