Vladimir Putin Signs Historic $20bn Oil Deal with Iran to Bypass Western Sanctions

Five-year accord will see Russia help Iran organise oil sales, but government denies it has violated international obligations.  Vladimir Putin has agreed a $20bn (£11.8bn) trade deal with Iran that will see Russia sidestep Western sanctions on its energy sector.

 Despite the sanctions, Iran has been looking to boost oil production in recent months, setting a new output target of 5.7m barrels per day (bpd) of crude by 2018 Photo: AP


Despite the sanctions, Iran has been looking to boost oil production in recent months, setting a new output target of 5.7m barrels per day (bpd) of crude by 2018 Photo: AP

August 12, 2014
By Andrew Trotman
Article from Telegraph

 

Under the terms of a five-year accord, Russia will help Iran organise oil sales as well as “cooperate in the oil-gas industry, construction of power plants, grids, supply of machinery, consumer goods and agriculture products”, according to a statement by the Energy Ministry in Moscow.

The Russian government issued a new statement on Wednesday after mysteriously withdrawing a similar release on Tuesday.

Russian Energy Minister Alexander Novak said on Wednesday that his government will help Iran bring its oil to market. In return, Iran wants to imort power and pump equipment, steel products such as pipes, machinery for its leather and textile industries, wood, wheat, pulses, oilseeds and meat.

Iran “is also interested in the joint construction of power generation and development of coal deposits”, Mr Novak added.

Further talks between the two countries will take place next month, he said.

A deal could see Russia buying 500,000 barrels of Iranian oil a day, the Moscow-based Kommersant newspaper has previously reported. That would be about a fifth of Iran’s output in June and half its exports.

There’s a question over “how substantive this memorandum is”, Richard Mallinson, an analyst at Energy Aspects in London, told Bloomberg. “There would be various practical limitations in terms of Iran’s current production capacity, geography and shipping logistics, as well as US sanctions.”

The move is a win-win for both nations after they were hit with Western sanctions aimed at limiting their energy sectors.

The European Union recently unveiled a raft of measures to restrict certain oil exploration and oil drilling related products in Russia after what President Barack Obama called the country’s “illegal actions” in Ukraine. Russia’s prescence in the Eastern European country reached a watershed moment last month when Malaysia Airlines Flight MH17 was allegedly shot down by rebels sympathetic to Mr Putin’s government, killing all 298 people on board.

On Tuesday, the Russian President told regional leaders that “the political tools of economic pressure are unacceptable and run counter to all norms and rules”, adding that he had given orders to boost domestic manufacturers at the expense of non-Russian ones.

Meanwhile, Iran has faced sanctions due to its reluctance to end a controversial nuclear programme. The country has been locked in talks with six world powers – Britain, China, France, Russia, the US and Germany – to reach an understanding, with an interim deal to lift a ban on sales to the EU and limiting them to Asia agreed in November. However, since then talks have stalled, causing Iran’s petroleum exports to halve in the past two years, according to OPEC.

Despite the sanctions, Iran has been looking to boost oil production in recent months, setting a new output target of 5.7m barrels per day (bpd) of crude by 2018 – OPEC believes Iran is currently pumping about 3m bpd of crude. However, it needs the help of international oil companies, and Russian energy firms have repeatedly expressed an interest in teaming up with Iran.

Alexander Novak, Russia’s minister of energy, said an agreement would not violate international obligations and is important given the current “reality”.

The White House has previously said that reports of talks between Russia and Iran were a matter of “serious concern”.

“If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the agreement with Iran,” Caitlin Hayden, spokeswoman for the White House National Security Council, said in January.

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