Energy diplomacy takes wing?

By Mahmood Khaghani for Trend

Iran Chamber of Commerce, Industries, Mines & Agriculture (ICCIMA) Education & Research Institute and the Research Institute for Energy Management & Planning (IREMP)- University of Tehran, the Founders of the Caspian Energy Grid (CEG), have welcomed, the Airbus A320 jet delivery to Iran on 12th Jan. 2017, which marks the first new plane delivered directly to Iran by a western manufacturer since 1979, and supported the EU based entity initiative, the International Research Network (IRN) for holding Iran Business Symposium (IBS) during 21-23 Feb. 2017 in Amsterdam, Netherlands.

The IBS is highlighting the fact about EU’s interest to do business with Iran. It is expected that a total of six A320 and three larger A330 aircraft will be delivered during 2017.

In the meantime, while Boeing has signed agreements to re-establish their long-standing relationship with Iran through the supply of a new fleet of aircraft, the implementation of this deal will remain uncertain until the administration of President elect Trump takes office next week.

The JCPOA Deal

Trump’s pre-electoral promise to renegotiate the deal that he referred to as “disastrous,” has long since been quietly forgotten – like much of his campaign rhetoric as the Presidential transition process and the appointment of a Presidential team takes place.

The position of the EU is clear that such a multilateral deal cannot be unilaterally abrogated and retired General James N. Mattis as Donald Trump’s Secretary of Defence, despite having negative views on Iran, has defended the deal. According to news media in a recent speech, the retired Marine Corps General explained, "I don't think that we can … take advantage of some new [president] - Republican or Democrat - and say, well, we're not going to live up to our word on this agreement. I believe we would be alone if we did, and unilateral economic sanctions from us would not have anywhere near the impact of an allied approach to this."

It is further reported that this view is shared by Senator Bob Corker and others who accept the finality of the Iran deal, (JCPOA), as a broad multilateral agreement involving the five permanent members of the United Nations Security Council and Germany (the so-called P5+1), along with the European Union.

Review or Reinforcement

The most crucial position for US international relations is that of the US Secretary of State provisionally – subject to Senate approval – Rex Tillerson, until recently the CEO of ExxonMobil. During his recent confirmation hearing on January 11th before the Senate Foreign Relations Committee, Tillerson said that he would recommend a "full review" of the nuclear deal between Iran and world powers.

I asked Chris Cook, Senior Research Fellow of University College London who pioneered the idea of CEG, what Tillerson meant by 'full review', since this expression received a universally negative reception in Tehran.

Mr Cook explained: “The expression 'full review' is ambiguous and is carefully addressed to Mr Tillerson's Senate audience many of whom are extremely hostile to Iran. Mr Tillerson is a very astute businessman with long experience of negotiation with heads of state. He is more aware than anyone of the binding nature of contracts and the fact that the JCPOA is non-negotiable.”

He added: “Tillerson will in my view carefully reconsider (as would anyone taking up such a post) every aspect of the existing JCPOA deal. Only then will he be in a position to decide what additional agreements should or could be negotiated bilaterally with Iran.”

The question is would Iran accept to enter any bilateral negotiation with USA? Mr. Cook replied: “Note that the President Elect prides himself on negotiation; published a book called the “Art of the Deal”; and was highly critical of the Boeing deal during the campaign. I am certain he would welcome an additional round of bilateral trade negotiations in parallel with routine ongoing discussions within the JCPOA framework.”

So, what it would mean for Tehran? He responded: “In other words, Tillerson's language was aimed at a sceptical Senate audience and appears to me to be an opportunity for Iran, not a threat.”

Opportunity or Threat

I can testify that the election of President Trump was as much a surprise in Iran as it was everywhere else. Now that the President-elect's appointments are almost complete, there is a great debate in Tehran as to whether President Trump represents an opportunity or a threat to Iran.

My career in Iran's Petroleum Ministry (NIOC) included senior level posts including Director General for Caspian Sea Oil & Gas Affairs during the exciting period following the break-up of USSR. This provided me with opportunities to gain experience through the framework of the regional Economic Cooperation Organisation (ECO) during which Iran developed a constructive doctrine of energy co-operation which came to be known as Energy Diplomacy.

I take an optimistic view that Iran may extend successful energy diplomacy with the EU to the US on a win-win basis. Why?

ExxonMobil and the Fifth Fuel

At a workshop during summer 2016 at ADA University in Baku, the R. Azerbaijan, I was pleased to once again meet U.S former extraordinary ambassador to the Caspian region, Steven Mann with whom I had engaged as a friendly but tough adversary many times during his US diplomatic service, and who is now advising ExxonMobil’s regional operations.

During his presentation Ambassador Mann referred to the Fifth Fuel, which is an expression describing savings to be made from efficiencies in energy production. It seemed to me from my energy engineering background that the Fifth Fuel is better seen as a form of intellectual energy now fuelling 'smart' energy production, transmission and use.

Energy as a Service

As an Advisor to ICCIMA Education & Research Institute and the RIEMP- of Tehran University, I was privileged to attend the World Energy Congress (WEG) in Istanbul in October 2016.

I was struck by the view expressed at WEC by David Hobbs, (Head of Research of King Abdullah Petroleum Studies and Research Centre), that the market for electricity as a commodity has failed and that a market for electricity as a service is now emerging. 'Energy as a Service' put into words the market mechanisms for energy diplomacy which I was involved in initiating while in office.

The first of these became known as the Caspian Oil Swap and comprised the supply of Russian, Kazakh, Turkmen and Azeri oil into northern Iran in exchange for oil delivered by Iran from the Persian Gulf. Secondly there was the concept of a swap of natural gas into Armenia for a supply of electricity into Iran and finally a swap of natural gas supplied to the Nakhchivan Autonomous Republic for natural gas imported into Iran from the Republic of Azerbaijan.

This was described at the time as Energy for Peace – which is an expression I optimistically believe, may be used again on a bigger stage within the frame work of Caspian Energy Grid which was first launched in Tehran by aforementioned founders on 20th June 2016, then by their European partner, Petro Scotland in London on 14th July 2016.

Now I am happy to say that President Rouhani’s administration has begun to extend such energy swaps in new ways and Iran Ministry of Energy has positive views on the concept of CEG and has signed MOUs with Iran’s Northern Neighbours on the idea of creating Energy Corridors. Iran Ministry of Petroleum has also taken needed steps for reactivating Caspian Oil Swap deals as well as natural gas swaps. I am also of the view that if the government of Turkmenistan realises the benefits of energy cooperation with Iran then Energy Swaps may take place within a framework of CEG and Energy as a Service, these could extend to exchanges of gas for petrochemical products or participation through partnerships with Iran’s privatised petrochemical industry or power generation projects.

Smart Swaps

Collaboration has been ongoing for some time between influential Iranian and EU as well as UK research institutes to develop smart policies aimed at resource resilience, and this was the reason for my presence in Baku and my coincidence of views with Ambassador Mann.

Iran Supreme Leader has guided government for adopting policy of Action and Implementation in line with what is known as Moghavem Economy which is equivalent to Resilient Economy. I asked Chris Cook to explain what is meant by Resilient Economy that in his view means Resource Resilience and how the Fifth Fuel may be the subject of 'Smart Swaps'?

“Simply put, resource resilience is based upon sustainable self sufficiency and independence in crucial resources such as water and energy. The importance of policies which implement an organising principle of 'least resource cost' – rather than least $ or € cost – has been recognised by leading Iranian energy experts for some time.”

He further said: “My research established that as long ago as 1778 the Scottish inventor James Watt supplied his innovative steam engine to UK tin mines in exchange for a third of coal savings. I like to think that what James Watt actually supplied was the Fifth Fuel (intellectual energy) by introducing Pumping as a Service in exchange for the energy value of carbon fuel, rather than simply selling his steam engines for £ sterling profit. I see such a Smart Swap as an example to be developed and implemented throughout the region in the absence of conventional.”

Energy Efficiency = the Fifth Fuel

The relevance of Smart Swaps to Iran was demonstrated during my conversation earlier this year with Iran's Deputy Energy Minister, H.E. Falahatian. He explained that he could double the efficiency of much of Iran's generation fleet (with payback in less than two years even at Iran's subsidised prices) if only he had the billions of Dollars or Euros necessary to acquire state of the art technology.

Iran is quite rightly unwilling to support the dollar banking system or the € system with Petrodollars or Petro Euros created by bank debt funding. Falahatian was therefore very interested in the possibility of a Smart Swap of Western technology (the Fifth Fuel) for a share of the value of Iranian gas savings.

Sanctions, a strategic failure

It is widely recognised in Tehran that without US physical sanctions Iran would not have been as successful in developing industrial and intellectual capacity (the Fifth Fuel). Moreover, some also believe that US financial sanctions acted to prevent an outflow of hard currency from Iran by corrupt members of the previous administration who are now under investigation. This would have drained Iran economically in the same way that post-Soviet looting destroyed the Russian economy. In other words, the US sanctions regime was a tactical success, insofar as it led to negotiations, but was a strategic failure on a historic scale.

Private Sectors Economic-Business Diplomacy

While the outgoing President Obama declined to sign Iran sanctions renewal, friends I have consulted with diplomatic experience in Tehran believe that an additional bilateral deals particularly between private business sectors of the US and Iran is not inconsistent with the JCPOA. Virtually everyone to whom I have spoken, with the exception of a few with vested interests in continued sanctions, are of the view that if Secretary of State Tillerson (or his replacement) is willing to negotiate in a rational, business-minded and objective way, he will be well received in Tehran’s business communities.

As an energy diplomat of long-standing myself, I believe that Rex Tillerson is well placed to lead pragmatic commercial engagement between US and Iran. While competition and conflict may remain in many areas of political and religious ideology, all nations have a common interest in reducing use of finite resources and a common understanding that the more expensive finite resources become then the more profitable it is to save them.

I have long believed in energy & business for peace, and I look forward to the organisation of Iran Business Symposium in USA or Tehran in years to come at which high level US officials and business men may participate in fleshing out a transformative and truly smart deal between our two great nations.

Recent Developments

Finally, I asked Mr Cook his view of the potential effect of the recent tragic death of Ayatollah Hashemi Rafsanjani.

“I believe that Ayatollah Rafsanjani's passing creates a vacuum which may be filled either positively or negatively. The global oil market has recently passed a historic turning point or point of inflection and I do not believe we will see oil prices sustained over $50/barrel in the future. This limits the scope for competition and conflict for $ profit and I take the optimistic view of a positive outcome through a new era of 'least resource cost' energy co-operation.”

I further asked him to explain what he means?

“If I am right – and this is a point I outlined briefly to the Secretary of the Council of Expediency, H. E. Rezaei a few years ago in Tehran – then Iran is perfectly placed to mobilise the immense productive capacity, revolutionary fervour and remarkable reserves of the Fifth Fuel to develop and build out throughout the region an energy infrastructure which is fit for the 21st Century”, and support ideas and concepts like CEG.”

In conclusion, my optimistic view is that Mr Cook is indeed correct, and that the next President of Iran, whoever it may be, could have a historic success if he takes the path of Energy for Peace to create a Resilience Economy for Iran. I hope that the first Boeing plane delivered to Iran may carry a US private business delegation which shares that view.

Mahmood Khaghani, now retired, has over 33 years of work experience at senior international positions of Iran's petroleum industry, including as the head of the Oil Ministry's Caspian Sea and Central Asia Department, as well as business development and joint ventures advisor of Iran's North Drilling Company. He was also the director for energy, minerals and environment at the ECO Secretariat in 1996-2000.

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