CORRECTED – Q&A-What are Russia’s energy interests in Iran?

(Corrects story published on July 22 to show in second
paragraph that the Bushehr plant is not at the crux of Western
fears about Iran’s nuclear programme)

MOSCOW, July 22 (BestGrowthStock) – Russia, the world’s largest oil
producer, must carve a careful path between its efforts to
improve ties with Washington and its historic relationship with
Iran, a fellow oil and gas power.

WHAT IS RUSSIA DOING IN IRAN’S ENERGY SECTOR?

Russia is building Iran’s first nuclear power station near
the Gulf port city of Bushehr and Russian officials say the
reactor at the plant will be started up within months.

Russia says the $1 billion Bushehr reactor is purely for
civilian electricity supply and Iran will have to return all
spent nuclear fuel rods to Russia under the deal.

Inspectors from the United Nations nuclear watchdog, the
International Atomic Energy Agency, will monitor any movement of
uranium from the plant.

But President Dmitry Medvedev recently said Iran was close
to acquiring nuclear weapons, sparking speculation that Russia
was distancing itself from Iran.

In hydrocarbons, state-controlled Gazprom’s (GAZP.MM: )
contribution to a $2 billion consortium investment in Iran’s
giant South Pars gas field is a major cross-border investment.

Its oil arm also has a memorandum of understanding to
develop two Iranian fields.

But Gazprom has indicated that deals can be finalised only
when it is not at risk of sanctions.

One Russian company was engaged in business specifically
targeted by the sanctions regime — LUKOIL (LKOH.MM: ), the
country’s No.2 oil producer. Earlier this year it ceased
deliveries of petrol (gasoline) to Iran, leaving Tehran bereft
of a key supplier of the fuel it subsidises heavily.

WILL THE THREAT OF SANCTIONS DRIVE RUSSIA OUT OF IRAN?

LUKOIL is an example of a Russian company with extensive
business in the United States. It has 2,000 U.S. petrol
stations, with its logo on pumps just a few kilometres (miles)
from the White House, as well as a large investor base including
U.S. institutions.

“It is clear that this law is designed to force foreign oil
and energy companies to chose between doing business in the
United States and doing business in Iran,” said Dechert partner
Tom Bogle, a Washington lawyer who practices in the area of U.S.
sanctions.

Iran is also pressing its partners to choose. Last week, the
National Iranian Oil Company announced it would blacklist
companies that abandon their business with Tehran, starting with
LUKOIL.

Whether the U.S. administration would take action against
Russia, a valued back-door channel to Tehran, is an open
question, however,. The U.S. president can waive sanctions if he
can argue it is in U.S. national interests.

“Even prior to its adoption, the support that was given by
Russia and China to the Security Council on the next wave of
sanctions would support a finding by the president to invoke
waiver authority,” Bogle said.

“My own instinct is that it would be likely to do so … You
can’t enhance multinational efforts against Iran without support
from Russia,” he added.

DOES RUSSIA NEED IRAN?

Russia took steps to soothe Tehran last week when Oil
Minister Massoud Mirkazemi came to Moscow to meet Russian Energy
Minister Sergei Shmatko and sign a “road map” for energy
cooperation, preserving a key diplomatic link.

Closer to Russia’s own heart — and its state coffers — are
Iran’s gas reserves and its potential role as a rival supplier
to Europe.

“As long as Iran remains in the corner, Nabucco cannot be
implemented. But if things change on this front, that might be a
major headache for Russia,” said Sergei Lukyanov, editor of
Russian in Global Affairs magazine.

Russia, which supplies a quarter of Europe’s gas, has
repeatedly said the European Union-backed Nabucco, a rival to
Russia’s South Stream pipeline project, lacks gas to become a
+commercially viable project unless Iran joins it.

SO RUSSIA IS TAKING THE LONG VIEW?

If Iran’s Russian partners are looking far enough ahead,
they may be contemplating a different political landscape and
opportunities unencumbered by sanctions.

Russia may simply be hoping that, by maintaining friendly
ties with the current political regime, as it tried to do with
Saddam Hussein’s Iraq, it might be first in line to develop
Iran’s untapped resources when the sanctions threat lifted.

“Not only Russian but all international companies will step
up, and it will be the same as in Iraq,” Troika Dialog analyst
Valery Nesterov warned. “It will be very strong competition.”

Stock Market Basics

(Reporting by Melissa Akin and Dmitry Zhdannikov, editing by
Jane Baird)

CORRECTED – Q&A-What are Russia’s energy interests in Iran?