Engineering News

Iran Seeks To Be Alternative Route for Caspian Oil
Wednesday, September 10, 2008

Iran is seeking to boost its role as a Central Asian oil hub after a competing route through Georgia suffered disruptions last month, a top Iranian oil official said Tuesday.

Mohammad Ali Khatibi, Iran's governor at the Organization of the Petroleum Exporting Countries, told Dow Jones Newswires plans to get more Caspian oil include building a new refinery and extending of its pipeline system to the Gulf of Oman.

Khatibi said "we believe our route is the best way (and) is safe" for Caspian oil, in contrast with Georgia.

Last month, Georgia's role as part of a safe, U.S.-supported alternative to Russian and Iranian transit routes was undermined during a conflict with Moscow. Russian aircraft apparently bombed the area of the Caucasian republic's pipelines, causing transit disruption. The same month the Baku-Tbilisi-Ceyhan, or BTC, pipeline which crosses Georgia was shut due to a fire on the Turkish side.

The Georgian events overshadowed worries about Iran's own supply risks - only a month earlier, oil prices had rocketed to a record $147 a barrel over concerns of an imminent strike on Iran by Israel or the U.S.

Sees Fourfold Increase In Transit Capacity

However, Iran now wants to take advantage of the Caucasus crisis to promote itself as a safer alternative for oil coming from the Caspian Sea region, which includes Azerbaijan, Kazakhstan and Turkmenistan.

Khatibi said Azerbaijan has already diverted some of its crude exports through Iran "because of the Georgia problem." However, an official at Azerbaijan's national oil company Socar said only one tanker of Azeri oil was exported through Iran and the BTC pipe remained the preferred route.

Iran is already bartering Kazakh crude - which it refines - in exchange for Iranian crude exported to Asian countries. It wants to expand that role by increasing capacity of the route where the Caspian oil transits from 100,000 barrels a day currently to 500,000 barrels a day.

Khatibi said Iran is in talks with potential investors in the expansion project and Korea, India, Malaysia, China and Japanese companies are interested.

"Western investors are also welcome," he said.

Going forward, Iran "is ready to build a pipeline from the Caspian in the north (of Iran) to the (Gulf) of Oman" in the south, the official said.

Khatibi said one route through several countries like the BTC pipe makes it riskier than Iran. In addition, this summer's Caucasus tensions with Russia were "only a starting point," he said.

Iran also wants to build a new refinery near the Caspian Coast, in the Mazandaran province, to refine Kazakh crude, he said.

Analysts Split On Plans

Some experts agree Iran can gain from the Caucasus disruptions.

Roger Tamraz, a businessman behind a predecessor project to BTC, said the Georgian "route is now vulnerable" as a business proposition.

"Sooner or later, the Caspian Sea (route) could come out through Iran," he said.

But some analysts are skeptical Iran can rebrand itself as a major alternative to Georgia.

"The difficulty that people have had with Iran relates to U.S. and international sanctions," said Julian Lee, a Caspian oil expert at the U.K.'s Center for Global Energy Studies. "If Iran builds the pipeline to the Gulf of Oman, the U.S. would put pressure on countries" using the Iranian pipelines as transit.

"Sanctions would prevent (western) companies from using the pipeline" which is an issue since the majority of foreign-owned oil production in Kazakhstan that might move southwards is in the hands of European and U.S companies, Lee said.

In addition, this week, Dubai said it would build a $200 billion canal to bypass the Strait of Hormuz that forms the mouth of the Persian Gulf. The route is used by Iran for its tankers, but the Islamic Republic has hinted it could block the Strait if the country is attacked.

Khatibi declined to comment on the Dubai announcement.

But "if the relationship (between the U.S. and Iran) was to improve...there would be much greater use of Iran as an export route," Lee said.

Source: Dow Jones Newswires

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