The Oil and Gas Factor

Under the waters of the Persian Gulf between Iran and Qatar and traversing the territorial boundaries of the two countries lies the world’s largest natural gas field, called South Pars in Iran and North Field in Qatar. Covering a total area of 9700 square kilometers, 3700 square kilometers of the field lies in Iranian territorial waters and the other 6000 square kilometers in Qatari waters. But Qatar extracts as much as three times natural gas from the field as Iran does and has plans to significantly expand its extraction capacity. In 2011, Iran’s daily revenues from gas condensates were estimated at $30 million, whereas Qatar’s revenues were estimated at $120 million. For the year, Qatar’s total income from South Pars was estimated at $37 billion.50

While the Iranian section of the joint field was discovered in 1998, it was not until 2008 that the first exploratory well was drilled. Throughout the 2000s, sanctions, bureaucratic red tape, and other economic, political, and diplomatic issues considered more urgent kept Iran’s LNG project from getting off the ground, whereas, as one report put it, “there is no stopping the Qatari LNG train.”51 As a result, for several years now Qatar has been the world’s largest exporter of LNG. It should be mentioned that while the disparity between Iran and Qatar in extractive capacities is highly acute in the South Pars field, it is not unique. According to one study by the Majles, Iran’s parliament, of the 28 oil and gas fields that Iran shares with its neighbors—most notably with Oman, Saudi Arabia, Kuwait, the UAE and Iraq—it lags no less than nine times in extractive capacities as compared to the others.52 In 2012, Iran’s oil minister Rostam Qasemi at time predicted that Iran will be able to match Qatar’s extraction of the South Pars field by March 2014.53 Qasemi’s prediction turned out to be far off the mark. With the coming to office of the Rouhani administration in 2013, Iran renewed its efforts to develop South Pars, pledging to outpace Qatar in extracting gas from the field by 2018.54 Whether this pledge is also realistic or attainable is an open question.

Much of the reason for promises by Iranian leaders to develop the South Pars field is the keen awareness among petrochemical and financial experts that Iran is “left behind by Qatar in the production of LNG.”55 These disadvantages, according to a number of Iranian experts, include the near impossibility of entering into joint ventures with multinational oil giants and tapping into their needed technical expertise, the absence or inadequacy of domestic exploration and export capacities, the country’s Byzantine and notoriously slow bureaucracy, and Qatar’s early-starter advantage in exploiting the South Pars field.56 A 2012 report put Iran’s extraction of crude oil from the South Pars’ oil layer at less than 35,000 barrels per day (bpd) at a time when Qatar was “exploiting the oil layer at an astonishing rate,” estimated to be as much as 450,000 bpd. At the time, this amounted to 60% of Qatar total exports of crude oil of 757,000 bpd.57 By 2012, a pipeline for Qatari LNG to the UAE and Oman alone carried 20 billion cubic meters of natural gas, more than twice the amount of Iran’s LNG exports to Turkey and Armenia.58

While Qatar enjoys the early-starter advantage, Iran faces a number of domestic and international restrictions in its efforts to develop the South Pars field. Oil Minister Qasemi summed up the restrictions Iran faces well: “Working under sanctions requires special capabilities. We have to manufacture equipment domestically or order other countries to manufacture for us. Moreover, financial transactions are difficult.”59 In 2010, after nine years of negotiations between Iran and two Western oil companies, Shell and Repsol, over the development of Iran’s extractive capacity in the South Pars, the two companies called off the negotiations and decided not to take part in the joint venture due to the comprehensive sanctions imposed on the country. In 2011, Iranian media reported that despite the signing two years earlier of a $5 billion contract between the National Iranian Oil Company (NIOC) and the China National Petroleum Corporation (CNPC), CNPC continued to delay starting work on the gas field, claiming financial, legal, and technical restriction in launching the project.60 Delays and the withdrawal of the companies faced Iran with serious restrictions in the areas of financing and technology, forcing NIOC to look to domestic sources and contractors to try and develop the gas field, all of which were invariably connected to the state and none of which was particularly efficient or had the needed technological resources.61

Not surprisingly, Iran’s printed media is replete with articles critical of Qatar’s aggressive extraction of oil and gas from South Pars at Iran’s expense. Indirectly, many of the articles also criticize Iranian authorities for their inability to match Qatar’s extractive abilities: Qatar produces six times as much from the South Pars as Iran does;62 Iran is losing the competition with Qatar over South Pars;63 Iran hasn’t sold a single cubic meter of gas, whereas Qatar has sold tens of billions of cubic meters;64 Iran is ten years behind Qatar in developing its facilities in the South Pars field;65 and Qatar has taken $100 billion worth of Iranian gas from the South Pars.66

These and other similar pressures prompted the incoming Rouhani administration to install a new management team in the oil ministry and to bring back the veteran oil minister Bijan Zangeneh, known for his effective management of the ministry. Iran soon launched an ambitious campaign to increase its presence and extraction of LNG from the South Pars field, by 2013-2014 installing at least four more platforms on the gas field than Qatar had done.67 By mid-2014, Iran had increased its gas production from South Pars by 14%, with Zangeneh predicting that Iran’s LNG production will multiply by many folds within a matter of a few years.68 By the end of 2014, the Islamic Republic had also increased its operating drilling rigs in the South Pars to a total of 17 as compared to Qatar’s 6.69

Regardless of what the future holds for the South Pars gas field in terms of Iran’s extractive capacities, so long as LNG remains critical for Qatar’s continued economic development, the small emirate is likely to pursue a pragmatic, ostensibly friendly relationship with its much larger neighbor to the north. Qatar’s overall hedging strategy and its specific relations with Iran are as much a product of the geostrategic conditions in which it finds itself as they are a result of deliberately crafted policies by its leaders. For Qatar, realistic pragmatism dictates a non-confrontational, largely friendly, albeit superficial relationship with Iran.

Iran finds itself close to Qatar for pretty much the same reasons. It has nothing to gain from frictions with Qatar—therefore its leaders avoiding direct criticism of Qatar over Syria or the South Pars—and much to benefit from through maintaining warm ties with the emirate. In addition to Oman under Sultan Qaboos, Qatar offers Iran a useful friend in a region where most states view the Islamic Republic with suspicion and apprehension. In international relations, after all, friends, even if superficial in their friendship, are more advantageous to have than adversaries.

 
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