Prospects and challenges of the Russian gas pipeline to Iran
By Sabina Alizade
In June 2024, the Russian company Gazprom and the National Iranian Gas Company (NIGC) signed a strategic memorandum to develop the supply of Russian pipeline gas to Iran. The signing took place on June 26 during a visit by Gazprom's CEO Alexei Miller to Tehran.
Gazprom already has experience cooperating with Iran in the development of gas fields and swap gas supplies. In 2022, the companies signed a memorandum of strategic cooperation worth $40 billion, including field development and the construction of LNG plants. However, it was only in 2024 that the parties managed to sign a document forming the basis for larger agreements.
At first glance, the idea of supplying gas from Russia to Iran might seem paradoxical, given the Islamic Republic's rich gas reserves. However, several factors make this project logical and promising.
Firstly, Iran faces an imbalance in the distribution of its gas resources: most gas production is concentrated in the south of the country, while consumption is in the north. This requires reliable infrastructure for gas transportation between regions.
Secondly, the growing demand for gas in India and Pakistan makes Iran an attractive transit hub for the transportation of Russian gas. Iranian infrastructure can be used to deliver gas to South Asia.
The main problem in implementing the project is the limited infrastructure. The existing infrastructure allows for the supply of only small volumes of gas, making the construction of a new main gas pipeline necessary. Possible pipeline routes include laying it along the bottom of the Caspian Sea or using existing infrastructure in Azerbaijan. Given the swap operations between Russia, Azerbaijan, Iran, and Turkmenistan, the latter option seems especially attractive.
Motivations for implementing the project of supplying Russian gas to Iran include the growing demand for gas in India and Pakistan, as well as the elimination of internal gas distribution imbalances in Iran. These factors could contribute to the project's long-term success.
Cooperation between Russia and Iran in the gas sector has enormous potential and could lead to significant economic and geopolitical changes in the region. The signed memorandum opens new horizons for both countries but requires additional efforts to overcome logistical and negotiation challenges. Successful project implementation could turn Iran into a regional gas hub and strengthen Russia's position in the international energy market, ensuring gas supply stability and security.
Igor Yushkov, an expert from the Russian Financial University and the National Energy Security Fund , noted that the construction of an oil pipeline through Iran was also being discussed and could be beneficial for Russia.
"Currently, India is the largest buyer of Russian oil delivered by sea. Additional oil pipelines would certainly benefit China, but it is also important to enter the Indian market," he said.
Yushkov explained that it would be beneficial for Russia to reduce transport distances, cross the Black Sea straits and the Suez Canal, and immediately enter the Indian Ocean.
"The Persian Gulf would become the shortest transport route. Thus, a corridor passing through Azerbaijan and Russia would be useful for Russia. This issue was discussed at the governmental level, and even Rosneft announced negotiations on the supply of oil to Baku refineries.
Cooperation with Azerbaijan could be beneficial for both parties: Azerbaijan could increase its oil exports by buying Russian oil at lower prices and selling its products at higher prices. This would allow Russia to reduce transportation costs. However, currently, the pipeline capable of delivering Russian oil to Baku refineries also transports oil from Russia, Turkmenistan, and Kazakhstan. Oil is transported by tankers to Makhachkala and then to Novorossiysk. This part of the pipeline should work in the opposite direction—from north to south—but it actually works the other way—from south to north," the expert noted.
Yushkov added that it makes sense for Russia to turn the pipeline to the south.
"This will be not only for Baku refineries but also for transit to Iran. However, for this project to be implemented, an agreement must be reached at least on a trilateral basis. Iran independently increases oil exports and is close to its sanctioned production and export volumes. Therefore, it is not a given that Iran will agree to become a transit party for large volumes of Russian oil," the expert stated.
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