EnVal: The Azeri exception for the Iranian sanctions explained

This is a recap of the EnVal, along with what we consider to be the highlight of energy geopolitics during the first two weeks of August. If you would like to receive the Enval in your inbox, every two weeks, please register your email here.

The U.S. confirms its interest and support for Azerbaijan becoming an alternative source of energy to Russia for both Turkey and Europe. The game however, is larger than that – the Caspian slowly becomes an interesting spot for energy geopolitics.
Meanwhile, in Europe, Bulgaria continues its plan to convince Russia’s Gazprom to build the Turkish Stream to its shores. In Croatia, the second round of the Open Season procedure for the planned Krk LNG terminal saw its deadline extended to September 28. This supports claims that the terminal construction is overly political and therefore too optimistic, considering realistic market conditions.
Another relevant piece of news coming at the beginning of August is the fact that the WTO issued its ruling against Russia’s claims on the EU Third Energy Package unfairly discriminating against Gazprom.
In Romania, we are closely following the making of the offshore legislation, considering the politics and negotiations around it.

The Azeri exception

The U.S. announced on August 6 that it will except the European Southern Corridor project from sanctions imposed against Iran. In the text of executive order, the waiver refers to the “Natural Gas Project Exception” (Sec. 10). The National Iranian Oil Company holds a 10% share in the second phase of Shah Deniz – the project that would effectively link the resources in Azeri offshore field in the Caspian Sea to European clients. The Southern Corridor is one of the EU backed strategic projects that would secure better energy security for Europe, diluting  European dependence on Russian energy.
The U.S. support is not unexpected. It’s not new that Washington has been supporting the development of Azerbaijan into an alternative energy source for Europe. More, the existence of a functioning alignment between countries in the Black Sea and the Caspian would come to the American interest in the region. It would contain potential risks following Russian resurgence and also help securing an important trade route: that from Asia into Europe. In the same time,  considering that the U.S. seeks a way out from the Middle East for some time now, it also understands Iran can only play a more important role on the longer term. Russia and Turkey will need to come to terms with that.
In the short term, we already see some indicators pointing to the raising importance of not only Iran but also Central Asia for the global energy geopolitics. On Aug. 12, the countries bordering the Caspian Sea reached an agreement on the body of water’s legal status. The status of the Caspian Sea has been debated ever since 1992, when the U.S.S.R disintegrated. The agreement covers not only maritime borders to fishing rights but, more importantly, the use of the Caspian Sea’s energy resources. The fact that the leaders of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan have now reached an agreement points to the fact that time has come to make better use of their resources, considering the business and geopolitical opportunities for them all. While the agreement points to their ambitions, it is founded on the will to overcome pressing socio-economic challenges that each of the signatory countries deals with at home.

If you would like to receive the Enval in your inbox, every two weeks, please register your email here.