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Turkey and Iran may resolve their energy differences come this November with a new deal that proposes to create a production accord to invest in the development of Iran’s natural gas reserves in their South Pars field.
Turkey was earlier opposed to the creation of a pipeline that would transfer gas from Iran to Europe. Under the new agreement, Turkey’s state owned petroleum company TPAO would explore Iran’s South Pars field and transfer gas to Turkey for consumption and re- export to European markets.
The United States is against the deal as it seeks to isolate Iran over its nuclear program.  

The possible revival of a Saddam-era oilfield deal between Iraq and China has given hope to top oil multinationals over the potential of getting contracts giving them access to Iraq's vast untapped resources.

The deal, like others made by Saddam Hussein was effectively frozen by international sanctions and then by his overthrow.

The news that Iraq's oil ministry is thinking of awarding China the first foreign contract to develop oil resources has given heart to western oil majors that Baghdad is opening up and looks ready to honor its contract rather than handing over the al-Ahdab field to the US, which has 142,000 troops in the country.

After the US led invasion in 2003, US firms won most of the big infrastructure deals and European firms feared that the same would happen with Iraq's oil wealth.

This deal, worth some $700 million, could be a beginning for other Chinese companies and a door opener for other development deals. Iraqi oil minister al-Shahristani is expected to visit China, Japan and Australia to discuss oil investment projects.

The oil minister favors centralized control of Iraq's oil, but a new constitution gives autonomous federal regions a role in

developing resources. There might be a political message in his overture to China signaling his centralization goal to the Kurdish regional government in the north which has struck deals with many independent oil exploration companies.

The government has given priority to the Ahdab oilfield because of its proximity to new power stations and refineries. It expects output to increase from 30,000 barrels per day to full capacity of 90,000 over two years.

Though Russia's Lukoil did not comment, analysts say that if Baghdad were to validate the West Qurna oilfield deal, Lukoil would be willing to start work again.

While multinationals will not sign multibillion dollar contracts until an investment law is in place and security improves, a western executive says that the Chinese "don't give a damn whether there's an investment law to protect them" and "don't have the same incentives on profitability as the international oil companies."

The major oil companies are confident that the fields they would like to work on will not be assigned to rival companies from India or China, as the Iraqi government is aware that it needs the technology and finance that international oil companies bring.

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The US government's independent inspector on Iraqi reconstruction reported that Iraq's largest industry, the oil sector, has lost $US16 billion in oil export revenue over a 2 year period and insurgent attacks on the country's energy infrastructure have prevented it, in part, from maintaining adequate electricity supplies.

"A number of factors, including attacks, aging and poorly maintained infrastructure and criminal activity are adversely affecting Iraq's ability to develop a viable energy sector," said Inspector General for Iraq Reconstruction Stuart Bowen.

In an unclassified summary Bowen said that these factors are working together to hold down Iraq's oil exports and the availability of electricity.

The oil sector in Iraq which was expected to be a big revenue raiser for the rebuilding of Iraq, has been subjected to repeated attacks on its pipelines and oil export facilities.
Iraq is paying billions of dollars to import gasoline and other refined petroleum products for its people, in spite of owning huge oil holdings.

The US has invested about $320 million to help Iraq improve its capability to protect its oil and electricity infrastructure.
Bowen noted that in addition to the initiatives Iraqi leaders are taking to enhance security and performance of the oil and electricity infrastructure, they also need to take "bold action" to protect energy sites in the country.

Iraq's oil production is far below pre-war levels when Iraq pumped between 2.8 million and 3 million bpd. Currently the country's oil exports have been running at almost 1.7 barrels a day.

Iraq needs investments by foreign energy companies in its underdeveloped and undiscovered fields to boost its oil production.
Iraq claims to need up to US$20 billion in investment to reach oil production limits of 6 million bpd.

However, many foreign companies are apprehensive about doing business in Iraq due to the ongoing violence.

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A deal between Iran and Sinopec for developing a major Iranian oilfield will be finalized in the next 2 months, Iran's deputy oil minister stated.

Deputy Oil Minister Mohammad Hadi Nejad Hosseinian was quoted as saying "The talks will be finalized in less than two months and the contract will come into effect two months later."

Sinopec agreed in October 2004 to take the lead in developing the Yadavaran field and to buy 10 million tons of LNG a year for 25 years.
But the finalization of the deal, in the manner of other Iranian energy contracts with foreign firms had been subject to protracted negotiations and delays. Disagreements over pricing for the deal were behind a previous delay.

The Yadavaran oilfield is estimated to have 3 billion barrels and is expected to produce 300,000 bpd, around the same amount of crude that China currently imports from Iran.
The deal worth as much as US$100 billion if signed could draw fire from the US.

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Crude oil dipped to below $60 a barrel at $59.80 after Iranian President Ahmadinejad said that Iran is open to discussing "everything" if the US stops its threats against the country.

Crude oil for November delivery fell by 61 cents, or 1 percent, to $59.94 a barrel in after-hours electronic trading on the Nymex.

Hedge-fund managers and other large speculators cut their long positions, or bets prices will rise, by 39 percent in the week ended Sept. 19. Traders with long positions outnumbered short positions by 22,498 contracts on the Nymex.

BP's announcement that it expects to resume production of about 150,000 barrels a day from the eastern field in a week's time is also expected to have helped in the price drop.

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Reliance Industries from India announced that its natural gas reserves could yield as much as 50 trillion cubic feet and that it was bringing forward the start up of a new refinery it had planned by 6 months.
Additionally, Reliance's head of international operations Atul Chandra stated that one of its discoveries at a site he declined to identify could yield 1 billion barrels of oil.

Reliance made one of the world's largest gas finds at the Krishna Godavari basin, which were estimated to contain 35 tcf. Now with reserves and technical resources put together, it could exceed 50 tcf.

Chandra also said that Reliance will soon enter the coal business once the Indian government has liberalized the coal industry to allow private investment in production.
Reliance also hopes to enter Iraq "at the appropriate time" either on its own or with partners.

At a time when many international oil majors are struggling to keep projects on schedule due to a tight market for inputs and contractors, Reliance has preponed the start up date of its new Jamnagar refinery by 6 months to June 2008.
Chandra said it would be one of the most sophisticated in the world, with a complexity level of 14.4 as measured by the Nelson index, enabling it to process heavy crudes.

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Expectations of rising fuel stockpiles and long drawn out negotiations with Iran caused crude oil to trade near a 6 month low of $61.66 a barrel in New York.

A statement by President Bush that he will give European diplomacy a chance to resolve the dispute with Iran and reports that

US fuel stockpiles have extended their gains from the past month caused the biggest oil price fall in 4 months.

Crude oil fell by $2.14 to $61.66 a barrel, the lowest close since March 21 and the biggest one-day decline since May 15. In after-hours electronic trading on the Nymex, crude oil for October delivery went up by 13 cents.

Hedge funds may also be selling futures after seeing others lose money in the energy market and as the pace of the decline in oil has accelerated, analysts and traders said.

Gasoline for October delivery was at $1.5090 a gallon in after-hours trading, after falling 4.8 percent to $1.5038 yesterday, the lowest close since Feb. 22.
October heating oil was at $1.6980 a gallon, after falling 2 percent to $1.6916 yesterday, the lowest close since March 10.

The UN-Iran dispute looks like it will be a long drawn out affair.
The US seems to have moved over to the European position with French President Chirac proposing the suspension of plans for sanctions if Iran also suspends its enrichment during negotiations.
Bush said that the US would "come to the table" once Iran suspended enrichment and that there was "no objection" to Iran pursuing a truly peaceful nuclear program.

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If Iran worries about sanctions at all, it should be concerned over those that the US is drawing up and not those than the UN is still deliberating over.

There have been hints that the US may enforce its current sanction laws against foreign companies dealing with Iran and the Congress may further tighten the noose.

Now that the EU has dropped its insistence that Iran stop the controversial nuclear work before talks, US and Eu are not on the same negotiating page. The permanent members of the UN Security Council are expected to meet to thrash out methods to put pressure on Iran but hopes for a resolution aren't high.
Maybe some coherent sanctions will come out of the contrary opinions, most likely the travel bans on the political elite, but it will be seen as the empty diplomatic gesture it is with hardly any actual effect.

US efforts on the other hand are looking tougher. Henry Paulson, the Treasury Secretary called for help in choking off funds to Iranian companies that the US suspects of trading in weapons or nuclear components.
He said that there are reports suggesting that more than 30 front companies are part of a suspected network and have duped Western banks into helping them.

For ten years the US has enforced the Iran-Libya Sanctions Act, which bars non-US oil and gas companies from investing more than $20 million a year in Iran. US companies are banned separately from any dealing with Iran by presidential directive.
With Libya's decision to give up its nuclear program, the Act has been redrafted to excise the part about Libya and will expire on September 29. But a new version, dealing with just Iran is sure to be passed.
There are signs that the US may enforce this version more aggressively, and interpret its provisions more widely than in the past. Under the US’s separate Iran Non-Proliferation Act 2000, there has been much action targeting companies from Russia, North Korea, India and Cuba for allegedly supplying banned equipment.

While some energy companies have been deterred by ILSA from investing in Iran, many have flouted it. But if the US takes a tougher approach, with the Congress producing a much more stringent piece of legislation then these companies will have to be more wary.

A much tougher sanctions package on energy companies investing in Iran, The Iran Freedom Support Act, was passed by the House of Representatives early this year. The White House objected on the grounds that the Bill could harm diplomatic relations.
The Bill languishes so far with the Senate not having passed this version. But the bitter elections could revive it, as well as collapse in diplomatic efforts or the furor created in Iran by the Pope's supposed slur on Islam.

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Iran is going to introduce petrol rationing to curb crippling domestic fuel consumption, if it gets parliamentary approval.

Vaziri Hamaneh, an oil minister said that the current situation will continue for a few months after which rationing will be implemented, pending the parliaments decision. But he did not say when the Bill would be submitted.

Though Iran the second largest producer in OPEC, a lack of refineries make it dependent on imports for 30 million liters of petrol a day to meet the demand for subsidized petrol which is sold in Iran at a rate 2.5 times cheaper than a liter of mineral water.
Earlier Hamaneh had announced that Iran would stop importing petrol, but later changed the decision when MP's argued that the move was not feasible.

The parliament had approved annual $2.5 billion budget in February for petrol imports but the government is now seeking approval for an additional $3.5 billion budget for the remaining bit of the year to cover a daily consumption demand of 70 million liters.

Deputy Oil Minister Mohammad Reza said that the government will present the parliament with a draft bill that included raising prices and rationing by late September.

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Iraq and Iran plan to strengthen their commercial ties by jointly developing oilfields that straddle their border. The two countries have already agreed to the unitisation principles and will sign the agreement as soon as the technicians mark out the common oil fields.

The deal entails both countries defining their reserves in the cross-border field and then pumping the crude jointly. After the deal is struck, the two sides will build a pipeline to carry Iraqi crude to Iran's southern refineries.
Iran is also willing to buy about half a million barrels a day of crude at market price for their Abadan refinery from Iraq.
With future sales of Kirkuk crude and Basra light crude also marked out, the two predominantly Shia Muslim countries are really forging deeper ties giving rise to concerns among the Sunni minority, other Arab states and the US which still has 145,000 troops in Iraq.

Besides this, Iraq would also like to forge similar deals involving oilfields with Syria and Kuwait.

Iraq is also looking for partnerships with oil companies to develop its fields and is awaiting the passing of the hydrocarbon law which will set oil policy by the end of the year.
The National Oil Company will be set up as soon as the law is passed as a regulatory and supervisory holding company for setting oil policies which operating companies will implement.

Iraq's state oil marketer SOMO will hold talks with customers to discuss contracts for the first half of 2007 in November or December.

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Deputy Prime Minister Barham Saleh of Iraq said that Iraq's emergence as a "secure petro democracy" could suppress sectarian violence and called for partnerships with international companies to boost the country's oil industry.

He conceded that disputes between local officials and the central government over who controls oil proceeds were one of many obstacles to making improvements but said he hoped that oil would be a "unifying force for Iraqis rather than a resource to fight over."

Saleh is aware that foreign oil companies are needed to modernize Iraq's oil sector and meet the country's goal of doubling current crude production. The absence of legal framework governing investments and ownership of oil resources has hampered foreign investments.

Big oil companies are willing to send crews for exploration and pumping to Iraq depite the insurgency and attacks on oil workers as long as there are legal ground rules for their participation.

Iraq is on the way to ushering in a hydrocarbon law that could bring in investments by foreign companies in the oil sector. A law setting ground rules for managing Iraq's huge petroleum reserves is also to be approved by the end of the year.
The country needs invenment and has to push libralization and open up markets.

The main trouble in enacting laws is the difference in opinion about whether the resource is controlled by regional governments or Baghdad.

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Iraq is planning to gird up its military presence in the oil-rich north of the country, where insurgents and saboteurs have targeted workers, pipelines and faclities.

Iraq's northern fields had produced an estimated 8.5 million barrels of crude in July, but repeated attacks on workers and infrastructure have made it difficult for the country to lift the production back to pre-war levels of about 2.5 million to 3 million barrels a day.

A recent attack on oil workers killed four and injured another.

There is already a miltary presence in the area which will now be supplemented in an effort to protect and use the pipelines that have been down for some months now.
Iraqi authorities have also launched a campaign against smugglers who steal from gas stations and peddle the fuel on the black market.

Al-Shahristani said that the country aims to increase production to about 4 million barrels a day but conceded that it would require $20 billion investment in infrastructure to achieve that and added that "soft" loans could be a solution so that Iraq's budget isn't stretched.

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Iran said that it is ready to consider a temporary freeze in uranium enrichment on the assurance that it would not be attacked by the United States during negotiations with the 6 world powers on enrichment and other nuclear issues.

The progress was welcomed by top US envoys but the UN Security Council is expected to go ahead with sanctions if Tehran does not halt enrichment.
IAEA Chief, El Baradei, said that "the window of oppurtinity is not very long" - an implicit warning that the standoff was on the brink of escalating.

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Key European nations warned that Iran is trying to split up the international community over its contentious nuclear program by stalling and giving unclear responses to the terms set by world powers for negotiations.

A closed meeting was held in Berlin of the 5 UN Security Council nations plus Germany to coordinate strategy over Iran's refusal to halt uranium enrichment.

Javier Solona, the EU's foreign policy chief, is expected to hold nuclear talks with Iranian envoy Ali Larijani on Saturday in a final effort to find common ground for negotiations between Iran and the 6 powers.
Manouchehr Mottaki, Iran's foreign minister, said that the Saturday meeting is not likely to resolve the disagreement over the scope and agenda of the broader negotiations.
Britain's UN ambassador said that "unless Solana is able to get Iranian movement on suspension of enrichment quickly, then the prospect of sanctions against Iran will be on the (Security) Council agenda soon.”
He also said that the 6 powers agree on the ultimate goal of denying Iran nuclear weapons and the strategy.

The assessment of Iran's response to incentives from the Western powers was a one and a half page document labeled "In Confidence". It summarized the technical, economic and political rewards offered to Iran and warned of punishments including UN sanctions if Tehran doesn't halt uranium enrichment.
Though Iran's response has been kept confidential, US and its allies have described it as inadequate and a document drawn up by Britain, France and Germany highlights that the Iranian response is along previous lines in that it neither accepts nor rejects outright.

Iran's goal is thought to be to involve the international community in talks about talks while continuing on its enrichment program. Its unyielding stance appears to be powered by the belief that China and Russia, both veto-wielding Security Council members will oppose the sanctions.
Besides Iran's no suspension before negotiation stance, it has also demanded the "termination" of Security Council involvement in its nuclear file.
While Iran continues to insist that its enrichment program is for generation of nuclear power, the Western powers are focused on imposing sanctions following the deadline.

Russia averred that any sanctions must exclude military force giving rise to the opinion that Moscow was contemplating the possibility of sanctions. The US and European diplomats have said that initially they will use low-level punishments such as travel bans and bans on the sale of dual-use technology to get backing from Russia and China.

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It is widely expected that the OPEC meeting in Vienna on Monday will call for production to remain at current levels. An $11 drop in prices since the Lebanon cease fire may encourage some to push for cuts further out.
OPEC production is at the highest level since 1979 to cushion against supply shocks. The Saudi-driven policy has succeeded with refiners storing away OPEC crude.
Though oil has dropped from record highs of $78.40, it is still above the $61 price at the start of the year and $20 at the start of 2002.
With the hurricane season and the end of winter still to get through there seems to be no reason for agressive calls for cutting oil production.

But some OPEC members are looking to 2007 when demand could drop sharply if independent producers bring on projects of new crude and slowing economic growth would furher erode demand for OPEC oil.
OPEC economists predict a drop of 800,000 bpd in the requirements for the group's oil.

OPEC's production ceiling was set at 28 million bpd and output this year has run just below the official limit with everyone of the 10 members save Saudi pumping flat out.
Riyadh pumping at about 9.2 million bpd holds most of OPEC's spare production capacity with more than 2 million bpd in reserve.

While the kingdom has supplied the customers with what they want, it has refused to discount barrels to force feed the market and depress prices.
Iran's deputy oil minister and oil minister said they expect OPEC to keep oil production steady when it meets to chart output policy. Their sentiments echoed those of Algerian Energy and Mines Minister.

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China's biggest refiner, China Petroleum & Chemical as well as Nippon Oil of Japan are trying to reduce their dependence on the Middle East by importing oil from Africa and Russia.

Angola and not Saudi Arabia is China's largest supplier this year and Japanese refiners are buying crude from the Russian Far East. As the world's fastest growing automobile market, Asia finds refined oil from Africa and Russia more attractive since it yields more gasoline and diesel than Mideast supplies.

This trend will benefit companies like EXxonMobil, BP, Total and OAO Lukoil that are drilling in Africa and Russia and have been largely excluded from production in the Middle East where state-owned monopolies control the oil industry.

The Asia-Pacific Petroleum Conference in Singapore will certainly have diversifying oil supplies on its agenda. With a fifth of the world's oil consumption flowing through the Strait of Hormuz, concern over disruption of oil supplies in that region by Iran have increased.

China Petroleum, Nippon Oil, Indian Oil  and SK of South Korea are few Asian refiners that have bought new grades of crude oil for the first time this year as sour-crude from the Mideast produces less gasoline and refiners in Asia are trying to produce more transportation fuel.

The share of producers such as Saudi Arabia, Oman and Yemen in the world's second-largest energy market has fallen with China importing from Africa, Kazakhstan, Russia and Venezuela.
Angola shipped 15 million tons of crude oil to China, in the first 7 months of the year, 13 percent more than Saudi Arabia.

While shipments from the Persian Gulf to China rose by 5.8 percent in the first half of this year, during the same period imports from Africa rose by 22 percent.

Sinopec imported Chinguetta crude from Mauritania and Azeri light and Hamaca Blend from Venezuela. Japan which relies on the Mideast for 90 percent of its oil needs has started to import crude to the tune of 700,000 barrels from Sakhalin island in Russia.

Indian Oil bought Girassol crude from Angola and Erha from Nigeria. Hindustan Petroleum and Bharat Petroleum have purchased Azeri light and Erha.

Refiners are taking Winston Churchill's words, "energy security lies in diversity" very seriously now.

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Tehran ignored its second deadline for halting uranium enrichment and the foreign ministers of the European Union have agreed to give Tehran 2 more weeks to clarify its stance on the country's nuclear program.
At a meeting in Finland, Philippe Douste-Blazy spelt out the position held by the EU - if Iran suspends enrichment, the Eu will suspend the sanctions process in the UN. Javier Solana, the EU foreign policy chief will meet up with Iran's chief nuclear negotiator in a week to clarify the Iranian stance on its enrichment program as well as its offer of cooperation on nuclear energy.
On the other hand, Iran's stance has remained defiant with President Ahmadinejad reiterating that Tehran will not abandon its nuclear program since it is for a peaceful purpose.

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Iran responded to the incentive package given by the Western powers on Tuesday and said that it had offered positive signals in its proposal to resolve the standoff over its nuclear program.

Iranian Foreign Ministry spokesman Hamid Reza Asefi said that if the Europeans paid proper attention to the positive and clear signals in Iran's response, then the nuclear standoff can be solved through negotiation and without tension.
But key UN Security Council members differed in their responses.

The US State Department agreed that Iran was sincere in its proposal but it fell short of the conditions set by the UN - the mainone being that Iran halt nuclear enrichment.
French Foreign Minister Philippe Douste-Blazy said that only if Iran suspends enrichment can negotiation continue.
German Foreign Ministry spokesman Martin Jaeger said that the UN demand for suspension of enrichment indicated that Iran has lost the confidence of the international community that its nuclear program is civilian.
On the other hand Russia's Foreign Ministry said that talk of sanctions was premature before the Aug. 31 deadline was met and that they would continue to seek a negotiated solution.

China urged United States and its allies to be patient and Iran towards "constructive measures".

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In the face of Iran's defiant stance on its nuclear program, Israel has signed a contract with Germany to buy 2 more submarines capable of firing nuclear missiles.

The one billion deal was signed last month and Germany has agreed to take up costs of upto a third of the value. The submarines will be operational shortly and add to Israel's expanding military resources.

It already has 3 Dolphin-class submarines which can fire nuclear missiles, but the newer models can stay submerged for longer.
Israeli security sources said that in the light of Iran's nuclear ambitions and an Iranian President who has called for Israel to be "wiped off the map", the submarines are needed to counter long-range threats.

Owing to Israel's small land area, its military planners have a clear preference for submarine-launched nuclear weaponry. US Defence Intelligence Agency has estimated that Israel has about 60-85 nuclear warheads. Submarine-based missiles give the country a credible nuclear deterrent.

The semi-official news agency Mehr said that Iranian authorities would announce a "very important achievement" in an area of nuclear technology.
In its response to the western incentives package, Iran has offered to address the issue of suspension while reminding the world of its "stablizing role" by offering to its influence with Hezbollah to organize an exchange of prisoners between Israel and Hezbollah.

Iran will be further encouraged in its stance by the divided responses from the international community to its proposal. While China and Russia prefer to puruse negotiations, France will have none of it till the suspension of uranium enrichment and ironically America's war on terror has "severely compromised" its attempts to curb Iranian nuclear amibitions.

With the war on terror eliminating Iran's two main regional rivals - the Taliban in Afghanistan and Saddam Hussein's regime in Iraq without replacing them with stable structures has given Iran regional supremacy. Iran's links with its neighbors need to be understood to see why "Iran feels able to resist western pressure". If the US uses military force to curb Iran's nuclear ambitions, it would open itself up to retaliatory destabilizing intervention by Iran for its forces in Iraq.

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