Vladimir Putin signs historic $20bn oil deal with Iran to bypass Western sanctions
Five-year accord will see Russia help Iran organise oil sales, but government denies it has violated international obligations
By Andrew Trotman
11:30PM BST 05 Aug 2014
Vladimir Putin is eyeing a $20bn (£11.8bn) trade deal with Iran that would see Russia sidestep Western sanctions on its energy sector.
Under the terms of a five-year accord, Russia would help Iran organise oil sales as well as “cooperate in the oil-gas industry, construction of power plants, grids, supply of machinery, consumer goods and agriculture products”, according to a statement by the Energy Ministry in Moscow.
However, the Russian government mysteriously withdrew that statement last night, saying it would issue a new one on Wednesday.
Despite the U-turn, news of a possible agreement hit US markets. The Dow fell 139 points, or 0.8pc, led by energy companies such as Chevron, down 2.5pc, and ExxonMobil, down 1.9pc. Brent Crude fell 1.5pc before recovering to trade down 0.7pc at $104.61.
The Dow dropped 0.7pc after news of the accord broke
A deal could see Russia buying 500,000 barrels of Iranian oil a day, the Moscow-based Kommersant newspaper has previously reported. That would be about a fifth of Iran’s output in June and half its exports.
There’s a question over “how substantive this memorandum is”, Richard Mallinson, an analyst at Energy Aspects in London, told Bloomberg. “There would be various practical limitations in terms of Iran’s current production capacity, geography and shipping logistics, as well as US sanctions.”
The move would be a win-win for both nations after they were hit with Western sanctions aimed at limiting their energy sectors.
The European Union recently unveiled a raft of measures to restrict certain oil exploration and oil drilling related products in Russia after what President Barack Obama called the country's "illegal actions" in Ukraine. Russia's prescence in the Eastern European country reached a watershed moment last month when Malaysia Airlines Flight MH17 was allegedly shot down by rebels sympathetic to Mr Putin's government, killing all 298 people on board.
On Tuesday, the Russian President told regional leaders that “the political tools of economic pressure are unacceptable and run counter to all norms and rules”, adding that he had given orders to boost domestic manufacturers at the expense of non-Russian ones.
Meanwhile, Iran has faced sanctions due to its reluctance to end a controversial nuclear programme. The country has been locked in talks with six world powers - Britain, China, France, Russia, the US and Germany - to reach an understanding, with an interim deal to lift a ban on sales to the EU and limiting them to Asia agreed in November. However, since then talks have stalled, causing Iran's petroleum exports to halve in the past two years, according to OPEC.
Despite the sanctions, Iran has been looking to boost oil production in recent months, setting a new output target of 5.7m barrels per day (bpd) of crude by 2018 - OPEC believes Iran is currently pumping about 3m bpd of crude. However, it needs the help of international oil companies, and Russian energy firms have repeatedly expressed an interest in teaming up with Iran.
Before Moscow’s retraction, Alexander Novak, Russia's minister of energy, said an agreement would not violate international obligations and is important given the current "reality".
The White House has previously said that reports of talks between Russia and Iran were a matter of "serious concern".
"If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the agreement with Iran," Caitlin Hayden, spokeswoman for the White House National Security Council, said in January.
Vladimir Putin signs historic $20bn oil deal with Iran to bypass Western sanctions - Telegraph