OpinionIran in the World PressAnalysis: No energy ties for Iran, Egypt

Analysis: No energy ties for Iran, Egypt

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UPI: Although a resumption of relations between Iran and Egypt after a quarter of a century may signal a change in diplomacy in the region, it is unlikely to solve the energy woes of either country.
United Press International

By DEREK SANDS
UPI Energy Correspondent

WASHINGTON, June 4 (UPI) — Although a resumption of relations between Iran and Egypt after a quarter of a century may signal a change in diplomacy in the region, it is unlikely to solve the energy woes of either country.

Over the past several weeks, Tehran and Cairo have both made statements supporting the idea of resuming full diplomatic ties, which were severed over the Iranian government’s opposition to Egyptian President Anwar Sadat’s 1979 signing of a peace treaty with Israel.

Sadat was assassinated in 1981 by Egyptian soldiers opposed to the treaty, and Tehran went as far as to name a street in the capital after one of the assassins, Khalid Islambouli, a fact that still rankles Cairo.

But recent statements by both Iranian President Mahmoud Ahmadinejad and Egyptian Foreign Minister Ahmed Abul Gheit point to a thaw in relations between two of the Middle East’s most important powers.

Egypt has long tried to act as a counterweight to Persian power in the region, with other countries in the region also wary of an influential Iran. Part of the reason behind the formation of the Gulf Cooperation Council, which includes Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Qatar, and Bahrain, was to counteract Iranian influence.

So far, it appears unlikely either country will gain much in the energy arena by renewing diplomatic ties.

“Neither side is likely to make major investment in the other country. So I doubt it would have energy implications,” said Herman Franssen, president of the energy consulting firm International Energy Associates, and an adviser to the Center for Strategic and International Studies, a Washington think tank.

Both Iran and Egypt have been struggling to come to grips with their energy demands.

“For Iran, they are importing a lot of their gasoline,” said Paul Sullivan, an expert on the energy economics of the Middle East and a professor at Georgetown University and the National Defense University.

Tehran is struggling to provide gasoline at significantly subsidized prices. Although the government recently raised gas prices by 25 percent, a gallon can still be had for the equivalent of only 38 cents.

Despite the world’s second-largest reserves, Iran is in dire need of investment in its aging oil and gas infrastructure, as well as investment to develop immense oil and gas deposits. Giant energy markets Russia and China have shown a willingness to invest in Iran, but recent international efforts to put economic pressure on Tehran over its nuclear program have led even those countries to put off investment.

Iran has continued to pursue the nuclear energy technology required to make nuclear bombs, arguing that it is required for energy independence. Concerns over the spread of nuclear weapons technology and know-how led the United States and some European countries to place economic sanctions on Iran, strangling the desperately needed development of its energy sector.

“Iran also has a problem of getting enough investment into their country, partially due to sanctions, but also linked to a very bad arrangement they have called buyback contracts, which limits what foreign countries can make in Iran,” Sullivan said.

Buyback contracts force foreign companies that invest in oil and natural gas development in Iran to pay for all of the costs, in exchange for a share of the profits. But these profits are limited by contract to a portion of the production, and the entire operation is handed over to the Iranian National Oil Co. at the end of the contract. In effect, these agreements force foreign investors to take all the risk, but limit their profits.

Although Egypt holds significantly less petroleum reserves than Iran and the other Persian Gulf countries, it too subsidizes its domestic energy supplies, to the tune of nearly 15 percent of its government budget. An increase in gasoline prices in the summer of 2006 led to increased prices on goods across the country.

While the energy problems of Egypt and Iran may be unchanged by diplomatic ties, the renewed relations may contribute to a more stable Middle East.

“The U.S. has been talking briefly, at least with Iranians for the first time in 30 years, about Iraq, so perhaps all sides are making an effort to cool down the current situation,” Franssen said. “If that is the case, then it would be rather positive. Because to avoid a conflict would be to everybody’s favor in the region and in the world as a whole. In that sense one has to look at it as a positive development.”

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