A thaw in oil relations?

Will the recent thaw in relations between Cairo and Tehran lead to prosperous cooperation in the oil and gas sector?

It has been a quarter of a century since the relations between Egypt and Iran were severed. The diplomatic ties between the two countries were cut off because Iran rejected the Egyptian-Israeli Peace Agreement signed in 1979 to end decades of military struggle between the warring countries. The Iranian leadership went as far as naming one of Tehran’s main streets after the assassin of late President Anwar El-Sadat—Khaled El-Islambolli.
Despite the occasional thaw in relations between the key regional players, especially during the past few weeks, their bilateral relations were never resumed. The Iranian President Mahmoud Ahmadinejad announced last month that his country was ready for the resumption of the ties between the two countries, and the opening of the Egyptian embassy in Tehran. On his part, Egypt’s Foreign Minister Ahmed Abul-Gheit retorted that “90 per cent of the problems between the two countries can be solved if Tehran removed the name of Sadat’s assassin from that main street in Tehran.” After removing the name of El-Islambolli, Abul-Gheit added, “we can sit together and discuss future relations.”
Politicians in the two countries put conditions before sitting to the negotiating table to solve the decade-long problems between them. Ali Larigani,????, stressed that the way should be paved for the resumption of the relations. “But it is normal that each country has its own conditions before normalizing the relations,” he pointed out.
Observers are for the opinion that there are some issues that need to be settled before the two countries normalize relations. “The Iranian announcement is positive, yet it’s not as simple as such,” said Mohamed El-Said, of Al-Ahram Centre for Political and Strategic Studies. “There are some unsettled issues between the two countries that need to be discussed before resuming their bilateral relations,” he added. “There is a difference in opinion concerning some issues between the two leaderships.
Mahmoud Farag, former Egyptian ambassador in Tehran, pointed out that “there are still a lot of obstacles in the way of resuming the Egyptian-Iranian relations. The resumption of these ties requires sort of transparency and tackling all files, especially that of security.”
The resumption of diplomatic relations between the two countries, as a matter of fact, is a prerequisite to the resumption of economic ties between the two countries. Although ministers of oil in the two countries met in international events many times during the past few years, a tangible boost in the cooperation in the oil sector hasn’t been achieved yet. In 2004, Egyptian Minister of Petroleum Sameh Fahmi met his Iranian counterpart in a natural gas conference and agreed on setting up a number of common petrochemical projects. Having decided to establish joint companies to market oil products, the two ministers said they would cooperate in exploring oil in the two countries’ fields.
Nevertheless, no significant development occurred in this respect, proving that nothing could change without the resumption of diplomatic relations. Pundits also see that neither of the two countries will gain much in the oil field after resuming diplomatic relations. “Neither side is likely to make major investment in the other country. So I doubt it would have energy implications,” noted Herman Franssen, president of the energy consulting firm International Energy Associates and an advisor to the Washington-based Center for Strategic and International Studies. Iran, as a matter of fact, is in need of $100 billion worth of foreign investment in its aging oil and gas sector over the next ten years, according to some estimations. These investments, however, are frightened away by economic sanctions imposed on Tehran by the United States and some European countries
Despite being one of the main producers of natural gas, Iran is importing a lot of its gasoline, which is offered at a significant subsidized price. Egypt, which is also one of the main producers of natural gas, is providing gasoline for its citizens at subsidized prices. Both countries are in the same situation — sniffing for huge foreign investments in the oil sector. Therefore, both countries, in case the two countries resumed bilateral relations, don’t have a lot to offer for each other in this regard, observers say.
While Iran adopts oil policies that make foreign companies take all the risk, Egypt might offer encouraging incentives for investors. Still, Egypt has far less oil reserves than Iran, a matter that makes Iran a promising field for foreign investors.

Abul-Gheit is expected to meet his Iranian counterpart during the coming few weeks. Perhaps after this meeting, the frozen relations might be resumed between the two countries, and hence the future of any cooperation in the oil field will unfold.

By Mohamed El-Sayed


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