SOVIET-IRANIAN OIL PIPELINE AND RAIL LINK: HOW FEASIBLE?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00114R000800410003-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: February 9, 2012
• Sequence Number: 3
• Publication Date: September 14, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/02/09: CIA-RDP90T00114R000800410003-3
14 September 1987
Soviet-Iranian Oil Pipeline and Rail Link: How Feasible?
Summary
The publicity given to recent meetings between Soviet
and Iranian officials to discuss an oil pipeline and an
additional rail link probably is driven more by politics
than economics. These projects are technically feasible but
would entail major economic costs and require long lead-
times to complete. The pipeline and additional rail link are
not pressing needs for either country. Such projects,
however, especially the pipeline, would increase the USSR's
importance to Iran and possibly give the Soviets a degree of
leverage over the Iranian Government. In the near term, the
discussions help the Iranians appear less isolated and
enhance Moscow's efforts to be seen as a major player in the
Gulf region. Although the Soviets and Iranians are expected
to continue discussions, any progress on these projects is,
at best, likely to be slow.
Over the last three months, Soviet-Iranian contacts
have increased, as Moscow and Tehran have become concerned
about the growing Western military presence in the Persian
Gulf. Both sides appear to have decided, for the time being
at least, not to let continuing policy disputes stand in the
way of the development of closer bilateral contacts.
The Iranians claim that recent discussions have
focused on transporting Iranian oil through the Soviet Union
and building a new rail link between the USSR and Iran.
--In July and then again in early September, Iranian
Deputy Foreign Minister Larijani met in Moscow with
Foreign Minister Shevardnadze and other Soviet
officials to discuss political and economic
cooperation.
--On 26 July, according to Tehran radio, the Soviet
Ambassador to Iran delivered a message to Iranian
Prime Minister Musavi from Prime Minister Ryzhkov
stressing the need for long-term economic cooperation
in the oil and gas sector.
SOVA M 87-20086X/S
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--During the first week of August, First Deputy Foreign
Minister Vorontsov visited Tehran, where, according
to the Iranian press, he and Musavi agreed that
experts from both countries would begin discussions
in September on exporting Iranian oil through the
Black Sea.
--A Soviet Foreign Ministry spokesman publicly
acknowledged on 7 August that negotiations were
"under way " for gas and oil pipelines and a new
rail link between the USSR and Iran, but he claimed
that no agreement had thus far been signed
nothing could
ave een signs uring vorontsov's recent visit
representatives along with him
Similar meetings since 1985 to discuss expansion of
economic ties yielded little of substance, apparently
because Moscow remained skeptical that Tehran had abandoned
its hostility toward the USSR and because the Kremlin was
reluctant to return Soviet economic technicians to Iran
until the war with Iraq ended. Iranian media reported in
August of 1986 that Iran would resume natural gas exports to
the USSR before the end of 1986. According to these reports,
both countries were to undertake a three-month study to
determine what repairs were needed along the 750-mile
pipeline that was to carry the gas. No such activity was
noted following those discussions.
Moscow has studiously sought to downplay this summer's
talks. A Soviet Foreign Ministry official claimed in an
interview with an Abu Dhabi newspaper on 22 August that
everything that has been said about an agreement between
Moscow and Tehran to establish or operate a pipeline is
"baseless and unfounded." Although it is believed that
these statements are accurate descriptions of the situation,
such disclaimers also are designed to avoid angering Iraq
and its Arab supporters, as well as to avoid provoking
Western countries into taking concerted countermeasures.
Technical Feasibility of Energy Projects
Oil and gas pipelines that would again link the USSR
and Iran in trade would require major investments and could
take several years to complete. Tehran's claim that a
pipeline capable of delivering 700,000 barrels a day (b/d)
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of crude to the Soviet border could be ready within three
months is unfounded. Lesser amounts could be moved, but
major investment and about one year's work would still be
needed first. Re-establishing gas trade by reopening an
existing pipeline would also require heavy investment by
Tehran and could require great sacrifices by the Iranian
people--such as loss of heating fuel in Tehran and fuel
required to run major industries--that the clerical regime
might find difficult to justify politically.
Iranian Oil Options
Tehran probably has limited options to deliver crude to
the Soviet border, all of which would require major
investments.
--Building a pipeline capable of delivering 700,000 b/d
of crude oil to Soviet border could reportedly take
two years to construct, and would entail an outlay of
nearly $1 billion.
--Conversion of an existing gas pipeline--the IGAT 1
pipeline--to handle 700,000 b/d is possible but not
likely. The IGAT 1 carries gas produced as a result
of oil production, associated gas, from Iran's oil
fields in the southwest to its steel industry and
cities in the north, including Tehran. In the 1970s
the line also was used to export gas to the USSR, but
this portion of the pipeline has not been used since
1980. Conversion of the entire pipeline for oil use
would require the replacement of all gas with oil
pumps, repair of the unused portion of the line--most
likely corroded from lack of use--and the curtailment
of all gas flow northward. This option could cost
nearly $500 million and take over a year to complete.
It is doubtful Tehran would select it because no
other gas source is available at this time to replace
the lost gas to major cities and industries.
--Another option could move small volumes of oil to the
Soviet border within a year. Although this option has
not been openly discussed, Iran probably could
convert the unused part of the IGAT 1 pipeline to an
oil pipeline and tie it into others that carry oil
northward from Iran's oilfields to the Tehran
refinery. A combination of unused capacity and the
use of drag reducing agents--used to reduce friction
in pipelines and increase flow--could enable Iran to
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export nearly 200,000 b/d through this line. Even
this option would take a year to complete and cost
over $200 million.
*Lead time used in all assessments assume Western
engineering and construction techniques. If the Iranians
provided most of the labor, lead times could more than
double.
Soviet Oil Options
In assessing the feasibility of Iranian oil shipments
through the USSR from Moscow's standpoint, two options have
been considered.
--The Soviets could purchase Iranian oil, refine it,
and then distribute it in the Baku region of the
Soviet republic of Azerbaijan. Moscow in turn would
sell Soviet crude oil on the world market that would
otherwise be sent to Baku from Soviet oilfields in
West Siberia--roughly 300,000 b/d. The proceeds from
these exports would pay for the Iranian oil. It is
belived that the differential savings in Soviet
pipeline transport costs would be small, and that to
have a substantial economic benefit to Moscow, the
Iranians would have to accept less than the market
price for their oil.
--The second option would entail use of spare capacity
in the Soviet Baku-to-Batumi crude oil pipeline to
transport Iranian crude to the Black Sea for export.
Moscow would receive a transit fee for use of its
pipeline. Despite Iranian and western press claims
that this could provide movement for as much as
700,000 b/d through the US5R, the magnitude of
Iranian exports probably would be limited by the
excess pipeline capacity of roughly 100,000-150,000
b/d. The Soviet press has reported that the pipeline,
which transports crude for processing to the Batumi
refinery, operates at one-third capacity. Even so,
because the Baku-Batumi pipeline has not operated at
maximum throughput and line pressures for at least 15
years, several months may be needed to service and
replace some of the pumping equipment and some
pipeline segments.
From the Soviet economic perspective, the use of spare
capacity in the Baku-Batumi pipeline would seem to be a more
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appealing option. It would entail minimal costs and
disruptions for the Soviets while providing financial gain
roughly equal to that likely under the first option. It
would also not leave Soviet Azerbaijan highly dependent on
Iranian oil and thus vulnerable to a decision by Tehran to
stem the flow, as it did with gas sales to the USSR in 1980.
From the political perspective, the second option--because
of its limited scope--probably would not be as unsettling
for Moscow's Arab friends. Over the longer term, if, as
expected, Soviet oil production begins to decline in the
1990s, a version of the first option--using Iranian oil in
Soviet Azerbaijan--might become more attractive to the USSR.
Iranian Gas Options
Iran probably cannot produce enough gas to re-establish
gas trade with the Soviets. Repairing existing pipelines
that once moved gas to the Soviet border is possible, but
Iran lacks the capability to boost oil production
sufficiently to generate associated gas for export to the
Soviet Union and still meet domestic needs. Alternatively,
development of gas fields in Iran to meet these needs would
require ,heavy investments by Tehran that it currently cannot
afford.
In the 1970s Iran exported an average of nearly 10
billion cubic meters (bcm) per year of natural gas to the
Soviet Union through the IGAT 1 pipeline from oilfields in
southwest Iran. Planning for even higher exports and growing
domestic requirements, Tehran and Moscow started
construction of a new pipeline--IGAT 2--that would have a
capacity of 27bcm and would carry 17 bcm annually from the
giant Kangan gas field in southern Iran through the USSR for
use in Western Europe. Gas exports were interrupted
periodically during and shortly after the Iranian revolution
in 1979. In 1980, after IGAT 2 had already been partially
completed, the Iranians sharply raised the price of gas.
When a compromise could not be reached, Iran shut off gas
exports completely and ceased work on the IGAT 2 pipeline.
Most Iranian gas is associated with oil output, and
nearly 7 million b/d of oil production would be required to
produce 8 bcm of gas for export. Oil output in recent months
has averaged about 2.5 million b/d. At a minimum, several
expensive and time consuming projects--particularly to tap
the Kangan gas field--would be required before exports could
be resumed.
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--Completion of the Kangan gas facility to process non-
associated gas would be necessary. Now rescheduled
for completion in late 1987, the gas facility has
been subject to work stoppage and a lack of funds.
Completion even in 1988 will be difficult to achieve.
--Completion of the IGAT 2 pipeline and installation of
sufficient compressor stations would be needed to
move the gas from southern Iran.
--Pipelines and very old Soviet compressors already in
place along the northern half of the IGAT 1 pipeline
to the Soviet border need to be overhauled. Repairs
along this portion alone could take up to a year to
complete but could be done simultaneously with other
gas projects.
It is believed that Tehran would also require that its
own goals were met and several other projects completed
before exports resumed. Gas gathering facilities supplying
the IGAT 1 pipeline from Iran's oilfields have suffered
serious damage as a result of the war with Iraq. These
facilities are necessary to maintain gas supplies for
domestic needs, and, at current low oil production rates,
could not provide sufficient supplies to support gas exports
to the USSR. Tehran might insist that these facilities be
repaired before exports resume to ensure increasing domestic
demands are met. Lead times to acquire and install pressure
vessels and compression equipment could exceed a year.
Oil production potential from Iranian reservoirs has
suffered as a result of a lack of progress in gas injection
since the start of the war with Iraq. Reinstituting a costly
gas injection program to prevent future oil reservoir damage
would have to be given top priority, it is thought, before
Iran considers exports. High pressure injection equipment
has long delivery times, but this project probably could be
partially in place in about two years. Over four years would
be required to complete the entire injection project,
including development of the offshore Pars gas field in the
southern Gulf and installation of pipelines, compressor
stations, injection wells, and injection equipment. Such a
program could cost around $5 billion, but without it Iran
faces the prospect of more depletion of its oil resources
and erosion in productive capacity.
The Turkmenistan-Persian Gulf Rail Link
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and East Asian countries.
The Iranian press has reported that the USSR and Iran
also have discussed the possibility of constructing a rail
line between the Soviet border and the Persian Gulf. One
such line already exists between the Iranian border city of
Jolfa--which is linked to the Soviet Yerevan-to-Baku
railroad--and Bandar Khomeini on the Gulf. The Soviets do
not to export to or import from the Gulf via this line. It
is used almost exclusively for bilateral Soviet-Iranian
trade and for Iranian transit trade with Western European
ports of Khorramshahr and Bandar Khomeini.
Details are sketchy concerning the progress of
negotiations and the planned location of a new rail line.
The most likely route for a new line would be a roughly 100-
km stretch between the Soviet Ashkhabad-to-Chardzhou rail
line in the Turkmen republic and the Iranian city of Mashhad
in northeastern Iran. In 1982 the USSR and Iran reportedly
discussed the construction of such a rail line. A railroad
connection already exists from Mashhad to the Persian Gulf
goods if Iran lost the use of its southern ports.
the Soviet Trans-Siberian railroad. Regardless of the
location of the new rail link, it would provide capacity
needed to ease the rail traffic delays between the two
countries and would be particularly important if Soviet-
Iranian trade increases. It could also serve as an
alternative route to transport small quantities of Iranian
This eastern route would be beneficial for Iran because
it is further away from the hostilities with Iraq than the
existing link from Jolfa. It would also shorten the railroad
shipping distance from the Far East by up to several hundred
kilometers. Iran receives a large volume of freight from the
Far East, particularly from Japan and South Korea, by way of
the Gulf of Oman.
It is possible that a Soviet-Iranian agreement could
also involve a rail line currently under construction
between Bafq--which is in central Iran and is already linked
to the national rail net--and the Persian Gulf port of
Bandar Abbas. This 683-km rail line was started in 1983, and
it reportedly is scheduled for completion in 1988. However,
although its completion has a high priority, construction
reportedly has been delayed because of a scarcity of funds.
This suggests that the Iranians might welcome Soviet help in
finishing it. Long-term Iranian plans for rail development
also include links between the national rail network and the
ports of Jask and Bandar Beheshti (formerly Chah Bahar) on
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involved in any such project to technicians.
The USSR has a history of post-Shah involvement in
Iranian rail development, having electrified the rail line
between Jolfa and Tabriz in 1982, and could become involved
in constructing any new line. if they do, it is possible
that Soviet railroad troops, which are subordinate to the
Ministry of Defense, would be involved. It is more likely,
however, that the Soviet Ministry of Transport Construction
would be the organization responsible for the rail line's
construction, as it was in 1982. At the same time, Iran
would probably seek to limit the number of Soviet personnel
cargo were inadequate.
The different gauges of the Soviet and Iranian rail
systems would require that freight be transferred between
Soviet and Iranian rail cars at the rail link, as at
present. This would slow traffic, particularly if the volume
were heavy and equipment and facilities to transfer the
whole.
It is thought that the USSR does not have a pressing
economic need for a rail route across Iran to ship or
receive freight through Iran's Persian Gulf ports.
Currently, the domestic capacity of rail links to Soviet
ports is adequate for the USSR's needs. There potentially
could be a small economic gain for the USSR in shipping some
trade goods via Iran to and from the east African countries
and India because the distances would be considerably
shorter than existing shipping routes. Politically, however,
such a rail link would have major significance as a symbol
of growing Soviet influence in Iran and the Gulf region as a
of scarce foreign exchange.
The technical complexities and probable meager economic
gains to be made from any oil, gas, or railroad projects in
the near term strongly suggest that the recent Iranian
claims have more of a political, than an economic,
rationale. The Soviets are likely to continue discussions
with the Iranians on these projects, if only as a way of
developing some influence with Iran and demonstrating to the
West the USSR's ability to deal with the Iranian regime. The
Iranians, for their part, are eager to exploit and
exaggerate the significance of these talks as proof that
they have won a degree of Soviet support, but may back away
from any project before putting up substantial investments
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advisers from crucial development projects in Iran.
economic support, given the USSR's history of pulling out
One would not rule out some progress on firming up
plans for any of the projects. But the record of previously
unfulfilled Iranian claims, the dubious feasibility of some
of the projects, Moscow's probable unwillingness to sink
significant investment into deals the Iranians could later
renege on, and the negative impact such cooperation would
have on Soviet relations with Iraq, all point to slow
movement, at best, on these projects. Iran, for its part,
would also be hesitant to become overly dependent on Soviet
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