Iran and Oman sign US$60bn draft gas pipeline agreement

Memorandum of understanding signed for Iran to supply Oman with gas through a pipeline under the Sea of Oman.

ABU DHABI // Oman is in talks to buy Iranian gas in a 25-year deal worth about US$60 billion, Iran's oil minister said yesterday.

Bijan Namdar Zanganeh said Iran and Oman had "signed a memorandum of understanding for the construction of a gas pipeline" under the Sea of Oman, the official IRNA news agency reported.

The construction would "soon" commence once "research on different routes" is completed, he said while hailing the agreement as "the largest economic deal" between Iran and Oman.

The announcement came as Oman's Sultan Qaboos bin Said Al Said concluded a three-day visit to Iran.

The Omani leader met newly inaugurated Iranian president Hassan Rouhani as well as Ayatollah Khamenei, the republic's supreme leader.

The visit had raised hopes of a rapprochement between Iran and the West, as Oman remains a strong ally of both Tehran and Washington and has previously served as an intermediary between the two sides.

Iran is subject to various US and European sanctions on its energy sector, as well as on its access to the global banking system, over its disputed nuclear programme.

The new gas deal would be valued at $60bn (220.2bn) based on current gas prices, Mr Zanganeh said.

This is not the first time that the two countries have discussed plans aimed at bringing liquefied natural gas (LNG) from Iran to Oman; in 2007, the two signed draft agreement to build a pipeline. Construction on the pipeline has not begun.

Oman is a gas exporter, but rises in domestic consumption have led to shortfalls in recent years. A new pipeline from Iran could free up Oman's domestic supplies for local use, while allowing the country to fulfil long-term sales contracts.

"Oman exports LNG, but domestic gas demand is also growing, so if it doesn't find another source of gas, there could be difficult choices ahead," said Kwok W Wan, LNG editor at London-based Argus Media, which provides industry analysis for businesses.

But it remains unclear how such a deal would be perceived in the Gulf, where Oman has uniquely warm ties with Iran and where Qatar has dominated gas exports.

"Allowing Oman to import pipeline gas would likely keep its LNG exports going, which would provide more competition with Qatar and Russia in the global market," Mr Wan said.

Iran has the world's largest gas reserves after Russia and is a major gas exporter.

* With additional reporting from Agence France-Presse