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Last Thursday, US Secretary of State Condoleeza Rice, along with US Secretary of the Treasury, Henry Paulson, announced new economic sanctions against Iran claiming that the Islamic Republic was destabilising the Gulf region by sponsoring terrorist groups. The statement referred to threatening and irresponsible behaviour by Iran. Also see the BBC news story.

President Putin of Russia quickly warned the EU against following the USA's lead. It may seem incredible to some, but the USA is seriously out of step with the rest of the world in the way that it regards the Islamic Republic. Wikipedia tells us that Iran's major trading partners are China, Germany, South Korea, Japan, France, Russia and Italy.

The most active foreign direct investors are Germans, Norwegian, British, French, Chinese, Japanese, Russian, South Korean, Swedish, and Swiss companies.

In 2005, the volume of Iran-China trade hit $US 9.2 billion. China held the third rank among top exporters to Iran (2005) with 8.3% of the total market, after top ranked Germany (13.9%) and UAE (8.4%). Chinese companies have 25-year contracts to import LNG from Iran. China's share of Iran's exports is given as 11.2% with Japan the top importer at 16.9%.

Another figure gives Germany the largest share of Iran's export market with $5.67 billion (14.4%).

Oman has adopted a significantly more positive approach to Iran than its Gulf neighbours. There is regular rapprochement between the two countries, and efforts to increase trade. President Mahmoud Ahmedinejad visited the Sultanate in May this year, at the invitation of HM Sultan Qaboos bin Said, to discuss bilateral economic agreements, specifically with regard to the supply of natural gas to Oman, and to gain Oman's economic support for developing the Hengam (Henjam) oilfield , which adjoin's Oman's West Bukha oilfield, "developed by UAE-based Indago Petroleum".

"Henjam could hold between two to three times as much gas as West Bukha, which is more liquids prone. [ ] There have been previous MOUs between Oman and Iran for the development of Henjam, but a combination of politics, pricing policies and lack of attention by Iran, which has many larger fields to develop, has meant little progress has been made." Energy Intelligence

UAE and Kuwait have also been trying to establish gas supply agreements with Iran, but to date have been hampered by Iran's inability to develop gas supplies for export. Gulf News. "Iran's efforts to build its own LNG facilities have faced delays, in part because US sanctions on Tehran deter investors and block access to some technology." Menafn

As a partner in a bilateral trade agreement with the United States, one might expect, in the circumstances, Oman to be pressured to renege on agreements with Iran.

Perhaps much depends on how one defines the companies that one deals with in Iran. Are they simply private sector Iranian companies or do they belong to the Islamic Revolutionary Guard Corps? Since the State, which incorporates the IIRGC, owns all mineral rights, then the latter proposition is probably true. I can imagine that the Omani authorities are in a quandary, since it is particularly this group that the USA is targeting.

Let's look at some details. In May 2007 Energy Intelligence wrote "Oman expects to import 1 billion cubic feet per day (10.3 billion cubic meters per year) of Iranian gas over the next five years -- some of which could be exported via Oman's LNG terminal or be used as feedstock for petrochemical projects.

Iran and Oman signed a memorandum of understanding to study gas fields around the Musandam Peninsula on the Omani side of the Strait of Hormuz, on Tuesday (IOD May.16,p8). It is the latest agreement signed between the two countries, which have tried for the last decade to get a joint gas development program for Henjam off the ground."

Oman has significant gas reserves of its own, which it exports overseas to raise revenue and uses as energy supplies for its own industrial infrastructure. "According to OGJ (Oil and Gas Journal), Oman’s proven natural gas reserves stood at 30 trillion cubic feet (Tcf) as of January 2007. [ ] However, despite the recent rise in production, additional natural gas reserves have not been located as quickly as the government had hoped. Some industry sources have speculated that, given the country’s long-term liquefied natural gas (LNG) export obligations, natural gas supplies may be overcommitted in Oman." EIA

Oman needs the gas. Apparently, the Sultanate offered "generous proposals [to Iran], which included signing an upstream deal and building an offshore pipeline, in the hope of reaching a quick agreement on the import of up to 70 million cubic meters per day of natural gas." Energy Intelligence, May 2007.

If gas is discovered in sufficient quantity in the Hengam field, it will be transferred by pipeline, which has yet to be built, or it could be piped to northern UAE where it would be swapped with Qatari gas from the Dolphin Gas Project. Oman has the facilities at Qalhat to convert the gas to LNG (liquefied natural gas), when can then be exported by bulk carrier. Presumably the gas can be piped directly to where it is required in country.

A Reuters' report reprinted in Qatar's English-language newspaper, The Peninsula, of 27th June this year, quoted Oman's Commerce and Industry Minister Maqbool bin Ali Sultan, who signed the deal with Iranian Oil Minister Kazem Vaziri-Hamaneh, as saying, “In future Oman needs a huge amount of gas, so we are negotiating with Iranian officials to buy gas from Iran. The joint cooperation project ... does not include just gas imports but also exploring, extraction and transfer by pipeline to Oman.”

Another obstruction to agreement has been Iran's insistence on pricing its gas according to the use to which Oman puts it. So the price would presumably be higher for gas that was earmarked for export, since gas used in country has a price fixed by government at $1.50 per million Btu. Oman would rather have a single price system.

The Tehran Times reported on 20th October that talks on the export of Iranian gas to Oman were going well, and were expected to be finalised in March 2008, in time for the Iranian New Year.

Earlier this week, HH Sayyid Fahd bin Mahmood al Said, Deputy Prime Minister for the Council of Ministers, led a high-ranking delegation of ministers to Qatar, for talks with Shaikh Hamad bin Khalifa al Thani, Emir of Qatar, and his heir apparent, Sheikh Tamim bin Hamad Al Thani. The visit has been largely unreported in the international press. The Times of Oman led with the usual commentary about brotherly discussions and review of existing cooperation between the two countries in political, economic, social and educational fields, but did emphasise that the talks focused on the supply of gas.

Sayyid Fahd was accompanied by Yousuf bin Alawi bin Abdullah, minister responsible for foreign affairs; Maqbool bin Ali Sultan, minister of commerce and industry; Mohammed bin Ali bin Nasir Al Alawi, minister of legal affairs; Dr Mohammed bin Hamad Al Romhi, minister of oil and gas and Hamed bin Mohammed Al Rashdi, minister of information - a formidable team.

Of course, this is probably a coincidence, but did one or other of the two parties have prior information about the new US sanctions? If the Iranian deal is going to fall through, Oman absolutely needs to have faster, securer access to Qatari gas.