Sunday, May 4, 2008

The Rise and Fall of Poland's Iran Option

The Rise and Fall of Poland's Iran Option
Posted: 01 May 2008
by Marek Świerczyński

In its search for new energy supply sources, Poland took a gamble this spring by exploring energy cooperation with the Islamic Republic of Iran. In mid-February, Polish gas monopoly PGNiG signed a letter of intent with the Iranians to cooperate on developing Iran’s gas deposits. This put the Polish state, a close friend of both the United States and Israel, in an embarrassing position. Realizing that enhancing commercial ties with Iran is risky business, Donald Tusk’s government now appears to be looking for ways to bury the gas deal. Poland’s Iran gambit, a bold unilateral move by the company rather than a foreign policy shift, will have to wait for more favorable times.

Importantly, the preliminary deal with Iran Offshore Oil Company was signed by the PGNiG board selected by the previous Law and Justice (PiS) government of Jarosław Kaczyński. He and his twin-brother, President Lech Kaczyński, championed the cause of energy security, seeing dependence on Russia as unacceptable. While the President was negotiating oil and gas opportunities in the Caucasus and the Caspian region, PGNiG was exploring opportunities in Libya, Algeria, Egypt, Nigeria, Norway and Qatar. The idea was to shore up a long-term supplier for PGNiG’s proposed liquefied natural gas (LNG) terminal at the Baltic coast town of Świnoujście.

Initially, Iran wasn’t considered. But in late 2007, this began to change. It’s possible the company saw a window of opportunity open after the publication of the U.S. National Intelligence Estimate (NIE) last December, which seemed to reduce the urgency of the Iranian nuclear threat. Another factor may have been the increasingly stiff competition for LNG from other producers.

Whatever the catalyst, Iran seemed too good to pass up: the Islamic Republic holds the world’s second-largest gas deposits (after Russia) and offers direct extraction opportunities. Poland is not alone in eyeing Iran’s gas fields. A number of second-tier energy companies in Europe are queuing up to enter Iran’s oil and gas sector (Switzerland’s EGL, the French company Total and the Austrian ÖMV all signed preliminary deals). From PGNiG’s perspective, it probably made sense not to be left out. Zenon Kuchciak, the company’s then Deputy Chairman for strategic deals, declared that “Poland needs brave decisions and I am brave enough to support it.”

So the state-owned gas monopoly decided to pursue the Iran option, apparently with neither a broader political consultation nor a business partnership. Former Economy Minister Piotr Woźniak, who handled energy policy, stressed that, foreign policy considerations aside, Iran makes sense from an economic perspective. But Woźniak told this author he did not know about the deal until it was announced last February. This may suggest the Iran move constituted an independent step taken by the company rather than a shift in Polish energy strategy.

Still, at the end of the day, perceptions do matter. The message the Iran deal sent was that the very country that is to host U.S. missile defenses against an Iranian threat may soon be receiving LNG tankers from the Persian Gulf to a gas terminal not far from the proposed missile defense site. The rationale was to bolster Polish energy security by putting a dent in Russia’s energy monopoly. The problem was that PGNiG’s tactics seemed to position Poland as a country willing to flirt with the rogue regime of a Holocaust-denier in the name of sticking it to Poland’s traditional arch-foe, Russia.

It took the government of Donald Tusk a few months to recognize what was going on. They missed the opportunity to block the announcement, but the new vice-premier for economy Waldemar Pawlak called the deal “risky and questionable.” Soon the PGNiG board was replaced, a usual move by any government coming to power. However the timing was probably not a coincidence. The downsides to dealing with Iran seem to have prevailed: any escalation of tensions with Iran, not to mention an all-out war in the Persian Gulf, could threaten any LNG supplies. And the planned missile defense site on Polish soil may become vulnerable to an Iranian attack.

Prime Minister Tusk’s recent visit to Israel makes the prospects for any Polish-Iranian gas deal particularly un-kosher. Though it was unclear if PGNiG’s activities were actually discussed, Tusk was widely quoted in the press as assuring Israel’s leaders that Poland stands firmly behind the Jewish state against any threats from Iran. Mr. Tusk said Iran’s threats annul its place in the international community, and pledged Polish assistance in the event of an attack on Israel. Is any serious energy deal possible with a country whose President has bandied around the idea of Israel being “wiped off the map”? Not likely.

The new PGNiG board, appointed in mid-March, has been conspicuously silent on the subject of Iran. The “hot potato” they inherited seems to be too hot for now, and there is reason to believe the Iran deal will remain undecided for the time being. In the geopolitics of Central Europe’s energy security, Iran could be the Ace in the Hole, but for now it’s a Joker. For this card to become feasible, the world has to change (either through a new U.S. approach to Iran or a change within Iran itself). In any case, this is too long of a time horizon for a country that puts energy supply diversification at the top of its international agenda. For now, the best place for Poland’s Iran card is at the bottom of the deck.

Marek Świerczyński is a journalist at TVP in Poland.

The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.

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