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Gas from the Mullahs: Micheline Calmy-Rey and the Swiss-Iranian Gas Deal

Friday, March 28, 2008

Switzerland's Social Democratic foreign minister Micheline Calmy-Rey has a subtle approach to the issues that fall within her area of responsibility. When it is a matter of deciding between Swiss business interests and the upholding of human rights, her answer is: "we can do both!" The latest example is the gas deal between the Laufenberg Electricity Company (EGL) and Iran that was signed last week in Tehran in the foreign minister's presence.

Calmy-Rey let it be known that she used the visit to Tehran to explain matters of particular concern to her: among them the "pursuit of the human rights dialogue between Switzerland and Iran." For two hours, she debated with her Iranian colleagues about controversial issues like the death penalty and corporal punishment and she sharply denounced Tehran's anti-Israeli rhetoric.

And then she gave way to the representatives of Swiss industry, who were able to sign the gas contract without Tehran being required to make any political concessions. Thus Iran will be selling around $1 billion in gas per year to the Swiss company for the next 25 years.

The Mullahs drive a hard bargain. They try to cover up the extent to which the Iranian energy sector is dependent upon foreign investment. One year ago, the Iranian oil minister announced delays in major energy projects: As a result of the controversy over the Iranian nuclear program, banks had become less willing to invest in Iran. Nonetheless, the Mullahs succeed in dictating their conditions again and again. Thus, they insisted that a member of the Swiss government be present for the signing of the gas contract: The Iranian party to the contract is, after all, a public company. If the Swiss failed to comply, they threatened, the deal would not happen. Calmy-Rey understood the implications -- and caught a plane to Iran.

The result is a victory for Tehran. While the U.N. Security Council applies a new round of sanctions against Iran and President Bush calls for an international boycott of the country, in order to force Tehran to give up its nuclear program, Calmy-Rey has strengthened the Mullahs' hand. The visit of the Swiss foreign minister is already being exploited by Tehran for propagandistic purposes. According to the Iranian journalist Ramin Mostaghim, the regime wants to use the deal to show its internal critics just how ineffective the U.N. sanctions are. By making the trip to Tehran, moreover, Calmy-Rey has provided the Iranian regime with a certain international prestige.

The commercial interests of EGL are, of course, understandable. Iran has the second-largest natural gas reserves in the world after Russia. It is for this reason that the Austrian energy company OMV has likewise decided to invest billions of dollars in Iran -- a move, however, that was not to the liking of the market. When OMV managers announced their big plans for Iran last year, the OMV share price fell sharply. In light of the conflict between Iran and the U.S., analysts judged the project to be "too risky."

As Turkey discovered this past winter, moreover, Tehran is an unreliable partner. Because of the extremely cold temperatures in Iran, Tehran reduced its gas shipments to Turkey in order to be able to deal with the shortages on the domestic market. According to a spokesman for the Iranian national gas company, the Iranian President had ordered that no gas should be exported "so long as we cannot cover our own internal needs."

The most serious cause for concern, however, lies elsewhere: Every major contract that Tehran concludes with a European client increases the dependency of the continent upon the Iranian theocracy. Gas shipments to Europe alter the calculations made by the clients on the question of sanctions -- in Tehran's favor, of course.

Business and politics cannot be separated from one another. Tehran uses the proceeds from its energy dealings to placate the Iranian population with food and fuel subsidies. The natural gas exports thus help to secure the stability of the regime.

The Swiss government is evidently prepared to accept the political risks and consequences of the deal -- even though the Iranian gas is not destined to diversify Switzerland's own energy supplies. EGL is interested in the Iranian gas for its power plants in Italy. According to EGL spokeswoman Lilly Frei, some of the gas is supposed, in addition, to be slated for the wholesale business in southeastern Europe. The aim of EGL is to strengthen its position on the European gas market. Swiss consumers will only be using the gas later on -- if at all. In light of the risks involved, one can well wonder whether Calmy-Rey's quick trip to Tehran served interests that Switzerland should want to be defending.

Pierre Heumann is the Middle East correspondent of the Swiss weekly Die Weltwoche. The above article first appeared in German in the March 20 issue (no. 12/08) of Die Weltwoche. The English translation is by John Rosenthal.

Image: Iranian President Mahmoud Ahmadinejad; Swiss Foreign Minister Micheline Calmy-Rey.