The recently signed gas supply deal between Russia and Iran could shake up the international gas market in a big way if the Kremlin gets its way.

The much-discussed gas MoU, unveiled in July, brought forth initial details of the supply deal between Gazprom and the National Iranian Gas Co. (NIGC), which had been hammered out in June but kept under wraps.

According to outgoing Iranian Oil Minister Javad Owji, a 30-year contract is on the cards, involving the supply of up to 300mn cubic metres of Russian gas to Iran per day, or roughly 110bn cubic metres annually.

The volume is nearly half of Iran’s daily gas consumption, where domestic output nearly meets demand, yet sanctions constrain re-exports. So, the aspiration is indeed noteworthy.  

At an Iranian cabinet meeting, Owji revealed that the Russian gas will be delivered to Iran via the Caspian Sea.  

Moreover, Iranian officials pointed to Russia's key role in setting up a gas hub within the country and bolstering the North-South international transport corridor.

Russia's role in expanding the international transit corridor and transforming Iran into a regional energy hub by funnelling Russian gas through Iran to other parts of the world or our eastern and southern regions cannot be overstated," Iran’s Acting Foreign Minister Ali Bagheri Kani said in an interview with Newsweek.

The key question arises: why does Iran need such a huge amount of Russian gas? This amount far exceeds domestic demands, pointing towards the gas hub concept. Russia would funnel gas to northern Iran and subsequently purchase gas from the Islamic Republic in the south. 

The deal potentially links the Indian demand for gas to both countries through a complex web of gas sharing, which would sidestep US sanctions.

However, to turn these ambitious plans into reality, the logistics and delivery mechanisms to India demand careful consideration. The first route, crossing Pakistan, presents geopolitical complexities.

The second option, a direct marine route to India, poses technical challenges. There is also the possibility of supplying liquefied natural gas (LNG), but sanctions on Russia and Iran doubt their ability to construct new liquefaction facilities independently.

Questions are being raised about the gas transportation infrastructure on the Caspian Sea bed. It entails not only huge investments to lay a pipeline by partners but also geopolitical considerations, including legal challenges that could stall construction.

In August 2018, the leaders of the five Caspian states – Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan – put their signatures on the Convention on the Legal Status of the Caspian Sea, ending over two decades of negotiations that began in 1996. As things stand, Iran remains the sole country yet to ratify the document, and without its endorsement, the Convention lacks legal force.

As per the convention, Caspian states are at liberty to lay underwater cables and pipelines on the seabed, along with underwater trunk pipelines, provided their projects adhere to international environmental norms and standards.

This doesn't require the green light from all five states but only the consent of the countries through whose sectors the pipeline/cable will pass.

The concept of laying a gas pipeline on the Caspian Sea bed first emerged back in 1996, although with a markedly different route and purpose. The project was predominantly pushed by the US, aiming to challenge Gazprom's stronghold in Europe by offering alternative gas supplies from Central Asia.