30 January, 2008: In a week where violence continued to escalate in Kenya and world markets remained wary about the strength of the U.S. economy, Iran looked to score some points, both economically and diplomatically, by taking advantage of developments in the European energy market.

As I wrote last week, Russia’s recent deals in Serbia and Bulgaria have strengthened its position as the European Union’s primary supplier of natural gas. There is little doubt that the EU is the biggest loser after these events transpired as the bloc had endeavored to diversify its energy suppliers. The greatest concern now for Brussels is how it can supply its own Nabucco pipeline project through southeast Europe.

While Russia’s Gazprom has been quick to snap up deals wherever it can-- the ones last week were only the most recent examples--the Nabucco project has been mired in delays. Combine the two trends and the result is uncertainty about the EU project, particularly about where the gas to supply the pipeline will come from.

Seeing an opportunity for a foreign policy coup--and a financial windfall-- Tehran stepped into the fold last week saying it was prepared to supply the flagging project with gas. The Islamic Republic’s Foreign Minister Manouchehr Mottaki said: “The EU has already pointed out the need to diversify its gas supplies. One of the areas in which Iran can cooperate with Europe in the energy sector is Nabucco… What choice Europe will make depends on Europe itself.” Iran sits on natural gas reserves of at least 100 billion cubic meters-- second only to Russia’s reserves.

The posturing over Europe’s supply of natural gas reveals much about the complex relationship that exists between foreign policy goals, sanction efforts, and economics.

For its part, the U.S. has been trying to tighten the sanctions on Iran, thereby further squeezing the Persian state for the latter’s efforts to develop a domestic nuclear program. Washington fears that any energy revenues will go towards funding Tehran’s nuclear efforts, which the latter contests are for civilian purposes only. However, according to a recent report released by the U.S. Government Accountability Office (GAO) on the effectiveness of the existing sanctions, the U.S. State Department has “raised concerns about possible energy deals between Iran and potential foreign investors.” The report went on to note that since 2003 Tehran has sealed energy deals amounting $20 billion, despite the sanctions and trade restrictions that are in place. As of now, much of this money has yet to be delivered and Iran’s energy sector remains drastically under-funded, which contributes to the worsening economic picture there; currently, inflation stands at 19% in the Persian nation.

And yet, Europe desperately wants to diversify its natural gas supply. What if Tehran is the EU’s best shot at finding an alternate supplier in Central Asia-- not an unreasonable assertion given Russia’s agreements with Turkmenistan and Kazakhstan in December? At what point will Brussels decide that Iranian gas is too important an asset to pass up? If this time comes, how will it affect Europe’s commitment to the ongoing sanctions efforts (in which Europe is a leading protagonist)?

In another case, despite being one of the U.S.’s largest trade partners and strongest allies, New Dehli recently reasserted its commitment to the pipeline that will carry Iranian gas through Pakistan into India--a project that had raised “concerns” in Washington, according to the GAO report. India’s booming economy and surging development must be sustained and that means Iranian gas. What other states are going to use this same calculus?

Staring down historically high energy prices, leaders around the world are being forced to make decisions that they might otherwise choose not to. The choice is between a nation’s strategic national interests or a government’s political and diplomatic aspirations? While this conundrum might not be a new one in terms of energy matters, I wonder whether rising energy prices and the slowing global economy are putting extra pressure on governments around the world. Furthermore, what might these trends mean for diplomatic negotiations in general in the coming months and years? Send us your thoughts at editors@diplomaticourier.org.