On January 17, during an Iranian delegation’s visit to Moscow led by Iranian President Masoud Pezeshkian, Russia and Iran finalized an agreement to build a gas pipeline that will pass through Azerbaijan. Following discussions with his Iranian counterpart, Russian President Vladimir Putin confirmed that plans for a gas pipeline from Russia to Iran are progressing with negotiations on the pricing of gas in final stages. The initial supply volume is expected to reach up to about 2 billion cubic meters annually, with the potential to expand to 55 billion cubic meters annually – roughly one-third of the European market’s capacity, which is where Russia was exporting much of its gas before its February 2022 invasion of Ukraine.
The agreement grants Iran the right to resell surplus imported gas to other countries and is expected to generate up to $12 billion in annual revenue for Tehran over its 30-year term. For over a year, Russian officials have stated that Russia and Iran are intent on creating an energy hub that would involve Qatar and Turkmenistan. They are also working on potential swap arrangements, for instance, for Russian gas to be used domestically in Iran, and then northern Iranian provinces would export gas for use domestically in Turkey. Additionally, Russia and Iran are exploring establishing an electronic gas trading platform in southern Iran, where the government has long considered relocating the capital from Tehran.
The decision to push the gas cooperation forward follows a series of previous agreements, including a June 26, 2024 strategic memorandum between Gazprom and the National Iranian Gas Company for Russian gas deliveries to Iran. In 2023, then-Oil Minister Javad Owji negotiated nearly $40 billion in joint projects between Tehran and Gazprom. These included Russian assistance in developing the Kish and North Pars gas fields as well as six oil fields, liquified natural gas production projects, and the construction of gas export pipelines.
Iran’s willingness to increase gas cooperation with Russia fits into a broader trajectory of Iran’s gas industry. In 2022, Tehran began gas swaps with Central Asian and Middle Eastern countries. In February 2023, Tehran announced its openness to receiving, in a swap scheme, large amounts of gas from Russia and Turkmenistan in northern Iran that would be sent to Iran’s southern provinces and then exported to Pakistan.
Opportunity and Challenges in Iran
Russia sent 140 billion cubic meters of gas to Europe in 2021 but only 24 billion cubic meters in 2023. With this sharp decline in exports to its main traditional market, the January agreement could allow Moscow to send 55 billion cubic meters to Iran. This would match the capacity of the inoperable Nord Stream pipelines that connected Russia and Germany but were damaged in attacks in September 2022.
Despite possessing the world’s second-largest gas reserves (33.9 trillion cubic meters, per OPEC figures), Iran struggles with inadequate gasification in some regions and underdeveloped infrastructure, leading to supply shortfalls, especially in the north. Iranian gas exports primarily go to Turkey (around 10 billion cubic meters annually) and Iraq (approximately 4 billion cubic meters annually). However, Iran has fallen short in fulfilling its export obligations and has struggled to meet the growing needs of the domestic market due to uneven development of gas transportation infrastructure and a lack of gas storage facilities across Iran. Meanwhile, a proposed export pipeline to Pakistan and India – once involving Gazprom – remains stalled due to geopolitical tensions, including U.S. pressure on Islamabad, insecurity in Baluchistan, and Pakistani-Indian disputes.
Accessing the around 300 million cubic meters of natural gas in Iran that could be transported daily through the Caspian Sea would require significant investment in pipeline infrastructure, operational safety guarantees, and multiple pipeline branches. Therefore, the route through Azerbaijan is the most feasible option for gas deliveries from Russia to Iran. Currently, Russia and Azerbaijan are connected by the Mozdok-Makhachkala-Kazi Magomed pipeline, which has a capacity of 13 billion cubic meters per year. This pipeline, originally designed to carry gas from Russia to Azerbaijan, was previously used for reverse flow (up to 2 billion cubic meters per year). Today, it is being repurposed for its initial function, with up to 5 billion cubic meters per year potentially reaching Azerbaijan, which could then redirect supplies to Europe under certain agreements.
Azerbaijan is also linked to Iran via the Soviet-era Hajiqabul-Astara-Abadan pipeline, currently operating at 500 million cubic meters per year – well below its initial 10 billion cubic meter capacity. If utilized, this route could allow Russia to transport up to 10 billion cubic meters annually to Iran, though Iran’s willingness to facilitate such an arrangement remains uncertain.
For Gazprom, securing new markets is now a greater priority than negotiating high prices. Iran aims to purchase Russian gas at around $100 per 1,000 cubic meters, though the final price may be higher. No agreement has been reached yet on the price of Russian gas for Iran. There are concerns negotiations may become prolonged similar to the talks that began in the late 2010s between China and Russia over the Power of Siberia 2, which dragged on for years over disagreements on prices. The price of supplies to Iran may be lower than for deliveries to Europe and China, therefore exporting gas to Iran will not significantly stabilize Gazprom’s economic position, nor will it curb domestic gas price increases in Russia.
Furthermore, Iran’s role as a potential regional gas hub remains questionable. Under local regulations, imported gas must first be sold to Iranian state companies before being resold. Given the limited number of potential buyers and the complexities of international gas markets, this project is unlikely to dramatically alter the region’s energy landscape. There are also questions as to how Iran will be able to pay for imported gas given the heavy international sanctions.
Additionally, it remains uncertain whether Azerbaijan will easily permit the pipeline to pass through its territory, particularly given the distrust between Tehran and Baku, periodic tensions between Moscow and Baku, and Azerbaijan’s cooperation with Western countries. Therefore, managing east-west and potential north-south gas flows could be a difficult balancing act to perform.
