Iran opposes Saudi-Kuwait agreement to develop gas field

Apr 18, 2022

The Iranian government rejected a joint Saudi-Kuwaiti agreement to develop the disputed Durrah/Arash field in the Persian Gulf. Statements by both sides potentially set conditions for  reinvigorating a longstanding maritime dispute over the field which remains unresolved. The rhetoric has yet to develop into more aggressive posturing, yet the dispute is worth monitoring as a potential catalyst for wider Iranian-GCC tensions.

On 21 March, the Kuwaiti Petroleum Corporation announced that Saudi Arabia and Kuwait signed a joint document to develop the Durrah Gas Field located in the Persian Gulf. The field, which is known as the Arash Field in Iran, is partially located in territorial waters bordering Iran and is reportedly expected to produce one billion standard cubic feet per day, according to the statement issued by the company.

The Iranian Foreign Ministry denounced the plans, and spokesperson Saeed Khatizadeh said they were “illegal” given the lack of consultations with Tehran, which has a longstanding interest in exploring the field. In his weekly press conference on 26 March, Khatizadeh said the move by Kuwait and Saudi Arabia was “contrary to what has been previously negotiated.” By vaguely referencing “international regulations and procedures”, Khatizadeh said any development of the field must be in coordination with all three countries. The next day, Deputy Minister of Petroleum Ahmad Asadzadeh also countered the Kuwaiti Saudi announcement by saying Iran is undertaking preliminary steps to develop the field. Responding to these statements days later, Kuwaiti Foreign Minister Ahmed Nasser al-Mohammed al-Sabah reiterated Kuwait’s position that the gas field belongs solely to Kuwait and Saudi Arabia, and reaffirmed plans to develop the field in line with the announcement on 21 March.

The statements potentially set conditions for reinvigorating a longstanding maritime dispute over the Arash/Durrah field. The disagreement dates back to the field’s discovery in 1967 when Iran and Kuwait were given control over two concessions within the field. The concessions overlap in the north, where contention over exploration rights persists due to a longstanding inability to define bilateral maritime borders between the two countries.  Kuwait and Saudi Arabia maintain the field is fully located inside the so-called Partial Neutral Zone – a shared area along the Kuwaiti-Saudi border where the two sides have pledged to raise production through joint investments – while Iran maintains that a portion of the field is located inside the Iranian maritime border.

Repeated efforts to discuss the issue by Kuwait and Iran have been unsuccessful, and in 2000 Iran announced plans to commence exploration despite the dispute being unresolved. In response, Saudi Arabia and Kuwait signed a maritime border agreement in 2001 that stipulated joint development of the field, with the agreement announced on 21 March setting out plans to develop the field under Khafji Joint Operations – a joint venture involving Kuwait Gulf Oil and Aramco Gulf Operations. The timeline for development has not been confirmed, but multiple sources indicate production is unlikely to commence within the coming five years, assuming development of the field is started in the near future.

The rhetoric employed in late March has yet to result in more aggressive posturing, and recent indications suggest intent on both sides to resolve the issue through dialogue. On 13 April, the Saudi Foreign Ministry released a statement inviting Iran to “hold negotiations” over the issue with Saudi Arabia and Kuwait “as a single negotiating party.” The statement also affirmed the Saudi-Kuwaiti “right to exploit the natural resources in the area and that they will continue working to enforce what was agreed upon”, in a reference to the March 21 agreement.

Conflicting interests driven by pledges to increase gas production

The conciliatory tone is positive, yet absent progress on the stalled maritime border dialogue, the Kuwait-Saudi agreement and Iranian reactions are worth monitoring as a potential catalyst for wider Iranian-GCC tensions. The dispute is noteworthy given the expressed intent by each stakeholder to increase natural gas production in the coming years. For Kuwait, investments in offshore gas production are partially intended to offset domestic energy consumption, which increased by nearly 8% in 2021 and remains predominantly driven by oil production. The investments in natural gas would also allow the country to meet ambitious oil export targets set out during 2021 which have so far fallen short. Saudi Arabia has set out a similarly ambitious initiative to increase gas production output as part of the so-called 2030 vision that stipulates a significant transition from oil to gas and renewable energy sources. The Durradh field would admittedly constitute a relatively small part of this transition, but the consolidation of a sustainable joint venture enterprise with Kuwait is not insignificant.

For their part, the Iranian government pledged in 2021 to invest $80 billion to increase production capacity to 1.5 billion cubic meters/day, up from 850 million at current levels, partially to offset growing domestic demand and to stabilize exports that remain affected by disruptions. Supplies to Iraq and Turkey continue to suffer from regular cuts, and a plan unveiled by the National Iranian Oil Company identified major investments into offshore fields located in the Persian Gulf as one pillar of a multi-pronged strategy to increase production over the coming years.

The production targets set out by both Kuwait and Iran appear overly ambitious but the political intent to invest in the sector is likely to remain steadfast over the coming years. This will likely galvanize both sides’ positions on the Durrah/Arash dispute given conflicting interests and stakes involved.  While the two sides retain cordial ties, the involvement of Saudi Arabia may act as a catalyst for wider GCC-Iranian tensions and result in a worsening of Iranian-Kuwaiti ties should the border dispute persist. A military confrontation is unlikely, but Iranian naval vessels have been accused by Saudi Arabia and Kuwait of conducting harassment attacks inside the Neutral Zone, and in 2016 a letter of complaint was submitted by the two countries to the UN Secretary-General to address the issue.

As of writing there are no signs that the dispute of the Durrah/Arash field, in isolation, is likely to affect wider security dynamics, but energy-linked tensions involving the GCC countries and Iran in the Persian Gulf are worth monitoring as one of several potential drivers of forthcoming hostilities.  More broadly, Russia’s invasion of Ukraine and related efforts by all stakeholders to potentially exploit international efforts to reduce dependency on Russian energy exports will understandably set conditions for an increase in geopolitical tensions associated with gas production in the region as a whole.

Free trial

Contact us today and get a free 1-week organizational trial.