Russia and Iran advance Caspian gas deal as Hormuz closure drags on

Russia and Iran advance Caspian gas deal as Hormuz closure drags on Moscow and Tehran are formalizing pipeline supply routes that would bypass the Strait of Hormuz, with initial volumes of 2 bcm potentially expanding to 55 bcm annually. Russian Energy Minister Sergey Tsivilyov returned from a working visit to Iran on July 13 with joint gas projects moving forward, the Russian Energy Ministry reported. Initial supply volumes could reach 2 billion cubic meters, with potential to expand to 55 billion cubic meters annually.⁵ The Iranian side indicated that approximately 300 million cubic meters per day would flow from Russia to Iran via the Caspian Sea — a route that never touches the Strait of Hormuz.⁵ Iran shut the Strait of Hormuz earlier this year, halting oil and liquefied natural gas traffic through the waterway. With JKM Asian LNG prices at $23.17/MMBtu at Friday's close (2026-08-29), the premium for supply that bypasses the strait has become a tangible commercial incentive.³ A Caspian pipeline arrangement would feed Iran's domestic grid and potentially free up Iranian gas for reinjection into oil fields or other uses, though neither government has specified the end-use allocation.⁵ The 55 bcm ceiling demands scrutiny. Power of Siberia 1 delivered approximately 38 billion cubic meters to China in 2025, and both governments agreed to expand its capacity further.¹ Supplying 55 bcm via the Caspian while sustaining Chinese and other commitments would stretch Russia's available gas infrastructure well beyond current demonstrated output. The 300 million cubic meters per day figure cited by Tehran is the number to test against operational reality as talks progress.⁵ Tehran's financial position complicates the deal. Aramco CEO Amin Nasser warned that lost output since February equals 2.6 billion barrels — one month of global crude production — and restoring it would take 18 months at an average of 2.1 million b/d even if Hormuz reopened immediately.⁶ Iran's capacity to pay for Russian gas, or to barter in kind, depends on oil revenues that the Hormuz closure itself has disrupted.⁴ Washington and Doha signaled progress on an Iran draft deal in early August, with oil extending losses on the news.⁶ But the infrastructure talks between Moscow and Tehran point toward planning for a prolonged closure, not a swift diplomatic resolution. Physical pipeline negotiations and ceasefire diplomacy are moving on separate tracks, and the gap between them is widening.² Russia's own export position adds another variable. Weekly seaborne crude exports dipped below 4 million b/d for the first time in six weeks, coming in at 3.9 million b/d, as a relative lull in Ukrainian drone strikes on refineries allowed throughputs to rebound to 4 million b/d.⁶ Urals crude shows bullish contrarian signals against the broader bearish consensus, with a contrarian signal strength of 0.70, driven by supply tightness.⁶ Whether redirecting gas exports toward Iran would eventually show up in Urals differentials is a question traders in Russian crude will be pricing over the coming weeks. The broader backdrop involves China. Putin arrived in Beijing on Wednesday (2026-05-20) to meet Xi Jinping, with the Power of Siberia 2 pipeline on the agenda. Kremlin foreign policy aide Yuri Ushakov said on Tuesday (2026-05-19) that the project "will be discussed in great detail between the leaders."² The planned 2,600-kilometer pipeline would carry 50 billion cubic meters annually from Russia's Yamal fields.¹ But pricing has been the sticking point throughout. China sought terms matching Russia's domestic rate of around $120-130 per 1,000 cubic meters; Moscow pushed for pricing closer to the oil-indexed structure of Power of Siberia 1.² Chinese imports of Russian oil jumped 35% year over year in the first quarter, according to official customs data, but gas negotiations have proven harder to close than crude supply arrangements.¹ China holds around 1.23 billion barrels in onshore crude inventory, sufficient for roughly 92 days of refining needs according to Kpler senior oil analyst Muyu Xu.¹ LNG exposure is the more acute vulnerability, with JKM at $23.17/MMBtu reflecting the Hormuz disruption in traded Asian prices.³ A pipeline link that bypasses the strait entirely would structurally reduce that exposure, which strengthens Beijing's negotiating interest even if it hasn't yet shifted its pricing position. Qatar's North Field East expansion, with contractors Chiyoda and Technip Energies having resumed construction and the second train completed, represents the competing supply scenario.⁶ If new LNG capacity comes online ahead of schedule, the urgency for pipeline alternatives could ease. The contract terms Russia and Iran settle on — and whether Tehran can fund its side of the arrangement — will tell traders whether the July 13 talks were substantive or a staging exercise for a longer negotiation.⁵