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Putin’s crude attack on the energy chessboard

August 13, 2017

WITH a burning desire and ambition to bring back the golden Soviet era, Russian President Vladimir Putin has been using energy as a strategic tool to advance his objectives.

Adopted in 2009, the Middle East remains key to Russia’s Energy Strategy to 2030. Ever since then, Russia has been expanding its energy footprint throughout the region – with Russian companies and diplomats striving hard to make inroads throughout the region, boosting political, economic and energy relationships.

Earlier this year, it was reported that despite political upheaval, the Russian state giant Rosneft, headed by a close ally of the Russian president, has done deals with Libya and the Iraqi Kurdish region. As per the deal, Rosneft agreed to buy crude from Libya’s National Oil Corp. Rosneft was also to invest in exploration and production in the country.

On the other hand, Rosneft and Gazprom Neft are also developing eight blocks in Iraqi Kurdistan region. Russia has also agreed to buy Kurdish oil until 2019. As per the deal, Rosneft has also been entrusted with the task of “developing new markets worldwide for Kurdish crude oil,” Chief Executive Officer Igor Sechin said in the company’s statement.

Russian companies are warming up to the Iraqi mainland too. Rosneft is involved in the drilling of Block 12 in southern Iraq. It has spudded its first exploration well in the Western Desert this year and Gazprom Neft is ramping up its 3 billion barrel Badra project. LUKOIL is also striving to expand its dealings in Iraq, where it currently operates the 14bn barrel West Qurna field

In its expanding role in the region, Rosneft — in which interestingly Qatar also has a stake — agreed to buy a $2.8bn stake in Eni SpA’s giant Zohr gas field in Egypt.

The string of deals between Russian companies and Arab states and the strong emergence of Russia on the regional, geopolitical energy chessboard has shifted the center of political gravity in the Middle East and North Africa towards Moscow – away from Washington as some now feel. Putin has used his massive state-owned energy companies to carve out a political and strategic niche in the region.

Bashar Al Assad’s regime in Syria today owes its existence to Putin. The Syrian regime is well aware of it. In case the Syrian civil war ends with the current government staying in power, Russian companies are expected to take part strongly in the resurrection of the Syrian oil and gas sectors. Syria’s reserves — 2.5bn barrels of oil and 241 billion cubic metres of gas – might be small compared to Iraq or Iran, yet they constitute an important piece of the jigsaw puzzle of Middle Eastern energy.

Iran is another trophy that Putin has garnered. Despite domestic production decline in recent years, Russian LUKOIL is now expected to secure 2 brownfield sites in Iran, Mansouri and Ab-Teymour. By means of nine MoUs, Moscow is emerging as a significant player in the Iranian energy sector. Most fields that Russian companies will be involved in Iran are brownfield — only Changuleh is a greenfield — and fall into the medium oil category.

Russia’s energy giant Gazprom is also deeply interested in building Iran’s first LNG plant. The project would involve gas delivery from Iran to India and possibly, eventually, to Laos and Cambodia. Gazprom’s management also is not ruling out a role in the construction of an Iran-Pakistan-India gas pipeline. This might imply that Gazprom is involved in developing the Iranian gas fields necessary to feed it.

In view of its interests on both sides, during the ongoing Saudi-Qatar crisis, Moscow is striving hard to strike a balance. During two weeks in late May to early June, Moscow first welcomed Saudi Crown Prince Mohammed bin Salman and Oil Minister Khalid al-Falih, and later Qatari Foreign Minister Mohammed bin Abdulrahman Al Thani.

Apart from meeting with his Russian counterpart, Alexander Novak, Falih met with top management of state-run oil giant Rosneft and Novatek, to confirm Saudi interest in buying into Russian Eurasia Drilling Co, an oil service firm that soon might be implementing projects in the Middle East and North Africa. Falih also expressed interest in discussing options for Saudi investments in the development of another Russian LNG project — Arctic LNG. Riyadh is believed to be interested in gas investment opportunities including in Russia’s Siberian region. Some recent press reports have also dropped hints that Russia might even join the Organisation of the Petroleum Exporting Countries and that the growing bonhomie between Moscow and Riyadh could also result in a gas cartel (GCEF).

The KGB man in Putin seems to be playing his cards well.

Published in Dawn, August 13th, 2017