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LNG Brings Russia And China Closer

Russian-Chinese relations grow stronger with…

Zainab Calcuttawala

Zainab Calcuttawala

Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

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How Russia Is Using Oil Deals To Secure Its Influence In The Middle East

Putin

A string of oil deals between Russian oil companies and Arab petrostates have shifted the center of political gravity in the Middle East and North Africa towards Moscow – counteracting the effect of decades of American military and political involvement as U.S. President Donald Trump’s plan for the region remains unclear.

The 2014 oil price drop hit the national economy hard, causing the price of the ruble to plummet and GDP growth to grind to a halt. This has pushed Moscow to look outward to project strength as a crippling recession proceeds on the domestic front.

The Arab World has been Putin’s favorite arena to grow the Russian sphere of influence. Moroccan King Mohammed VI’s visit to Moscow last year brought the two countries closer together on tourism and counterterrorism issues. But the North African country’s lack of oil or gas resources did not leave room for further discussions on Russia’s flagship foreign policy issue—energy.

The rest of the Middle East and North Africa, however, is brimming with proven fossil fuel reserves, and Putin has used his massive state-owned energy companies to carve out political opportunities in vulnerable and stable Arab nations.

Syria took the first dose. The continuation of President Bashar Al Assad’s regime is all but guaranteed thanks to Russian political maneuvering in the months leading up to Trump’s inauguration and the Russian military’s contribution in the fall of several rebel strongholds in major Syrian cities.

Russian oil and gas companies – all intimately related to Putin’s personal wealth – have reaped the greatest rewards from Moscow’s intrigues. Related: The Discounts Are Over: U.S. Shale Is About To Get More Expensive

According to Sputnik, which quoted Dmitry Sablin, Assad told a visiting Russian delegation of lawmakers this week that neither Iran nor China has companies with a worldwide reputation in the oil and gas sector like Russia has. Therefore, Assad “sees only the work of Russian companies”, Sablin said.

State-owned oil and gas company Rosneft has shaken up the MENA region the most so far.

Late last year, American authorities rechecked the terms of a deal for the purchase of a minority stake in Rosneft by the Qatari sovereign wealth fund commodities trader Glencore. At the time, the White House said the arrangement could be in violation of international sanctions levied against Russia after the country forcibly annexed Ukrainian Crimea.

"The experts at the Department of Treasury that are responsible for constructing and enforcing the sanctions regime will carefully look at a transaction like this," Josh Earnest, the press secretary for the Obama Administration, said.

Since the $11.3 billion deal profits the Russian government and not Rosneft itself, Moscow argued that it did not violate the terms of the sanctions, which specifically named no-go entities.

Two years ago, in Egypt, Rosneft signed two deals to supply liquefied natural gas and other petroleum products to Cairo. In the months following, Russia doubled down on its energy investments in the country, offering $25 billion to build a 1,200 MW nuclear power plant over 12 years.

Putin made his entrance to Egypt at an opportune moment. "The NPP construction project in El Dabaa near Alexandria is important in itself and it is a much more significant project in positive terms than return of Russian tourists to Egypt," Egyptian Professor and energy strategist Tarek Heggy said in an interview with TASS this week. “The Mediterranean gas will be enough to cover national demand for the next 30-35 years; therefore it is highly important to start building the NPP now in order to provide ourselves with electric power after that.”

Most recently, Rosneft moved into Iraq and Libya, expanding its footprint in two Middle Eastern countries with weak domestic stability just recovering from years of civil strife.

“We need the assistance and investment of major international oil companies to reach our production goals and stabilize our economy,” NOC Chairman Mustafa Sanalla said this week in an official statement. Related: Is The Trump Administration About To Rescue The Russian Economy?

The Russian company agreed to by oil from Libya’s National Oil Corporation and promised to new markets “worldwide for Kurdish crude oil,” according to a statement by Chief Executive Officer Igor Sechin.

By taking over part of the Kurdistan Regional Government’s distribution burden, Russia is helping the semi-autonomous zone bypass potential hurdles with Baghdad, which controls the flow of oil through crucial pipelines. Disagreements between the Iraqi capital and Erbil regarding oil export contracts have caused pipeline closures in the past. With a new ally in Russia, the KRG can devise new ways to get their oil products out without having to negotiate with the Iraqi government, buttressed by the U.S.

This is just a snapshot of the impact a single company has had on a slew of MENA petrostates. Transneft, Gazprom and other Russian firms have other deals in related fields that entangle Moscow’s interests in weapons sales with the ambitions of Arab leaders seeking to grow their oil wealth and maintain the strength of their regime through force.

By Zainab Calcuttawala for Oilprice.com

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