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Oman and BP Finalize Gas Deal, Signaling Regional Change

By Global Risk Insights | Sun, 05 January 2014 00:00 | 0

Oman and British oil giant BP have agreed to jointly develop a large, untapped natural gas field in Oman’s central desert region, further bolstering the Sultanate’s regional influence in the Gulf, and providing the means to meet growing local demand for electricity. The deal has an estimated cost of $16 billion over 30 years, and is expected to increase Oman’s natural gas production by one-third.

BP joins a long list of foreign companies that have invested in Omani oil and infrastructure in recent years. Oman’s proximity to the Persian Gulf, the Gulf of Oman, and the Arabian Sea grant it access to some of the most important energy corridors in the world. According to the US Energy Information Administration (EIA), revenues from natural gas “accounted for approximately 40 per cent of Oman’s gross domestic product in 2012,” which is likely to increase over the next decade in the wake of further natural gas extraction efforts across the Gulf.

In a move rarely seen in the Middle East, Oman also recently announced plans to double natural gas prices for some industrial consumers from $1.5 per million British thermal units (mmbtu) to $3/mmbtu by 2015. Artificially low gas prices in the Middle East are a remnant of when gas was a plentiful regional resource, yet these government-set prices have discouraged foreign and local investment in energy projects necessary for the Gulf’s economic development. This move will likely increase investment in Oman’s future energy and infrastructure projects, bolstering its economy and its potential as a primary port for exporting gas to points in West Africa, the Middle East, and Central Asia.

While the deal shows promise for Oman’s economy, it also signals a shift away from 20th century partnerships with other nations in the Gulf Cooperation Council, and toward more proactive economic cooperation with Iran.

The Gulf Cooperation Council (GCC), made up of Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, and Oman, was established in 1981 in part to face the threat of a rising Shiite republic in neighboring Iran. While Saudi Arabia has proposed in recent years to form a union, implying further economic, political, and military co-dependence, Omani Foreign Minister Youssef bin Alawi bluntly rejected the proposal, declaring his country “will withdraw from the new body unless it sees the light.”

This adds insult to injury for Saudi Arabia, after it transpired that Oman’s Sultan Qaboos bin Said secretly facilitated dialogue between the United States and Iran, culminating in the recent Geneva agreement curbing Iran’s nuclear program.

Oman has long resisted following the confrontational Saudi position on Iran and other nations that Saudi Arabia perceives as threatening. This past week, the Saudi Ambassador to Britain penned an op-ed in theNew York Times declaring the King’s frustrations with the West’s new diplomatic relations with Iran, saying that “the Kingdom of Saudi Arabia has no choice but to become more assertive in international affairs.”

As a nation with high unemployment and 57% of its population under 25 years old, Oman must strike a careful balance between taking logical steps to develop its economy, and maintaining ties with the GCC. Joining a union and establishing closer political unity with other GCC nations would undermine Oman’s ability to remain independent and neutral in a future potential conflict with Iran. By refusing to join a union and compromise its political and economic independence, it is clear that Oman envisions greater prosperity for its industries and citizens from engagement with Iran than from already established GCC sources.

By Rami Ayyub

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