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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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Russia Pulls Ahead In Middle East Nuclear Race

In most of the industrialized world, nuclear energy has lost its appeal due to, among other reasons, the disaster at Fukushima in 2011. Few countries have ordered new plants to supplement or replace aging ones. China is an exception with 44 reactors under construction meaning that by 2030 almost 150 GW of nuclear energy will be produced. Saudi-Arabia could become the second largest growth market and a boon to companies specialized in nuclear energy across the world. Riyadh will order its first two reactors in 2019 and an additional 19 power plants until 2030.

As there are no Saudi companies with the required nuclear know-how, expertise will be provided by foreign companies. Several corporations have been shortlisted to provide the necessary expertise. In order to export American nuclear technology, Congress needs to approve the deal. Strong ties and mutual interests such as the containing of Iran would have smoothened a deal on nuclear energy in the past. Recent developments, however, paint a gloomier picture.

Saudi-U.S. relations and challenges

Washington has maintained close relations with Riyadh since the end of Second World War due to the Arab country’s strategic importance. Every president has dedicated precious time and resources to maintain good relations with the Saudis. President Trump is no exception. The destination of his first foreign trip was Saudi-Arabia where $110 billion in military hardware deals were signed.

Despite Riyadh making several foreign policy blunders such as the blockade of Qatar and alleged kidnapping of Lebanese prime minister Hariri, Washington’s support for Saudi-Arabia remained unchallenged. Even the disastrous war in Yemen didn’t change the situation. The murder of one man, however, could possibly do more harm.

The killing of Washington Post journalist Jamal Khashoggi in Istanbul and the obvious involvement of senior leaders in Riyadh have fraught relations. Section 123 of the Atomic Energy Act of 1954 requires several prerequisites as guarantees for the peaceful use of nuclear energy before foreign companies and states are able to use American technology. Five key Republican Senators are pushing President Trump to take punitive actions. According to Senator Marco Rubio "no relationship is too big to fail". Related: Oil Prices Fall To One-Year Lows

In addition, Democratic Senator Edward Markey urged Trump to “suspend discussions on civilian nuclear cooperation with Saudi-Arabia and to revoke any approvals for the transfer of nuclear services, technology or assistance”. Bipartisan pressure on Trump’s administration threatens to derail negotiations. This was before the midterms. The Democrats, which after 8 years have regained control over the House of Representatives, are more critical towards Riyadh on the subject of Khashoggi than the Republicans. This could become a serious challenge for the U.S. administration and for U.S. companies trying to do business in Saudi Arabia going forward.

Russia’s potential win

Among the countries vying for lucrative contracts to build nuclear power plants, is Russia’s state-controlled Rosatom. The company is currently constructing 34 reactors in 12 countries while several other states have shown interest. The order book has increased to $300 billion which adds up to 60 percent of all nuclear power plants under construction. In order to land new deals and service existing agreements in the Arab world, Rosatom has opened an office in Dubai.

Until recently, Russia and Saudi-Arabia were competitors on the global energy market with little cooperation between the energy superpowers. The dramatic fall of oil prices caused by the surge of U.S. shale forced the countries to cooperate which led to the OPEC+ agreement and increased prices. According to Minister of Energy, Khalid Al-Falih Saudi-Arabia is also considering investing $5 billion in the Arctic-2 LNG project led by Novatek and Total.

Although it cannot be said with certainty that Rosatom will receive lucrative orders, Moscow has positioned itself well in recent years to profit from good relations with Riyadh. In case Washington decides to withhold American nuclear technology, Riyadh has plenty of alternatives. The extended track record of Rosatom and attractive conditions have in the past assured the nuclear energy giant of several deals. The Russians meet, on paper at least, the requirements to succeed in Saudi-Arabia which will be assisted by the absence of American competitors.

By Vanand Meliksetian for Oilprice.com

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