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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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New Energy Deals Are Transforming Geopolitics In The Middle East

  • China has been attempting to expand its One Belt, One Road project through the Middle East by heavy funding of energy projects in the region.
  • Ever since the 1973 Arab oil embargo, the U.S. has attempted to gain influence in the Middle East in order to ensure the security of oil.
  • A new pan-Arab power grid could hurt the ambitions of both the U.S. and China in the region, with the potential of even Iran being included in the alliance.

A core strategy of both the U.S. and China in securing the dominant influence in the Middle East is to hold sway over the region’s basic power supplies. The most obvious evidence of this in recent years are the various attempts by the U.S. (including the ‘relationship normalization deal’ program, direct funding to governments, and sanctions, among others) to stop Chinese regional proxy, Iran, from building out its influence across the region through electricity supply contracts and infrastructure expansion. On the other hand, China has done its utmost to counter these U.S. initiatives, primarily through heavy funding of projects connected to its ‘One Belt, One Road’ (OBOR) project that involve extensive on-the-ground presence in the countries receiving the money, as analyzed in-depth in my new book on the global oil markets. A swathe of new project announcements in the last week or so point to a greater impetus on both sides, but also perhaps to the regeneration of the idea of a pan-Arab alliance across the region, including Iran as well, that would scupper the regional ambitions of both the U.S. and China.

In terms of the specific deals, last week saw Lebanon sign a deal with Jordan that will see Lebanon provided with 150 megawatts (MW) from midnight to 6 a.m. local time and 250 MW throughout the day to alleviate chronic power shortages in the country, according to various local news reports. The deal is set to begin after all financing arrangements have been concluded with the World Bank within the next two months. Additional resources for power will come from Egypt, which has agreed in principle to send gas to a power station in northern Lebanon for this purpose. Interestingly, this entire deal involving Lebanon, Jordan, and Egypt – and Syria as well, as electricity will be transmitted across that country too – was put together by the U.S., not Iran, and not China. 

Prior to this deal, the only serious discussion about building out basic power connections between these countries had been focused on Iraq, which, in turn, would draw on Iran’s capabilities in this field. It was no coincidence that just over a month after Israel and the United Arab Emirates declared that they would normalize relations, and Bahrain and Morocco did the same, Iraq announced that it had signed new oil deals with Jordan and Lebanon, with extra elements connected to expanding an Iran-centric power grid to be attached to them later. These extra elements were intended to be electricity supply originating from Iran, given that Iran historically has supplied Iraq with 30-40 percent of all its electricity needs, and had just signed the longest-ever single deal between it and Iraq to continue to do the same. 

In fact, as exclusively highlighted by OilPrice.com at the time, Iraq’s then-Electricity Minister, Majid Mahdi Hantoush, announced that not only was his country working on connecting its grid with Jordan’s electricity networks through a 300-kilometer-line – a project that was to have been finished within two years – but also that plans had been finalized for the completion of Iraq’s electricity connection with Egypt within the next three years. Jordan’s Zawati highlighted that the first phases of the project would enhance the stability and reliability of electricity networks in both countries, as well as adding impetus to the creation of a joint power market in the Arab world. Zawati added that this market should include Saudi Arabia, with which Jordan had just signed a similar agreement to connect the two countries’ electricity power grids. 

This followed comments at the same time from the Saudi Energy Minister, Prince Abdulaziz, that Jordan and Saudi Arabia had launched a power interconnection project accompanied by the establishment of an optical fiber line, which linked the two countries’ telecommunication networks. Shortly afterward, Chinese State Councillor and Foreign Minister, Wang Yi, stated that China attached great importance to the China-Jordan strategic partnership and the unique role that Jordan plays in international and regional affairs, whilst China – through Guangdong Yudean Group - was a key financier (US$1.6 billion) and partner in Jordan’s vital Attarat Power Plant shale oil-fuelled power plant.

Already by the end of 2019, according to Iran’s then-Energy Minister, Reza Ardakanian, Iran and Iraq’s power grids had become fully synchronized to provide electricity to both countries by dint of the new Amarah-Karkheh 400-KV transmission line stretching over 73 kilometers. This also ‘paves the way for increasing energy exports to Iraq in the near future, from the current 1,361 megawatts per day now,’ he said. He added that Iran’s electricity exports to other neighboring countries in the Iranian calendar year ended on 19 March 2020 reached over 8 billion kilowatt-hours (kWh), a mean average increase of 27.6 percent year-on-year. This network, Ardakanian added, did not include the parallel network connections that Iran was consolidating in terms both of direct electricity and gas exchanges, which then included Turkmenistan and Turkey. This, in turn, he said, would be part of the overall project to establish a joint Arab electricity market. 

Although supposedly aimed at helping Iraq reduce its electricity and gas imports from Iran, the second major deal announced last week is in the same ‘pan-Arab’ power market vein, with Saudi Arabia and Iraq signing a memorandum of understanding to connect their electricity grids, according to local news reports. Iraqi Electricity Minister, Adel Karim, said the link-up would be completed within two years, but no further details were provided on precisely how the grids will be connected. No clarification was given either on what was meant exactly by Saudi Energy Minister Prince Abdulaziz bin Salman’s announcement at the same time that: “The Iraqi-Saudi cooperation is not limited to the electrical connection only, but rather it is the beginning of a joint collective action.” This comment followed on from news that work has now begun on the Saudi-Egypt interconnection project, which marks the region’s first major high voltage direct current interconnection, allowing the two countries to exchange up to 3,000MW of electricity. 

Given the crossovers in these apparently Saudi-led power networks and the Iranian-led ones, though, it seems reasonable to conjecture that the ongoing games being played by various Middle Eastern countries to alternately appear as an ally of the U.S. and then of China might be giving way to a more regional-centric Arab alliance that may also include non-Arab Iran, given its shared Muslim faith. Following secret meetings in April 2021 in Baghdad between high-level Saudis and their Iranian counterparts, Saudi Crown Prince, Mohammed bin Salman, said that he sought “good” relations with Iran. He added: “Iran is a neighboring country, and all we aspire for is a good and special relationship with Iran,…We do not want Iran’s situation to be difficult. On the contrary, we want Iran to grow … and to push the region and the world towards prosperity.”

A resurgence of such a pan-regional cohesion and ideology would come as a blow both to the U.S. and China’s policies in the region, both of which in part depend on the ideas formalized in the ‘Kissinger Doctrine’ for the Middle East, as analyzed in-depth in my new book on the global oil markets. Broadly speaking, after the ‘Yom Kippur War’-related oil embargo, several senior U.S. politicians understood that the coordinated stoppage in oil flows by Middle Eastern states marked a fundamental shift in the world balance of power between the developing nations that produced oil and the developed industrial nations that consumed it. One such person was Henry Kissinger, the U.S. geopolitical strategist who served as National Security Advisor from January 1969 to November 1975 and as Secretary of State from September 1973 to January 1977. At that point, the U.S. lacked the crude oil production that would emerge with the shale oil boom that began in earnest in the last decade, so it was desperate to avoid repeats of the Arab states banding together again to control global oil prices and, with that, to significantly affect the U.S. economy and its political power across the world. 

One way it could do that was to consistently undermine any political cohesion between the Middle Eastern countries. This was precisely the approach that Kissinger made a cornerstone of U.S. foreign policy from less than a year after the end of the 1973/74 embargo to arguably the present day. This ‘constructive ambiguity’, as the broader policy was generally referred to, involved letting various Arab states – on a rotating basis - believe that the U.S. was ‘on their side’, whilst all the time pursuing policies that created divisions between them. For China too, such cohesion would create problems for its ‘OBOR’ vision, given its well-documented intolerance of religious freedom of expression, most notable recently in the handling of its own indigenous Muslim population - the Uyghurs.  

By Simon Watkins for Oilprice.com

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