At the time Russia invaded Ukraine in 2022, the U.S. had few allies left in the Middle East, following a period of disengagement from the region during the presidency of Donald Trump. The policy behind this was encapsulated in his ‘Endless Wars’ commencement address to the United States Military Academy at West Point on 13 June 202 in which he said that the days of the U.S. being the “policeman of the world” were over. This idea found resonance in the U.S. withdrawal from Syria (in 2019), Afghanistan (2021), and Iraq (2021). In practical terms, though, this policy had begun in earnest with the unilateral withdrawal of the U.S. in May 2018 from the Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) with Iran, which had opened the door to a massive increase in influence from both Russia and China across the Middle East, as analysed in depth in my new book on the new global oil market order. Now, however, a newly strengthened alliance between the U.S. and Qatar is proving pivotal to Washington’s efforts to regain its place centre-stage in the region.
Late last week saw comments from U.S. government officials that around US$6 billion in funds due to Iran from oil sold to South Korea were to stay frozen in a Qatar bank for the time being, following the 7 October air, sea, and land attacks by the Palestinian political and military group, Hamas, on Israel. Access to the money had been granted to Iran as part of the 11 September deal that had seen the release of five U.S. prisoners from the Islamic Republic. The deal had also been seen by the U.S. as part of an ongoing process to re-establish a new version of the JCPOA, as exclusively revealed by OilPrice.com back in early July. Ironically, given the events of the last week in Israel, a key part of the rationale behind agreeing a new JCPOA was to reduce the chance of a conflict between Israel and the Arab states, which could potentially draw the U.S. into a direct conflict with Russia and China, as also analysed in my new book. Of all the geopolitical scenarios perennially judged most likely by the world’s governments to escalate into global nuclear war between the superpowers, a military conflict between the Arab states of the Middle East and Israel has always been at or near the very top of the list. Another rationale for a new JCPOA was that it would allow for even greater flows of oil and gas to come from the still-sanctioned Iran to reduce inflation-fuelling oil and gas prices further. Currently, Iran produces around 3 million barrels per day (bpd) of crude oil, and about 1 billion cubic metres per day (bcm/d) of gas. Plans are in place, though, to increase these respectively to 5.7 million bpd and 1.5 bcm/d by 2029 at the latest.
Qatar’s clear support of the U.S. in its US$6 billion-censure of Iran for backing Hamas marks a huge divergence in the emirate’s usually cautious diplomatic posture. This approach has been entirely understandable, given that Qatar has Saudi Arabia on one side of it and Iran on the other, and - up until Riyadh’s shift away from the U.S. alliance and towards that centred on China and Russia – different superpower backers of each to balance as well. After Russia invaded Ukraine on 24 February 2022, prompting a massive reduction in is oil and gas flows to the West, liquefied natural gas (LNG) became the emergency energy source for much of the developed world. LNG, unlike gas or oil delivered through pipelines, does not require years of laying pipelines and building out corollary supportive infrastructure. It also does not require extensive, time-consuming negotiations over complex contracts. Instead, it can be bought quickly in the spot market and shipped expeditiously to wherever it is required. And in the world of LNG, Qatar itself is a superpower, for decades the world’s top exporter.
As also analysed in depth in my new book on the new global oil market order, in the months leading up to Russia’s Ukraine invasion, China had begun to buy and hoard huge quantities of oil and gas from all the main Middle East producers with which it had made big deals since 2018 (when the U.S. had unilaterally withdrawn from the JCPOA). These most notably included Saudi Arabia, Iran, Iraq, and, of course, LNG from Qatar. China’s interest in Qatar began in earnest with a series of major deals in March 2021 with the signing of a 10-year purchase and sales agreement by the China Petroleum & Chemical Corp (Sinopec) and Qatar Petroleum (QP) for 2 million tonnes per annum (mmtpa) of LNG. December 2021 saw another major long-term contract for Qatar to supply China with LNG, on that occasion a deal between QatarEnergy and Guangdong Energy Group Natural Gas Co for 1 mmtpa of LNG, starting in 2024 and ending in 2034, although it could be extended. In March 2022, though, came the first of a series of strategically crucial meetings for the U.S. and its allies with senior representatives from Qatar aimed not only at securing vital LNG supplies urgently for the West and East but also at moving the emirate more decisively into the U.S.’s sphere of influence. Following the meeting in March of Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, with German economy minister, Robert Habeck, U.S. President Joe Biden reiterated his view expressed in January of Qatar as a “major non-NATO ally”.
At around the same time as these political advances were being made by Western leaders towards Qatar, so its major oil and gas firms started to talk of big investments in the emirate, most notably U.S. hydrocarbons giants ExxonMobil, and ConocoPhillips. According to recent comments from ExxonMobil, the company has pumped nearly US$30 billion into gas projects in Qatar within long-term partnership agreements, beginning from the 1990s. It has also contributed to the development of 12 of the 14 gas facilities in the emirate and has invested in 27 LNG vessels to transport Qatari gas. Crucial as well to securing Qatar’s cooperation in supplying emergency LNG supplies after Russian invaded Ukraine, is that ExxonMobil is a partner with QatarEnergy in the massive Golden Pass terminal project on the Gulf Coast of Texas. This was one area from which Germany – the de facto leader of the European Union and the most resistant of these countries to the idea of giving up cheap Russian energy supplies after the Ukraine invasion – was promised LNG supplies.
ConocoPhillips, in the meantime, critically put together another big LNG deal for Germany to run in tandem with that which saw supplies come from ExxonMobil’s Golden Pass terminal. December 2022 saw two sales and purchase agreements signed between QatarEnergy and ConocoPhillips to export LNG to Germany for at least 15 years from 2026. These deals were aimed at securing Germany 2 mmtpa of LNG, sent from Ras Laffan in Qatar to Germany’s northern LNG terminal of Brunsbuettel. According to a statement at the time from QatarEnergy’s chief executive officer (also Qatar’s Energy Minister), Saad al-Kaabi. “[The two sales and repurchase agreements] mark the first ever long-term LNG supply agreements to Germany, with a supply period that extends for at least 15 years, thus contributing to Germany’s long-term energy security.” As also analysed in depth in my new book on the new global oil market order, the fact that these LNG supplies to Germany involved a major U.S. company working with Qatar’s major energy firm told the energy market – and China and Russia – three key things. First, from the perspective of energy buyers in Europe, Washington was not going to allow them to return to a situation in which the continent – and its effective leader, Germany – was bankrolling much of the Russian state through huge imports of its gas and oil. Instead, they could rely on the U.S. and its network to provide whatever was needed. Second, from the perspective of energy sellers in the Middle East, Washington was also not going to stand by while China hoovered up all available energy supplies at the expense of both the U.S. and its allies in the West and in the East. And third, that the new global oil market order has reached a tipping point, so it is time to pick a side.
By Simon Watkins for Oilprice.com
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