• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Footloose Iraq Cannibalizes Saudi Market Share

OPEC’s de-facto leader Saudi Arabia…

Alt Text

Is OPEC Considering Deeper Output Cuts?

You could argue OPEC and…

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest.

More Info

Russia Eyes Rapid Middle East Energy Expansion


Having battled through the travails of an ever-tightening sanctions regime and a prolonged economic downturn, which in most cases led to a freezing up or lowering of expenditures and the adoption of a very risk-averse investment strategy, Russian companies are now destined to embark upon a new expansion, this time in the Middle East. With the recently imposed U.S. sanctions further impacting Russia’s ability to form partnerships with Western majors, Iran, Iraq and possibly even Syria will become the new hub of Russian oil-related investments. Immensely rich in oil, yet lacking the funds necessary to exploit it, virtually unsanctionable for any potential cooperation with Russian companies (even sanctions vis-à-vis Iraq are implausible given the ongoing fight against the Islamic State) and brought ever closer together politically on the back of recent developments in the region, the Middle East-Russia axis is bound to get stronger with time.

The most notable external stimulus for Russia’s Middle Eastern drive will be the tightening of the U.S. sanctions regime, limiting partnerships involving Russian oil companies and Western majors. As all big Russian oil & gas companies have a good relationship with the government (NOCs are tangibly closer than others, though), sanctions could be levied against virtually anyone, even against independents. For instance, it was feared that the U.S. Congress might sanctions LUKOIL’s Romanian Trident project (72 percent share), on which it collaborated with the American PanAtlantic (18 percent).

Another external factor is the consolidation of global oil prices, allowing Russian companies to bounce back into profit this year (the Q1 2017 y-o-y profits were significant, with Tatneft achieving a 110 percent hike, LUKOIL – 45.5 percent, Gazprom Neft – 49.1 percent, Rosneft – 8.3 percent). Among Russian majors, only Surgutneftegaz has been in the red during 2017. The profits incurred could be easily spent on the domestic market, but companies have been appraising foreign assets instead of national ones. The main reason for this is the state’s rising role in the Russian oil sector. Currently, 52 percent of domestic oil production is in the hands of state-owned companies (Rosneft/Bashneft, Gazprom Neft). If one is to count in the regionally-owned Tatneft, that number jumps to an unprecedented 56 percent and will likely increase further. Since 2006, when the Subsoil Law of the Russian Federation introduced the notion of mineral resources of federal importance, independents with no state equity share are disallowed from applying for fields containing 70 MMt of oil and/or 50 BCm of gas. Moreover, only Rosneft and Gazprom Neft are eligible to exploit the resources of the Russian Arctic, whose vast reserves represents Russia’s new oil frontier. Hence the political establishment’s favourite, Rosneft, has demonstrated a spectacular buildup in assets. Independents, as a consequence, have ended up in a marginalized position. As LUKOIL’s mature base in Western Siberia is declining, the company managed to secure only niche formations, such as the Caspian Basin, whose oil potential is only a fraction of the gaseous one. After several attempts to expand abroad in the 2000s, Surgutneftegaz has barely moved out of its traditional Khanty-Mansiysk region.

Related: Natural Gas Prices Poised To Rise As Exports Boom

If all the sweet spots in Russia are to be distributed to state-owned companies, why not search for coveted fields abroad? This question resonates with many, but it epitomizes most aptly the plight of LUKOIL, which despite a palpable production decline in previous years remains Russia’s No.2 oil producer. Its traditional domain, Western Siberia, is inching gradually towards depletion and new prospective frontiers are out of its reach since it is a privately owned oil company (Russia’s largest at that). Now LUKOIL is expected to secure 2 brownfield sites in Iran, Mansouri and Ab-Teymour, with the company’s CEO stating that they are currently waiting for Teheran to finalize the IPC conditions so that any sort of judicial uncertainty is eliminated. In general, Russia has the biggest share among foreign countries in securing preliminarily IPC oil fields in Iran by means of MoUs (totaling 9) and it is LUKOIL that won the most prolific ones (See Graph 1), in all likelihood a result of its long-standing ties to Iran which date back to the Caspian swap crude sales. Most fields that Russian companies will be involved in are brownfield - only Changuleh is a greenfield - and fall into the medium oil category.

Graph 1. Russian Participation within the framework of the Iran Petroleum Contract.

(Click to enlarge)

Related: U.S. Oil Sanctions Could Push Venezuela To The Brink

Iran is not the only Middle Eastern country that will witness an influx of Russian companies. Rosneft and Gazprom Neft are developing eight blocks in Iraqi Kurdistan, with the former effectively helping the KRG to stay financially afloat thanks to its prepayments within a long-term supply deal. Russian companies seem to be warming up to the Iraqi mainland, too – LUKOIL has strived to expand its dealings in Iraq, where it currently operates the 14 BBbl West Qurna field, by clinching the Nasiriya Integrated Project. Talks have yielded no significant result so far. However, with Rosneft having spudded its first exploration well in the Western Desert this year and Gazprom Neft ramping up its 3 BBbl Badra project, LUKOIL might get back to the negotiation table. All the more so as LUKOIL’s own Eridu-2 exploratory well, spudded in February 2017 and located right next to Nasiriya, confirmed expectations of a large hydrocarbon field.

The Syrian civil war remains a significant factor in dovetailing the Russian and Iraqi/Iranian points of view. By demonstrating that it is willing to commit substantial resources to the Syrian cause, by shoring up military cooperation with Baghdad and Iran, including the sales of military equipment and arms, Moscow’s status within the region has been cemented. In case the Syrian civil war ends with the current government staying in force, either to the full extent or by means of a political division of powers, Russian companies (the state-owned ones and perhaps Tatneft, too, as it had assets in Syria before the onset of the war) are expected to take part in the resurrection of the Syrian oil & gas sectors. Syria’s reserves - 2.5 BBbl of oil and 241 BCm of gas - might seem small compared to Iraq or Iran, however, they would also constitute an important piece in the jigsaw puzzle of Middle Eastern energy.

By Victor Katona for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Daniel Pearson on August 09 2017 said:
    I am not privy to all the issues involved in the sanctions imposed on Russia by the USA, but I really question if isolating Russia away from the USA is a smart move. We do not have to agree with everything that Russia does, but we need to work together as world leaders instead of further distancing ourselves from Russia.

    Russia put their assets on the line when our POTUS Obama made threats to Syria ('don't cross that line'), yet the POTUS did not back those threats up, and the civilized world had to rely on Russia to bail the USA out in removing the major chemical weapons from Syria.

    Again, we do not have to agree on all issues, but we need to be civil with a major world power such as Russia. The USA governing Congress & House sure are not a perfect model to the other major countries in the world, and if we can promote getting along with them, we should make every diplomatic move to do so and stop being so stoic. Just my humble opinion.
  • Dan on August 09 2017 said:
    Perhaps Russia can use its energy expansion for developing plastics, fertilizer,etc. companies within the Silk Road to further develop trade along its route and enhance the Russian and Consortium of Silk Road Countries economic growth, stability and gold backed currency. Electronic accepted.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News