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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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Russia To Expand Influence In Iraq’s Oil Heartland

With Rosneft having effectively taken control of Kurdistan’s oil and gas sector in northern Iraq through the deal done in November 2017, Russia had been looking to leverage this presence into a similarly powerful position in the south of the country. In particular, Moscow had sought to strike new oil and gas field exploration and development deals with Baghdad as part of Russia’s role in intermediating in the perennial dispute between Kurdistan and the south on the budget disbursements for oil deal. These ambitions were put on hold as Russia did not want to be associated with the increasingly overt anti-American militancy in southern Iraq that resulted in a number of strikes against U.S. military installations. Last week, though, Russia signalled that its intentions in southern Iraq are back on track, as Moscow’s ambassador to Baghdad, Maxim Maksimov, stated that: “Russian companies are willing to mobilise significant funds and have submitted an investment tender for the al-Mansouriya gas field in Diyala.”

As is the Russian way, this simple statement belies a figurative hornets’ nest of other less simple intentions, all of which though are geared towards dramatically increasing its presence in southern Baghdad, in line with that which it wields in Kurdistan and with the level of influence in southern Iraq that is being established by China. Before the recent spate of attacks against U.S. military sites in southern Iraq, Russia had stated that a number of its companies were going to spend at least US$20 billion on oil and gas projects in Iraq in the near term, including Zarubezhneft, Tatneft, and Rosneft-related oil and gas entities. These companies and others had their already-agreed projects stalled by Moscow initially as a consequence of the effective seizure of power by the now de facto leader of Iraq, radical cleric, Moqtada al-Sadr, and his ultra-nationalist ‘Sairoon’ power bloc in the May 2018 Iraq elections. The projects remained slow-tracked as anti-American feeling in southern Iraq gathered momentum thereafter, particularly in the aftermath of the 2019 assassination by the U.S. of Iranian Major General Qasem Soleimani. Related: U.S. LNG Investment Suffers As Demand Dwindles

Nonetheless, March 2018 had seen Russian state-owned energy firm Zarubezhneft (and private Iranian company, Dana Energy) sign a US$742 million deal to boost production at the Aban and Paydar oil fields in Iraq’s Ilam province near the border with Iran. At around the same time, preliminary deals had been agreed in Iran for Tatneft to develop Dehloran, for Lukoil to expand its operations into Ab Teymour and Mansouri, and for GazpromNeft to do the same in Changouleh and Cheshmeh-Khosh. In the latter two cases, both companies already have functioning operations in southern Iraq, with Lukoil active in the 14 billion barrel West Qurna 2 oil field, and Gazprom subsidiary GazpromNeft active in the 3 billion barrel Badra oil field (the Iran side of the shared field is Changouleh). Rosneft subsidiary Bashneft is also operational in southern Iraq’s Block 12.

Aside from its broad colonialist intentions, the real clue to what Russia is actually aiming to achieve with this latest manoeuvre into the Mansouriya gas field comes in two parts. The first part was that Iraq has always sought to offer three gas fields together as one development package: Mansouriya, Siba, and Akkas. These three sites form a large skewed triangle across southern Iraq, stretching from Mansouriya in the east (extremely close to the border with Iran), down to Siba in the south (extremely close to the key Iraqi Basra export hub), and then all the way west across to Akkas (extremely close to the border with Syria). Russia’s ally-in-the-making, Turkey, was offered two of the fields – Mansouriya and Siba - directly in 2011, via its national petroleum company Türkiye Petrolleri Anonim Ortakl??? (TPAO), in tandem with other partners. TPAO was also to have gradually bought into the Akkas field that was awarded in the same year to South Korea’s Korea Gas Corp (KOGAS), which was itself a partner with TPAO in Mansouriya. Russia found out within the last couple of months that to partly placate the U.S. ahead of the continued granting of waivers to import Iranian oil and gas for power generation and to partly balance out pro-Russian plans, Baghdad – supported by al-Sadr’s faction – was looking favourably on the idea of Saudi investment in Akkas. This has reportedly now been tentatively approved.

The second part of the clue was the relatively recent signing of a preliminary contract between Russia’s Stroytransgaz and Iraq’s Oil Ministry to develop the hitherto virtually unknown Block 17 in Iraq’s lawless wasteland Anbar province, a place so violent and unpredictable that it was even avoided where possible by Islamic State. The key reason why Russia took over the Block 17 site, a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com at that time, is that the Block is right in the middle of what the U.S. military used to call ‘the spine’ of Islamic State where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf, extremely close to the border with Iran. Related: 5 Points To Consider Before Buying Oil Stocks In 2020

“Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then we’re into Syria, and a short hop to the key strategic ports of Syria – Banias and Tartus - that also happen to be extremely important to the Russians,” he said. “So, what you’re looking at there is the absolute clear sign that the Iran-Iraq-Syria oil and gas pipelines system is now going ahead, which it is, it was agreed just after the U.S. pulled out of the JCPOA [Joint Comprehensive Plan of Action],” he underlined. “It takes time to build, of course, so in the interim the lesser triangle [Mansouriya-Siba-Block 17] offers a great route to move sanctioned Iranian oil – and anything else that Iran might want to move – either south to the markets of Asia or to the East coast of Africa or west to Syria, the Mediterranean and beyond,” he added.

For Russia, this arrangement has only upside potential. “Russia can control the movement of Iranian oil, except that which China is developing, so that it does not interfere with Russia’s own oil export routes and plans in Europe especially, while on the other side it allows for the further development of Russia’s military bases in Syria on the Mediterranean coast,” he underlined. In this context, January 2017 saw Russia sign a deal with Syria that allowed Moscow to expand and use the naval facility at Tartus for 49 years on a free-of-charge basis and enjoy sovereign jurisdiction over the base.

The deal allows Russia to keep both warships and nuclear vessels in Tartus, plus essentially anything else it wants, as the deal stipulates that at the base all personnel and material is under Russian jurisdiction not Syrian. By happy ‘coincidence’ both Banias and Tartus are also extremely close to the massive Russian Khmeimim Air Base and the S-400 Triumf missile system. Although the base only came in to operation in 2015 supposedly to help in the fight against Islamic State, Russia appears to have changed its tactical plans for it, having also signed a 49 year lease on it, with the option for another 25 year extension. A short flight away is Russia’s Latakia intelligence-gathering listening station.

By Simon Watkins for Oilprice.com

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