Now that Bahrain is part of the new U.S.-Israel-Middle East corridor of co-operation that is being developed from the U.S. (and Israel), through the UAE (and Bahrain, Kuwait and, in part, Saudi Arabia) through to India, as a regional counterbalance to China’s growing sphere of influence, a series of finance- and oil output-boosting measures are being lined up. From the U.S.-Israel perspective, not only will increasing Bahrain’s oil output bolster the stability of the pro-U.S. ruling al-Khalifa royal family – essential to the security of the U.S. Navy’s regional headquarters that is based in the country - but its continued participation in the U.S.-brokered ‘relationship normalization’ deal with Israel will encourage close neighbor Saudi Arabia to formally acknowledge the two pro-Israel deals done recently. Economically, much remains to be done to repair the damage done to Bahrain’s finances by the second disastrous oil price war launched by Saudi Arabia in less than five years, with Riyadh’s attempt in 2018 to redress part of the damage it had wrought on its neighbor by organizing a US$10 billion rescue package for Bahrain falling far short of what was required for true solvency. Even before the full reckoning of the costs of Saudi Crown Prince Mohammed bin Salman’s (MbS) latest folly on Bahrain’s economy becomes clear, its gross domestic product contracted by 1.4 percent in the fourth quarter of last year, and it now has a fiscal breakeven Brent oil price of at least US$91.80 per barrel (pb), according to IMF figures. The massive discrepancy between this figure and the current Brent price benchmark is even more worrying for Bahrain as the only one of its core revenue streams from oil that is operated domestically - its onshore Awali site, with 125 million barrels of reserves in place - will last less than seven years at the current rate of production, according to the U.S. Energy Information Administration (EIA). Its other key field currently - the offshore Abu Safah site, which is operated jointly with Saudi and the revenues from which are split between the two countries – produces 150,000 bpd of Bahrain’s slightly less than 200,000 bpd output total.
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Having said this, Saudi Arabia’s 2018 attempt to bolster Bahrain’s finances without spending any significant money of its own, may well have inadvertently put Bahrain on the path towards the 2020 relationship normalization deal that it signed with Israel, and which followed shortly after the same sort of deal signed by the UAE. The 2018 US$10 billion rescue package for Bahrain was mainly funded by the U.S.’s other allies in the region - the UAE, and Kuwait – and formed an integral part of Bahrain’s new fiscal program that aimed to eliminate its budget deficit by 2022. Although the US$10 billion was not sufficient to cover all of Bahrain’s funding at that point, it was useful in allowing Bahrain to continue to tap the international markets if required, signaling a backstop of support from the U.S., the UAE, Kuwait, and also Saudi Arabia. These potential funding pools will prove vital for the development of Bahrain’s massive new shale oil and gas find first announced in 2018 but relatively undeveloped since then. The 2,000 square kilometer tight oil and deep gas resources in the Khalij Al Bahrain basin, off Bahrain’s west coast, remains by far the biggest oil and gas find in the Kingdom since 1932 and is estimated to contain at least 80 billion barrels of shale oil and up to 20 trillion cubic feet of gas. Given the EIA estimate that the average recovery factor for tight oil deposits ranges from three percent to six percent of the initial oil in place, and using the lower figure, Bahrain’s new oil find could yield up to 2.4 billion barrels of recoverable oil reserves. This equates to around 20 times more than the Kingdom’s current onshore proved reserves and would allow it to double its current total crude oil production for the next three decades. From a virtually standing start right now to the onset of significant flows from the reservoir the process is estimated to take around five years at a minimum but as interim exploratory drilling results emerge over that period (the U.S.’s Halliburton is involved in this), Bahrain has two choices to finance the development period.
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One option is to try to sell off some of its state assets, at least in part, beginning with stakes in pipelines or plants, and then looking at more upstream assets if and when the oil price begins to significantly recover. One idea that was mooted in this context, a legal source in Abu Dhabi told OilPrice.com, was the sale of a stake in its liquefied natural gas (LNG) facility that was completed earlier this year, located offshore approximately four kilometers east of the onshore receiving facility at the Khalifa Bin Salman Port, with an initial capacity of 800 million standard cubic feet per day. In the current oil and LNG price climate, however, this option looks unlikely to attract much new international capital. The second option, though, now that Bahrain has signed the deal with Israel, looks much more propitious than the efforts in May of Oil Minister Mohammed bin Khalifa Al-Khalifa to tempt international oil and finance companies into the development. According to statements last week from Bahrain’s Tatweer Petroleum – owned by nogaholding, the business and investment arm of Bahrain that is responsible for all upstream operations in the Kingdom - has now established contacts with more than 60 international companies for the extraction of oil from the recently-discovered Khalij Al Bahrain shale oil and gas field.
Ensuring that this field attracts all of the financing necessary to stabilize Bahrain’s economy – and secure its pro-U.S., pro-normalised-relations-with-Israel monarchy – will be a priority for Washington and Jerusalem, all the more so as Bahrain is a key to unlocking what they believe is the latent support in Saudi Arabia for an extension of the two normalization deals across more of the Middle East. At the moment, with the pro-Palestinian King Salman still at the head of Saudi Arabia, the Kingdom has neither publicly supported the Israel-UAE nor Israel-Bahrain deals. Indeed, King Salman told the Organisation of Islamic Cooperation just last year that the Palestinian cause remained a core issue and that the kingdom “refuses any measures that touch the historical and legal position of East Jerusalem.” However, Washington and Jerusalem believe that Saudi Crown Prince Mohammed bin Salman (MbS) is far more sympathetic to these agreements – and to the ultimate strategic aim of the U.S. and Israel of undermining the power of Iran in the Middle East (especially one led by the hardline Islamic Revolutionary Guard Corps) - than his father, King Salman. This is tacitly implied by the fact that currently 62 percent of the US$2.19 billion Israel-UAE property fund for new settlements of UAE citizens into Iran’s Khuzestan – as exclusively revealed by OilPrice.com - comes from Saudi Arabian-connected organizations. King Salman is 84 years old and in poor health and even Saudi’s Foreign Minister, Prince Faisal bin Farhan, cautiously welcomed the Israel-UAE agreement, saying: “It could be viewed as positive.” It is also apposite to note that back in 2002 – not that long ago in global geopolitical terms - it was the Saudis who launched the ‘Crown Prince Abdullah Peace Plan’ at the Beirut Arab summit, offering Israel full recognition in exchange for a return to its pre-1967 borders.
By Simon Watkins for Oilprice.com
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