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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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This Huge Gas Field Is Critical To Russia’s Middle East Agenda

The termination last week of the development contract of Iraq’s Mansuriya gas field for the consortium led by Turkey’s state-owned Türkiye Petrolleri Anonim Ortakl??? (TPAO) re-opens the way for Russia to take up where it left off in 2017 through the involvement of a corporate state proxy in developing the field. This will allow Russia to expand and later tighten its control over the south of Iraq, just as it has done in the north, in order to optimize oil and gas flows from the country as a whole and to use it as part of a longer transportation and export corridor running from Iran through Iraq and into Syria.  By the end of 2017, Russian state-directed oil giant, Rosneft, had already effectively established control over the oil and gas sector of the semi-autonomous region of Kurdistan in northern Iraq through three key maneuvers over the previous months. First, it had provided the region’s government (the KRG) with US$1.5 billion in financing through forward oil sales payable in the next three to five years. Second, it took an 80 percent working interest in five potentially major oil blocks in the region together with corollary investment and technical, technology, and equipment assistance. Third, it established 60 percent ownership of the vital KRG pipeline by dint of a commitment to invest US$1.8 billion to increase its capacity to one million barrels per day. 

Moscow considered itself well-placed at that point to leverage this presence into a similarly powerful position in the south of the country, in particular by striking 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 for some time, as Russia did not want to be obviously associated with the increasingly Iran-driven anti-American militancy in southern Iraq that resulted in a number of deadly strikes against U.S. military installations over the past couple of years. Just this year alone, according to U.S. military sources, there have been at least 18 significant attacks on U.S. military and neo-military personnel (and those of its allies) in Iraq by Iran proxies. 

However, Moscow’s ambassador to Baghdad, Maxim Maksimov, has made it clear that the Mansuriya gas field is still central to Russia’s game plan in the central Middle East, starting even before the cancellation of TPAO’s contract: “Russian companies are willing to mobilize significant funds and have submitted an investment tender for [the] Mansuriya gas field.” The re-statement of Moscow’s interest in the field may well have been a deciding factor in the Iraqis’ decision to terminate the TPAO, over and above the standard media rhetoric of ‘project delays’ on the part of TPAO being the key reason. 

Extremely close to the Iranian border, and just north of Baghdad, the Mansuriya gas field has an estimated 4.5-4.6 trillion cubic feet (Tcf) of gas in place, with plans to increase production to at least 320 million standard cubic feet (Mmscf) per day. This is, of course, a valuable deposit in and of itself once gas prices have fully recovered, with a previous contract remuneration of around US$7 per barrel of oil equivalent but its significance for Russia is much greater than money and comes in two parts. 

Related: Venezuela’s Oil Major Sees Oil At $35 Through 2021 The first part was that Iraq has always sought to offer three particular gas fields together as one development package – Mansuriya, Akkas, and Siba. These three sites form a skewed triangle across southern Iraq, stretching from Mansuriya near the eastern 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). 

The second part is was highlighted with the signing in September 2019 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, according to sources close to the deal spoken to by OilPrice.com at the 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. 

“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 Banias and Tartus that also happen to be extremely important to the Russians,” said one of the sources. “So, what you’re looking at there is a clear sign that the Iran-Iraq-Syria oil and gas pipelines system is now going ahead, which it is,” he underlined. “It takes time to build, so in the interim the triangle [Mansuriya-Akkas-Siba] would offer 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 the Mediterranean and beyond,” he added.

Related: Two-Thirds Of Gulf Oil Production Remains Shut In ahead Of Hurricane Zeta

For Russia, this arrangement has only upside potential, as it can control the movement of Iranian oil, except the areas in which China is at work, although it can lend its assistance to China when it is asked for, in line with the burgeoning on-the-ground co-operation between the two states across the Shia crescent of influence states. Controlling the management of Iranian oil in this way will allow Moscow to ensure that Iran’s oil flows do not compete with Russia’s own oil export routes and its plans for increasing its gas influence over Europe.

In the other geographical direction, establishing a strategic bridge from Iran through Iraq (via Mansuriya-Hit-Haditha-Akkas) and into Syria (and then out into the Mediterranean) will also allow for the further development of Russia’s military bases in Syria on the Mediterranean coast. Russia has already built-out the final stage of the infrastructure to exploit this opportunity, with a January 2017 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. 

Exactly the same structure of deal had been struck in 2015 between Russia and Syria for Khmeimim airport, which, under the terms of the agreement, became a dual-use civilian-military airport-airbase (just a short flight away is Russia’s Latakia intelligence-gathering listening station), with no date having been put into place for the ending of this dual arrangement.


By Simon Watkins for Oilprice.com

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