Optimism about the ongoing East Mediterranean offshore gas adventures could be soon confronted by a bleak reality.
As the world watches the Operation Olive Branch military escapades of the Turkish armed forces in Syria’s Afrin region, military skirmishes and conflicts are heating up elsewhere.
The highly publicized Iranian drone crisis over Israel not only shows the volatility on the Golan border between Syria and Israel, but also attracts attention to the gas-related security clashes offshore Lebanon, Cyprus and even Israel.
Again, Ankara has shown its appetite for confrontation when Turkish navy ships prevented a drill ship working for Italian oil major ENI (NYSE:E) to reach a disputed Cypriot offshore block. Ankara claims that possible offshore reserves are also owned by the Turkish part of the island.
Offshore Cyprus is now the second battlefield between NATO members, after the Turkish confrontation with U.S. military currently supporting Syrian Kurdish fighters of the YPG around Afrin and Manbij in the north of Syria. Ankara’s regional politics and power projections are no longer simply linked to perceived PKK threats (or proxies), but have again been linked to energy assets. Since last week’s offshore gas discovery in Cyprus by a Total (NYSE:TOT)-ENI joint venture, Turkey has stepped up its military activity in the area.
On the other side of the East Med region, Egypt didn’t sit still when the Cypriot-Turkish spat emerged. As was expected, due to Turkish president Erdogan’s continuing pro-Muslim Brotherhood statements and his military activity in Syria and the Horn of Africa, Cairo has put its weight behind Nicosia. In a harsh statement, Egyptian Foreign Minister Sameh Shoukry, on orders of President Sisi, defended not only the Cypriot offshore gas exploration projects but also stated that the 2003 EEZ (exclusive economic zone) maritime agreement with Cyprus is valid. So any Turkish move to block this will be taken as an attack on Egypt, as well. Related: Oil Prices: Collapse Now, Spike Later
In 2003, Cairo and Nicosia signed an agreement to set up an EEZ in the eastern Mediterranean to increase offshore gas exploration. Ankara opposes these moves, as it claims legal rights on offshore resources for Turkish Cyprus, which it occupied in 1974. Turkish Foreign Minister Mevlut Cavusoglu dismissed the agreement as “null and void”. Cairo, however, warned Turkey not to infringe on Egypt’s sovereign rights. Although Cyprus and Egypt are supported by the European Union, Ankara continues its claims. Turkey has now begun to confront Greek vessels in other areas. At the same time, Erdogan warns international operators that they could lose Ankara’s friendship.
For Egypt, the situation is considered a threat to national security. Cairo looks to further expand its offshore production, due to the ENI Zohr gas field and the latest BP offshore field. In a reaction to Turkish threats, Egyptian Major General Mamdouh Mokled stated, “We do not have to heed the Turkish statements, and we have to continue with gas exploration in the Mediterranean and avoid attempts to disrupt them.” For Cairo, stability in the region is needed, as plans are being implemented to become an LNG exporter in 2020.
Those plans will be combined with Cypriot–Israeli offshore gas production. The Israeli-Turkish relationship has been ripped apart, and Israel’s former plans to export pipeline gas to Turkey are over — though they were promoted by the U.S. and EU, Erdogan’s current regional posture is blocking it all.
The only way for Israeli gas to become commercially attractive to be exported is in an export combination with Egypt. Ankara’s strategic choices now seem to cement Egyptian-Israeli ties even more. Cyprus, as a European and NATO country, is regarded as the door to Europe, hence its strategic relevance. With the possibility of the reopening and possible expansion of Egypt’s existing LNG liquefaction plans, a new Tripartite Coalition of the (Gas) Willing is being set up.
Threats aren’t just coming from Turkey — Lebanon and Syria are suddenly also playing up.
Lebanon’s already struggling government, confronted by the growing power of Iran-supported Hezbollah, recently became involved in a dangerous security spat with Israel. Lebanon’s move over the last weeks to tender offshore gas blocks next to the maritime border with Israel has put the latter on edge. Tel Aviv has openly warned international oil and gas companies to keep away from these areas, as it will be seen as a threat to Israeli security. Related: Saudi Arabia Vows To Cut More Production To Stabilize Oil Market
Lebanon’s move comes at the same time that its main power player Hezbollah — the Shi’ite militia and political party closely aligned with Iran — has stepped up its (vocal) attacks on Israel, while substantiating its belligerent position by building up a 150,000-missile-strong military force.
Hezbollah’s war fighting experience in Syria, where it has been the backbone for the survival of Syria’s president Assad, is seen by Israel as an act of war — a position that was recently reiterated after an Iranian drone entered Israeli airspace and was shot down. A Syria-originated military confrontation could easily spill over to the Lebanese-Israeli theatre.
Hezbollah has also directly threatened Israeli offshore oil and gas operations. In pamphlets and a video, Hezbollah threated Israel’s offshore gas platforms with attack. According to Lebanese sources, Hezbollah stated that this was as answer to Israel’s objections to the Lebanese offshore tender. Hezbollah leader Hassan Nasrallah has openly claimed Lebanese ownership of the entire offshore territory.
Lebanon shouldn’t take Israel’s position lightly. Until now the maritime borders between Israel and Lebanon have not been settled. Military analysts fear a major confrontation. Some have warned that a major find on the Lebanese side could threaten Israel’s Tamar field development, while putting pressure on the Leviathan gas field, which is expected to be onstream by 2019.
Israel has already expanded its navy to protect gas projects and shipping lines; an increased Lebanese threat will only put more emphasis on it. The Israeli navy expansion is not only for threats in the north, but also to counter Palestinian extremist Hamas movement threats to offshore projects. Hamas and Hezbollah have set up naval capabilities, including autonomous submersibles, suicide drones and scuba-diving commando units.
When looking at the facts on the ground, a war is brewing. This will put a major dent into East Med gas futures.
Increased insecurity or an outright war not only threatens Israel or Lebanon, but will spill into the other countries. The year 2018 could be another showdown between Hezbollah and Israel, but at a much larger scale than before, as Hezbollah’s military might has increased. Iran also plays a role, as its IRGC troops pose a threat to Israel’s Golan Heights.
In the big picture, not only gas operations are threatened. Maritime threats and conflicts could hit other oil transport at the same time. A full military conflict involving the area of offshore Cyprus-Lebanon-Israel will block the oil transit routes originating in Ceyhan (Turkey). At the same time, a direct conflict between Cyprus and Turkey will also involve the Greeks, directly threatening transit routes through the Bosporus. Both could threaten transport volumes of between 1.6 million bpd (BTC pipeline) and 2.9 million bpd (Bosporus).
Hedge funds would have a field day, but European consumers would be hurting.
By Cyril Widdershoven for Oilprice.com
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