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The New BP-ADNOC Venture Signals A Western Fight Back Over Global Gas Assets

From the moment the U.S. unilaterally withdrew from the 'nuclear deal' (the Joint Comprehensive Plan of Action) with Iran on 8 May 2018, it has been on the defensive in  the Middle East, as analysed in full in my new book on the new global oil market order. The withdrawal, rather than a renegotiation of the deal from a position of power as it was still in force and keeping Iran at least vaguely in check, opened the way for a dramatic expansion of Chinese and Russian influence across the region. This culminated in the China-brokered relationship resumption deal between previous arch-enemies Iran and Saudi Arabia and laid the groundwork for a full Iran-backed assault on the U.S.'s key ally in the region, Israel, as seen in the ongoing Israel-Hamas War. However, there have been signs from the U.S. since Russia's invasion of Ukraine on 24 February 2022 that it will no longer sit idly by and watch China and Russia usurp its position as the world's dominant power. The very recently-announced four-pronged joint venture in Egypt between the U.K.'s BP and the UAE's Abu Dhabi National Oil Company (ADNOC) is a case in point.

Egypt's importance in the Arab world, especially in the current geopolitical climate, can barely be overstated. In broad terms, it has long been seen by Arab states as a natural leading Arabic power, a position bolstered by its central role in the resurgence of the 'Pan-Arabist' ideology from the 1950s, as also analysed in full in my new book. This was founded on the idea that Arab countries around the world should work together towards common goals, based on their political, cultural, and socioeconomic similarities, in order to build an identity that would give them power in the world beyond that allowed them by Western colonial powers after the two world wars. The most powerful proponent in the resurgence of the ideology was Egypt's president from 1954 to 1970, Gamal Nasser. Among the most palpable signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighbouring Israel over the period, and then the 1973/74 oil embargo. Iran - a Persian state, not an Arab one, of course - has long sought to leverage this Pan-Arab ideology for use in its efforts to broaden and deepen the Israel-Hamas War into a defining conflict between, on the one hand, the world's Judeo-Christian states led by the U.S., and, on the other hand, Islamic states led by itself.

Egypt also has a unique position in the global oil market that is not lost on the U.S. and its allies. Over and above its official conservative estimate of around 1.8 trillion cubic metres of gas reserves, Egypt controls the major global shipping chokepoint of the Suez Canal, through which around 10 percent of the world's oil and LNG is moved. It also controls the vital Suez-Mediterranean Pipeline, which runs from the Ain Sokhna terminal in the Gulf of Suez, near the Red Sea, to Sidi Kerir port, west of Alexandria in the Mediterranean Sea. This is a crucial alternative to the Suez Canal for transporting oil from the Persian Gulf to the Mediterranean. The Suez Canal is one of the very few major transit points that is not controlled by China. Specifically, China already has effective control over the Strait of Hormuz through the all-encompassing 'Iran-China 25-Year Comprehensive Cooperation Agreement', as first revealed anywhere in the world in my 3 September 2019 article on the subject and also analysed in full in my new book. The same deal also gives China a hold over the Bab al-Mandab Strait, through which commodities are shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. This has been achieved as it lies between Yemen (the Houthis having long been supported by Iran) and Djibouti (over which China has also established a stranglehold).

In the Iranian strategy - and the real reason it signed the relationship resumption deal with it on 10 March 2023 - the leadership of Saudi Arabia plays the role of 'useful idiot', as it is known in the intelligence business. Saudi Arabia is useful partly because it is the leader of the Sunni strand of Islam (Iran is the leader of the Shia strand), and because it is the third largest producer of oil in the world (after the U.S. and Russia). An example of this dual-use in action was the refusal by Saudi Arabia's Crown Prince Mohammed bin Salman to take a telephone call in early March 2022 from U.S. President Joe Biden when the latter desperately wanted the Saudis to help bring economy-crippling energy prices down after Russia had just invaded Ukraine, as also analysed in full in my new book on the new global oil market order. Not only did bin Salman not take the call (or help in anyway to alleviate energy price pressure for the U.S. and its allies), but his humiliation of Biden empowered his UAE counterpart, Sheikh Mohammed bin Zayed al Nahyan, to not take his call from Biden either. As a result, energy prices continued to spike, causing inflation to do the same, choking off economic growth in several of the U.S.'s closes allies and catalysing major cost-of-living crises in them.

This confirmed to the U.S. that neither country could be trusted as allies anymore. This view had been building in Saudi Arabia's case since the end of the 2014-2016 Oil Price War that the Kingdom had launched with the intention of destroying or severely disabling the U.S.'s then-nascent shale oil sector, as detailed as well in my new book. The relationship such as it was by that point had become even more strained when US intelligence agencies discovered around Christmas 2021 that Saudi Arabia was manufacturing its own ballistic missiles with the help of China. Around a month before that, the same agencies had also found that China had been building a secret military facility in and around the big UAE port of Khalifa. Based on classified satellite imagery and human intelligence data, U.S. officials stated that China has been working for several months to establish 'a military foothold in the UAE.' The UAE authorities stated that they were not aware of such an extraordinary amount of activity being conducted by China at one of their biggest ports, including month after month of extremely high levels of movement of enormous Chinese ships in and out of it day and night. It is all the more surprising, therefore, to find that U.S. intelligence agencies detected against in April 2023 that these activities focused on the Khalifa Port had apparently resumed yet again.

Having said all of this, a joint venture between BP and the UAE's ADNOC looks like it might be step towards some sort of positive working arrangement between the U.S. and its allies on the one side, and those Arab states that the alliance may have thought were lost to it forever. The fact that the venture is being undertaken in arguably the most important Arab state only serves to underline its possible significance. The move into Egypt's oil and gas sector has been led on the U.S. side by Chevron, and on the European side by the UK's BP and Shell, and Italy's Eni, as also analysed in full in my new book on the new global oil market order. Recently, BP said it will invest US$3.5 billion in the exploration and development of Egypt's gas fields in the coming three years. This amount could be doubled if the exploration activity yields new discoveries. The new BP deal (with a 51 percent stake), together with ADNOC (49 percent), will explore and develop gas concessions in four major projects: Shorouk (with the producing Zohr field), North Damietta (with the producing Atoll field), North El Burg (with the undeveloped Satis field), and exploration across North El Tabya, Bellatrix-Seti East and North El Fayrouz. The official formation of the incorporated joint venture is expected to complete during the second half of 2024.

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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… More