After an extended period of reduced engagement in the Middle East and a refocusing inwards on itself, which allowed China and Russia to exploit the resultant power vacuum, there have been several signs recently that the U.S. has decided that now is a good time to take up where it left off a few years ago. In the energy sector, there have been several high-profile deals in regions of great geopolitical sensitivity in recent weeks that have been made by U.S. companies or companies of countries alongside the U.S. in its sphere of influence. The latest one is Chevron's discovery of a potentially huge offshore gas field in Egypt that, according to comments last week, is due to be fast-tracked by Chevron and its partner in the site, Italy's Eni.
Chevron and Eni, which each hold a 45 percent stake in the 1,800 square kilometre (sq.km) Nargis offshore area concession (with Egypt's Tharwa Petroleum Co. holding the remaining 10 percent stake), announced that they have made a new gas discovery in the concession, focused on the Nargis-1 well. The state-owned Egyptian Natural Gas Holding Company (EGAS) stated in the past few days that the precise quantity of reserves in the well were being evaluated but that it was working with Chevron, Eni and Tharwa to begin production as soon as possible. This should not take long as, according to data from marine intelligence firm VesselsValue, Eni has a platform in Thekah, around 40 kilometres to the south-west of the Nargis site. This discovery follows the announcement in December 2022 that Chevron had hit at least 3.5 trillion cubic feet of gas with its Nargis-1 exploration well in the eastern Nile Delta, about 60 kilometres north of the Sinai Peninsula.
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Chevron, along with most notably ConocoPhillips, has been at the vanguard of a broad-based resurgence in the successful re-engagement of the U.S. in several highly strategic regions across the wider Middle East, including the Eastern Mediterranean. Chevron only entered the Egyptian upstream sector in 2020 but now operates the huge Leviathan and Tamar fields in Israel and the Aphrodite project offshore Cyprus. According to the president of Chevron International Exploration and Production, Clay Neff: "The East Mediterranean has abundant energy resources, and their development is driving strategic collaboration in the region."
The previous strategic collaboration in the region worthy of note was concentrated around China, Russia, and Iran's efforts to rope its key players - including Egypt - into their vision of how the area should be configured. A core strand of this strategy was centred on the creation of a 'unified power grid' - in every senses of the words - as analysed in depth in my last book on the global oil markets. Suffice it to say here that the idea runs along the same lines as the famous quote on how to maintain power from former U.S. President Theodore Roosevelt - that is: "If you've got them by the balls, their hearts and minds will follow." In this context, if one country can shut off the ability of other countries' citizens to cook, and to heat and light their houses and offices, then they will be highly receptive to any suggestions that the country might make.
The attempt to concentrate the wider Middle East's power grid has been going on for some time now, driven by China and Russia through the practical machinations of Iran. Last year saw an announcement that Egypt and Jordan were increasing their cooperation in gas delivery projects inside Jordan with Egyptian expertise through specialised petroleum sector companies. Just prior to this, it was announced that Iraq had agreed to re-start the export of crude oil from Iraq's Kirkuk to the refinery at Zarqa in Jordan. Electricity supply originating from Iran was also factored into this deal, given that Iran has historically supplied Iraq with 30-40 percent of all its electricity needs, and had just signed the longest-ever single deal between it and Iraq to continue to do the same at that point.
At around the same time, Iraq's then-Electricity Minister, Majid Mahdi Hantoush, announced that plans had been finalised for the completion of Iraq's electricity connection with Egypt within the next three years. This network was to be bolstered by the parallel network connections that Iran had consolidated in terms both of direct electricity and gas exchanges. These, said Iran's then-Energy Minister, Reza Ardakanian in 2019, would be part of the overall project to establish a joint Arab electricity market. The establishing of broad and deep cooperation in oil, gas, and electricity was a key part of the wide-ranging '25-Year Comprehensive Cooperation Agreement', first broken by me in an article published on 3 September 2019.
A near-term tactic for the U.S. to regain ground lost to the China-led bloc in recent years appears to be addressing the shortfall in, particularly, gas supplies left in many countries after sanctions were placed on Russian supplies following its invasion of Ukraine. ConocoPhillips played a crucial role in the recent liquefied natural gas (LNG) supply deal between Qatar and Germany, with Germany being seen by Washington as the most likely European country to renege on such sanctions. This would have been disastrous for any cohesive response from Europe as a whole in this context, given Germany's effective position as leader of the European Union bloc.
In a similar vein, this gas discovery in Egypt not only drives a wedge between Egypt and the idea of a unified Middle East power grid beholden ultimately to China but also provides a new source of gas into Europe as and when required through the participation of European heavyweight oil and gas company, Eni. Eni itself has also been notable for its entrepreneurial and aggressive approach to finding and safeguarding new oil and gas supplies across the Middle East, as has France's TotalEnergies, with the Italian firm looking at consolidating and expanding its presence recently in Libya and the UAE, among others. In the context of the latest Nargis discovery, Eni has said the Nargis-1 well find confirms the validity of its focus on Egypt offshore: "[â¦] which [we] will further develop thanks to the recent award of exploration blocks North Rafah, North El Fayrouz, North East El Arish, Tiba and Bellatrix-Seti East". This all follows Eni's discovery of the huge Zohr field in the East Mediterranean in 2015 and is in line with the company's aim of completely replacing gas imports from Russia by 2025.
This very active re-engagement of the U.S. in highly strategically sensitive areas of the broader Middle East follows a period of considerable withdrawal from the region during the presidency of Donald Trump, as explained in his 'Endless Wars' commencement address to the United States Military Academy at West Point on 13 June 2020. His comment that the days of the U.S. being the 'policeman of the world' were over found resonance in the U.S. withdrawal from, most notably, Syria (in 2019) - including protracted internal White House discussions about withdrawing from the strategically vital At-Tanf exclusion zone that was the tri-border junction of Syria, Jordan, and Iraq - Afghanistan (2021), and Iraq (2021).
The reason for this very active re-engagement right now from the U.S. appears to be that Russia, and by extension, China, have never been so weak in geopolitical terms in recent years as they are right now. This is a direct consequence of the omni-shambolic invasion by Russia of Ukraine that has significantly damaged the credibility of President Vladimir Putin as a shrewd geopolitical operator and of his country as a major military force. By extension, it has done the same for China's President Xi Jinping and his country too. Xi knows this, as reflected in the quick 180-degree turn that his country did after Russia's invasion, from the two countries enjoying a 'no limits' relationship to one that suddenly had a lot of limits indeed.
According to sources in the European Union's energy security apparatus spoken to exclusively by OilPrice.com last week. "If Putin had just waited five years to make his move in Europe then things would probably have been very different: Nordstream 2 would have made Europe firmly captive to Russian gas, Russian oil supplies would have cemented this dependence, and the highly-placed European leaders in various fields that Russia had been cultivating would have smoothed the way, but he [Putin] didn't wait," he said. Perhaps Putin did not wait because the rumours of his being terminally ill are true and he simply could not wait, but whatever the reason his actions in Ukraine have re-galvanised the U.S. and Europe and NATO, and left the door wide open internationally for that alliance to start rolling back some of the ground it lost to China and Russia in the previous few years.
By Simon Watkins for Oilprice.com
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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