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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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Russia Strengthens Its Grip On Syrian Oil

Following the various recent announcements from U.S. President Donald Trump that he wants the country to withdraw from all areas of potential conflict in the Middle East – except Saudi Arabia, for the moment, at least – Russia continues to fill the power vacuum. In the centre of the Middle East – Iran and Iraq – it is aided by China, which is stealthily and relentlessly pursing its ‘One Belt, One Road’ project, and to which Iran and Iraq are irreplaceable transit points through which it can reach deep into Europe, as analysed in detail in my new book on the global oil market. Russia is happy to go it alone, however, putting all of the pieces in place prior to Trump’s official Middle East disengagement statements so that it has been perfectly positioned to take over since then. Perhaps no country acts as a better template of this Russian Middle East strategy than Syria, which saw Russia take a definitive military stand in favour of the incumbent president first, followed by the rollout of various business initiatives – two more deals were announced last week - followed by the use of its geographical and infrastructural position to gain strategic military advantage.

The two oil exploration contracts announced last week for two (barely known) Russian firms - Mercury, and Velada - were approved by Syria’s parliament earlier this year and cover exploration and production in three blocks including an oilfield in northeast Syria and a gas field north of the capital Damascus. Just in case anyone was in any doubt about exactly why Syria chose to award these contracts to Russian firms, Syria’s Oil Minister, Ali Ghanem, said that it: “...was in line with the government’s strategy towards friendly states that stood by Syria, with Russia and Iran at the forefront.” According to a senior oil and gas industry source who works very closely with Iran’s Petroleum Ministry, spoken to exclusively by OilPrice.com last week, a slew of new deals – both in the oil and gas sector but also relating to broader infrastructure projects (read ‘military’) – will continue to be signed by Syria with Russia in the coming years, with Iran acting as the local enforcer (especially with the Kurdish diaspora in the region) as and when necessary. “It’s true that the U.S. has kept a few troops in Syria [around 600, in fact] but that was just to allow the U.S. to claim that as and when Turkey and/or Syria massacred the Kurds the U.S. had tried to stop it,” said the Iran source. “In reality, the U.S. is helping the Chinese to advance its ‘One Belt, One Road’ into areas in Afghanistan and Pakistan, so that it [the U.S.] can completely withdraw all of its people form there too, and Syria will follow,” he added. Related: Iran: We Won’t Agree To Any Production Cuts In The Future

Despite the many military and geopolitical advantages that a major presence in Syria allows the Russians – more of this later – it has largely been forgotten that Syria has genuinely good levels of oil and gas resources available for exploration and development. Indeed, as a senior source who works closely with Russia’s Energy Ministry exclusively told OilPrice.com earlier this year: “The cost of [Russian] expansion in Syria is offset in good part by the oil and gas we can sell.” Specifically, before the need for enhanced oil recovery techniques at the major Syrian fields (mostly located in the east near the border with Iraq or in the centre of the country, east of the city of Homs) arose – but was slow to be rolled out – the country was producing around 600,000 barrels per day (bpd) on average for a number of years.

At the height of the civil war, production dropped to an estimated 15,000 bpd, but, as Richard Mallinson, head of Middle East analysis for global energy consultancy, Energy Aspects, in London, told OilPrice.com: “The potential is still there, and it has been shown in areas where there has been some relative degree of stability in control of wells that output increases can be effected.” Syria’s gas production has remained in better shape overall, he added, and “there is a lot of opportunity there over time.” Indeed, Syria has proved natural gas reserves of 8.5 trillion cubic feet (Tcf), and combined oil and gas exports accounted for a quarter of government revenues prior to 2011, making it the eastern Mediterranean’s leading oil and gas producer at the time. During the financial year 2010/11 – the last under normal operating conditions – Syria produced just over 316 billion cubic feet per day (Bcf/d) of dry natural gas and, although over the course of the conflict gas production has also dropped, it has not done so by anywhere near as much as oil, with current output estimated at least 120 Bcf/d.

“Not only does Syria have current oil and gas assets that are worth getting back into full production but there is also a potentially huge oil deposit in the Golan Heights that the Israelis are redoubling their efforts to develop, which only adds to Syria’s geopolitical importance,” the Iran source underlined. Indeed, for a few years now, Afek Oil and Gas - the Israel subsidiary of U.S. oil company, Genie Energy, which has former U.S. vice president Dick Cheney on its advisory board – has been prospecting on the Heights, which is now believed to have billions of barrels of oil present, according to Genie’s chief geologist, Yuval Bartov. “Russia, with Iran’s help, is moving faster now in Syria because they think that although [U.S. President, Donald] Trump became the first U.S. president to recognise Israel’s jurisdiction over the [Golan] Heights [in March], he [Trump] may not want to support that view in any meaningful way, given his Middle East-withdrawal bias.” said the Iran source. Related: OPEC+ Agrees To Deeper Output Cuts

Even without this, Syria is a uniquely important geopolitical state in the region for all of the major power blocs, bordering the southern land access route of Europe via Turkey, and with sea routes to the major oil and gas hubs in Greece and Italy, in addition to being near-neighbours of Saudi Arabia, Qatar, Iraq, and Iran. Iran, then, announced a while back that it is to build an oil refinery in Syria, but not just near any of its many oil industry sites but right by Homs, a city of unparalleled significance in the recent Syrian troubles. Dubbed the ‘capital of the revolution’ against President al-Assad after its residents embraced the call to overthrow the president in early 2011, it has been a key battleground in the uprising against the al-Assad dynasty. For two years it was under the control of the U.S.-backed opposition until the middle of 2013 when fighters from the Lebanese Shia Islamist movement Hezbollah – backed by Iranian equipment and special forces-training and supported by Russian technology in the first instance and later by airstrikes - arrived to bolster pro-Assad forces. “There is absolutely no reason to pick Homs as the site for this refinery except to give a huge ‘screw you’ to the Americans,” said the Iran source. This message was further underlined at the time by the fact that Iran’s partner on the refinery would be Venezuela.

Iran’s and Russia’s plans, though, do not end there, as a meeting earlier this year between al-Assad and his advisers and senior figures from Iran’s Islamic Revolutionary Guards Corp reiterated plans for Iran, with the help of Russia, to build-out or rebuild Syria’s telecommunications, mining, oil and gas, and power sectors. Among these are building a 540 megawatts power plant, a memorandum of understanding for which has now been signed, in order to expedite the resuscitation of Syria’s power grid, and the restoration of the main control centre for the grid back to Damascus. As part of the broad-based agreement reached between al-Assad and the IRGC, Iran is also planning to restore a 90-megawatt power station in the Deir al-Zor province, and to supply power to Aleppo city. In a similar vein, this year also saw the mysterious announcement that Stroytransgaz (an almost unknown Russian oil and gas company) was to take over the development of the (almost as previously unknown) ‘Block 17’ in Iraq’s lawless wasteland of Anbar. However, as uniquely highlighted by OilPrice.com at the time, it was the absolute clear sign that the Iran-Iraq-Syria oil and gas pipelines system is now going ahead.

By happy ‘coincidence’ the major power plant is to be located in the coastal province of Latakia, which is also home to the massive Russian Khmeimim Air Base and the S-400 Triumf missile system. Although the base only came in to operation in 2015 supposedly to help in the fight against Islamic State, Russia appears to have changed its tactical plans for it, having now signed a 49 year lease on it, with the option for another 25 year extension. A short flight away is Russia’s Latakia intelligence-gathering listening station and the newly re-staffed and re-stocked Tartus Naval Base.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on December 22 2019 said:
    At least Russia came to Syria at the invitation of the legitimate government of the country to help an ally who has had uninterrupted economic, strategic and military relations with it since the 1950s.

    Part of the civil war which has bedevilled Syria since 2011 is Bashar al Assad’s rejection of a Qatari request to build a gas pipeline to carry Qatari gas exports to Europe across Saudi Arabia, Syria and Turkey in competition with Russian gas. Syria’s rejection of the Qatari request triggered the civil war which was abetted and financed by the United States, Saudi Arabia and Qatar (Qatar in its opening phase).

    While Syria was never a major oil and gas producer, it was at least self-sufficient in both gas and oil with exports of some 100,000 barrels a day (b/d) to the European Union (EU) until sanctions were imposed on Syria by the EU and its producing oilfields were occupied by opposition forces at the start of the civil war and later by ISIS by until their recovery by US-backed Syrian Kurds.

    However, Syria might have huge gas reserves offshore in its free economic zone as part of the huge reserves existing in the Eastern Mediterranean. If Russian companies have signed contracts with the Syrian governments to explore for oil and gas in oilfields in northeast Syria and north of Damascus, it is just a big thank you for Russia’s stand by Syria during the civil war.

    Contrast Russia’s stand with the United States who gatecrashed into Syria and continues to this moment to occupy part of Syria’s territory and Syrian oilfields in the Deir Ezzor region in the eastern part of Syria. Its presence there is a violation of international law and Syria’s sovereignty.

    Not only President Trump has reneged on his promise to protect his allies the Syrian Kurds forces from Turkey’s military onslaught but he now claims that he is defending Syria’s oil from ISIS when his country and Saudi Arabia have both supported, financed and armed ISIS when it was still fighting President Bashar Al Assad forces.

    Now he is using ISIS as the excuse to continue occupying Syrian territory illegally for the purpose of stealing Syria’s oil, depriving the legitimate government of Syria of its own oil and continuing to stir trouble to prevent an end to the civil war there.

    It was Syria and Russia who came to the rescue of the Syrian Kurds from destruction by Turkey’s military onslaught. Soon the Turkish Kurds who control the bulk of Syrian oilfields would show their gratitude by returning them to their lawful owners. Moreover, Syria’s armed forces who managed to liberate the overwhelming majority of Syrian territory are more than capable of defending their oilfields from the likes of ISIS.

    Sooner or later Syria with support from its close and honourable ally Russia will get back its oil.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Hugh Williams on December 23 2019 said:
    Regarding the Russian search for oil in Syria and Iraq it is worth mentioning that the Russians have a different theory about the origin of oil; the ABIOTIC, that oil originates in rocks deep in the earth.
    Following is a quote from Confessions of an "EX" peak oil believer by F William Engdahl.
    "Dr. J. F. Kenney is one of the only few Western geophysicists who has taught and worked in Russia, studying under Vladilen Krayushkin, who developed the huge Dnieper-Donets Basin. Kenney told me in a recent interview that “alone to have produced the amount of oil to date that (Saudi Arabia’s) Ghawar field has produced would have required a cube of fossilized dinosaur detritus, assuming 100% conversion efficiency, measuring 19 miles deep, wide and high.” In short, an absurdity.

    Western geologists do not bother to offer hard scientific proof of fossil origins. They merely assert as a holy truth. The Russians have produced volumes of scientific papers, most in Russian. The dominant Western journals have no interest in publishing such a revolutionary view. Careers, entire academic professions are at stake after all." It will be interesting to learn what the Russians find. Of course, if oil does originate in deep rock and is constantly rising up to a trap, the question is at what rate. If the rate is very slow then peak oil could still occur.
  • Doly Garcia on December 30 2019 said:
    Hugh Williams, you may think that the size of the Ghawar oil field is an absurdity, but it actually is 19 miles wide by 174 long. So there is nothing that remarkable that it has produced as much oil as it has.

    As for abiotic oil, there may be some truth in it, but we know for a fact that oil fields deplete. So, clearly, the rate that we usually extract it is much higher than the rate it forms. Assuming it's true that it's constantly forming, which is a contested theory.

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