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The Energy Sector, Competition and Security in the Eastern Mediterranean

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Recently, and particularly in 2019–2020, scholars have been increasingly focusing on the Eastern Mediterranean owing to its importance for global transport routes and its growing energy potential. The energy sources in the Levant basin raise the legitimate question: which approach will prevail? Shall we see cooperation in conflict resolution and in promoting collective security, based on joint building and development of the fields, or shall we see competition destined to exacerbate a situation already fraught with conflicts?

Development of the Fields and Plans for Transporting Resources to Global Markets

The Eastern Mediterranean sub-region is at the juncture of Africa, the Middle East, and Europe, which both makes it hostage to old overlapping conflicts and opens up certain opportunities. It is important to remember that gas reserves in the Mediterranean shelf discovered in the XXI century total over 3.8 trillion cubic meters. The key fields are Zohr off the coast of Egypt, Tamar and Leviathan off the coast of Israel, and Aphrodite off the coast of Cyprus, etc. Additionally, the so- called Block 9 is in a part of the field disputed by Lebanon. We can suppose there are large gas reserves off the Syrian coast, as well. By 2020, development had already been launched on several fields but, on the whole, both this process and its implementation are proceeding in fits and starts since matters have to be approved and agreed between unstable governments and oil companies, and also between states themselves, in the absence of demarcated maritime borders.

For decades, most states of the Levant Basin have imported gas and oil. The Egypt-Israel collaboration in the energy sector exhibits a curious dynamic. Currently, these two states have made the greatest progress in developing gas fields in the Eastern Mediterranean. In 2015, Italy’s Eni discovered the gigantic Zohr field in Egypt, a major Arab state, which allowed Cairo to break the vicious circle of its dependence on imports and to cover its own demand for gas. Egypt now produces about 311 million cubic meters of gas and 700,000 barrels of oil daily (from the deposits in the Western Desert adjacent to Libya). However, in January 2020, gas production also started on Leviathan, the largest field in the Levant Basin located on Israel’s stretch of the shelf, and this marked the start of deliveries of Leviathan-produced gas to Egypt. Noble Energy, which develops Leviathan, contracted to deliver gas to Egypt back in 2018. Noble Energy purchased 10% of Eastern Mediterranean Gas Company, which owns the gas pipeline running from Ashkelon in Israel to El-Arish in Egypt (about 90 km). Even though Egypt has no particular need for gas imports, it is striving to create a gas hub. Egypt is planning to receive gas from neighbouring states, liquefy it at the Egyptian LNG plant (Idku LNG with a capacity of 7.2 m. tonnes a year), and sell it on global markets, sending it by tanker to Europe or Asia.

Egypt’s interests have taken this turn since it has had fewer problems developing and selling its own natural gas, while the situation is somewhat more complicated for Israel. Development of the Tamar and Leviathan gas fields has slowed down owing to the technically challenging gas production process, the high market price of the gas (which makes it difficult to find buyers), and domestic political and regional instability stemming from maritime border demarcation issues.

To settle matters related to the above-mentioned Block 9, Israel engaged in talks with Lebanon on demarcating the maritime border, a historic event in the two states’ bilateral relations. Lebanese officials made every effort to emphasize that these talks were purely technical. International companies are certainly interested in the success of these negotiations; the Total- Eni-Novatek consortium has signed a contract for exploration in Block 9. Despite claims that their talks are exclusively technical, both Israel and Lebanon need these negotiations. For Israel, they will mark another success in gaining regional recognition of its rights while, should development of the gas fields prove successful, they will afford Lebanon a special opportunity to attract additional investment. The gas produced could come in handy for both domestic consumption and exports, which together would constitute an important boost to the crisis- stricken Lebanese economy.

Transporting the gas to Europe demanded that Cyprus be involved. This once again raised the predictable issue of Cyprus and prompted a response from Turkey (which we believe to be somewhat belated). In the course of time, Israel succeeded in securing the support of Egypt, Greece and Cyprus. The latter two states need to be involved for two reasons: the Aphrodite deposit was discovered off the coast of Cyprus and there is also the matter of transporting the Levantine natural gas to Europe. This question has produced the principal frictions concerning the Eastern Mediterranean. The plans to build a pipeline to Europe have not been implemented yet; however, on 2 January 2020, Greece, Cyprus and Israel signed a treaty to construct the 1,900-kilometre EastMed gas pipeline. This question is claimed to be of interest to both Europe and the U.S. as mitigating the risks of dependence on Russian gas (see below for further details). Construction of the gas pipeline with a capacity of 10 billion cubic metres a year is expected to take approximately seven years.

Revitalisation of Ankara’s foreign policy and regional competition in the Eastern Mediterranean While other states in the Eastern Mediterranean (Israel, Egypt, Cyprus, Greece and, to some extent, Lebanon) have attempted to form alliances around the energy sector and gas exports, Turkey has remained on the sidelines. Nevertheless, both the regional reconfiguration and the domestic perturbations that affected Turkey in 2016 after the attempted military coup resulted in Ankara taking more active political steps and shaping its own policy in the Eastern Mediterranean. Before 2016, Turkey strove to apply the “strategic depth” concept formulated in the 2000s by the state’s Foreign Minister and Prime Minister Ahmet Davutoglu. Following his resignation in May 2016, and particularly after the attempted military coup, Ankara began to steer a course toward developing a new strategy and becoming actively involved in its neighbours’ affairs.

As a result, Turkey began to drift away from the “strategic depth” concept and toward a policy that is more independent of its traditional partners and also favours tactically advantageous cooperation and going back to using “hard power” … Back in 2006, Turkish Admiral Cem Gürdeniz introduced the “Blue Homeland” (Mavi Vatan) doctrine as part of Turkey’s maritime strategy; Gürdeniz is considered to be one of the principal architects of Turkey’s current policy in the Mediterranean and of the ideology of demarcating the borders with Libya.

The agreements Turkey and the Libyan government concluded in late 2019 resulted from a bilateral Ankara-Tripoli arrangement achieved with complete disregard for other actors and for the 1982 Convention on the Law of the Sea. Since Turkey is not a signatory to that Convention, Ankara believes it had the right to shape its own bilateral relations, which also implies larger sea spaces for Turkey. Sooner or later, this approach by Turkey will inevitably come up against growing discontent on the part of other states. In this respect, much depends on whether Turkey will make concessions and cut a deal to retain some benefits, or whether it will risk escalating tensions, sanctions and serious economic problems. Turkey’s revitalised policy is reaching its limits. In fact, this policy, pursued as part of Turkey’s “Blue Homeland” doctrine, stems from Ankara’s own missed opportunities. We can expect Turkey’s revitalised policy in the “post-Ottoman” space to peak in late 2020 in the face of the discontent of other actors. It is now crucially important for Turkey to reach a regional consensus with the other states of the Eastern Mediterranean.

The Eastern Mediterranean sub-region has laid bare rifts in adjacent regions: Europe and the Middle East. As far the European dimension is concerned, we are observing a rapprochement between Italy and Turkey while France is building up its military presence in the sub-region and countering Turkey’s objectives. As far as the Middle East is concerned, strife and regional competition are building up between Qatar and Turkey on the one hand, and the United Arab Emirates (UAE), Saudi Arabia and Egypt on the other. The establishment of relations between the UAE and Israel might also entail additional risks for Eastern Mediterranean stability, since the two states’ interests are currently rather convergent and contrary to Ankara’s ambitions in the sub-region. Both Israel and the UAE have a high degree of confidence in Washington and their lobbying potential there. This could deliver a powerful blow to U.S.-Turkey relations, already severely tested in connection with the Syrian Kurds and Fethullah Gülen, the Turkish preacher accused of instigating the 2016 attempted military coup in Turkey.

In these circumstances, the rift within NATO takes on a different hue. So far, truly dangerous developments between France and Turkey, locked in a conflict in the Eastern Mediterranean, have been prevented by NATO having “arbitrators” in the U.S. and Germany. Nevertheless, it appears that joint efforts by NATO’s key members and Russia could create opportunities to develop mechanisms for preventing the situation from deteriorating further and tensions from escalating.

Old resolved conflicts in the sub-region overlap with both revived and new problems. For instance, provided local actors adopt an appropriate approach and external actors focus their attention on the sub-region, the energy sector could form the basis for a future regional security architecture; currently, however, these matters are only exacerbating the regional predicament. As they overlap with the traditional Israeli-Palestinian, Greek-Turkish and Cyprus questions, these developments are encouraging escalation and further competition.

The Global Dimension: The U.S. and Russia in the Eastern Mediterranean

A competitive foundation for international relations is currently solidifying in the Eastern Mediterranean. There are no expectations of a cooperative approach, since one party or another will always have greater ambitions and will attempt to implement exclusion policies. Russia and the U.S. are the key external actors interested in the region’s stability, so it would be expedient for them to work out joint crisis-prevention solutions.

For the U.S., Israel’s security and an Israeli-Palestine settlement, as well as support for NATO’s infrastructure and bodies, remain the key issues in the Eastern Mediterranean.

The latter is particularly important for Americans because they view the Eastern Mediterranean as NATO’s naval gateway to the Black Sea. This approach by the U.S. is destructive for other actors globally and for those directly involved in security issues in the Eastern Mediterranean. Given the serious risks and the fact that the situation could get out of hand, the U.S. have therefore been prompted to recognise, at least at expert level, the need to work on technical deconfliction measures in this part of the world. This requires finding a way to untangle the Cyprus, Libya and Syria questions.

As for Russia’s policy in the Eastern Mediterranean, we should recall Russia’s Minister of Foreign Affairs Sergey Lavrov visited Damascus and Cyprus in 2020. Mr. Lavrov emphasised that escalation was inadmissible and called for peaceful resolution of the contradictions through dialogue. Bilateral and multilateral dialogue, UN mechanisms, and international law should bring the parties to de-escalate tensions. Russia’s Foreign Minister also said Moscow was ready to act as a mediator should it be necessary. Russia is particularly concerned about the Syrian and Libyan part of the Eastern Mediterranean since Russia has maintained a military presence in Syria since 2015. By 2020, the world had seen the violence in the Syrian crisis abating but, in 2019–2020, both Lebanon and Syria’s economic situation deteriorated steadily and man-made disasters and large-scale wildfires occurred. People’s lives and the overall humanitarian situation were badly affected by the political elites’ inability to settle the crises and by European and American sanctions. Syria and Lebanon’s markets and currencies fell when the U.S. Congress adopted the so-called Caesar Act, a set of sanctions against Syria, and individual sanctions against Lebanon. Moscow, Washington and Damascus need to launch a serious political dialogue (not only at the level of the secret services) concerning the situation surrounding Lebanon and Syria. Further deterioration is fraught with new risks, especially for the neighbours of the two countries.

With no “honest broker” available in the Eastern Mediterranean, the risks of new regional clashes and problems increase. Some states practice a “bloc-based” approach to developing the fields and transporting gas; there are long- standing conflicts (the Cyprus question, the Palestinian question); there are no diplomatic contacts between individual regional actors (for instance, between Turkey and Egypt, between Turkey and Syria); all these factors exacerbate mistrust and undermine regional security. The Eastern Mediterranean states are committed to resolving economic interaction issues through dialogue provided there are one or more independent actors capable of taking various interests into account and finding solutions. Such a development would create an avenue for building confidence and could even result in collective security elements. (The European Coal and Steel Community played a role in the emergence of the OSCE, so a gas community in the Eastern Mediterranean could advance sub-regional integration and security). Given the U.S.’ interest in the region and the role it plays there, this issue could be put on the Russia-U.S. bilateral agenda with a view to achieving the most secure, acceptable and inclusive result.

First published in RIAC and ISPI Joint Report “After the Storm: Post-Pandemic Trends in the Southern Mediterranean”.

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Energy

U.S. Government Likely Perpetrated Biggest-Ever Catastrophic Global-Warming Event

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On September 28th, the AP headlined “Record methane leak flows from damaged Baltic Sea pipelines” and reported that “Methane leaking from the damaged Nord Stream pipelines is likely to be the biggest burst of the potent greenhouse gas on record, by far. … Andrew Baxter, a chemical engineer who formerly worked in the offshore oil and gas industry, and is now at the environmental group EDF …  said, ‘It’s catastrophic for the climate.’” The article pointed out that methane “is 82.5 times more potent than carbon dioxide at absorbing the sun’s heat and warming the Earth.”

Russian President Vladimir Putin had been aiming ultimately (and maybe soon) to get the gas to Europe flowing again, and said to EU nations on September 16th, “Just lift the sanctions on Nord Stream 2, which is 55 billion cubic metres of gas per year, just push the button and everything will get going.”

Here is what U.S. President Joe Biden had already promised about that on February 7th:

If Germany — if Russia invades — that means tanks or troops crossing the — the border of Ukraine again — then there will be — we — there will be no longer a Nord Stream 2.  We will bring an end to it. 

Q    But how will you — how will you do that exactly, since the project and control of the project is within Germany’s control?

PRESIDENT BIDEN:  We will — I promise you, we’ll be able to do it

He had promised to cause permanently the end of Nord Stream if Russia invaded, which it did on February 24th. He fulfilled on that promise on September 27th.

Radek Sikorsky, who is a Member of the European Parliament and had been Poland’s Foreign Minister and is the husband of the famous writer against Russia Anne Applebaum, and has been affiliated with Oxford Universisty, Harvard University, and NATO, tweeted on the day of the explosions, “Thank you, USA.” He also tweeted explanations: “All Ukrainian and Baltic sea states have opposed Nordstream’s construction for 20 years. Now $20 billion of scrap metal lies at the bottom of the sea, another cost to Russia of its criminal decision to invade Ukraine.” And: “Nordstream’s only logic was for Putin to be able to blackmail or wage war on Eastern Europe with impunity.”

Furthermore on September 27th, Germany’s Spiegel magazine reported that, as Reuters put it, “The U.S. Central Intelligence Agency (CIA) had weeks ago warned Germany about possible attacks on gas pipelines in the Baltic Sea” 

On September 28th, SouthFront headlined “No Way Back for Europe” and reported

It is reasonably suspected that the pipeline was blown up by the special services of the United States in order to finally stop the gas supplies to Germany from Russia.

On September 27, a detachment of warships led by the US amphibious assault ship USS Kearsarge reported on the completion of their tasks in the area of the alleged sabotage in the Baltic Sea and headed for the North Sea.

Since the beginning of September, suspicious activity by anti-submarine helicopters of the US Navy has been observed in the area. In the last few days, reconnaissance activities of NATO aircraft have significantly intensified in the Baltic Sea area. In particular, a US Boeing E-3 Sentry reconnaissance aircraft was on constant patrol over the Baltic States, and a US Joint STARS was spotted over Germany and Poland.

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Solar Mini Grids Could Power Half a Billion People by 2030 – if Action is Taken Now

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Solar mini grids can provide high-quality uninterrupted electricity to nearly half a billion people in unpowered or underserved communities and be a least-cost solution to close the energy access gap by 2030. But to realize the full potential of solar mini grids, governments and industry must work together to systemically identify mini grid opportunities, continue to drive costs down, and overcome barriers to financing, says a new World Bank report.

Around 733 million people – mostly in Sub-Saharan Africa – still lack access to electricity. The pace of electrification has slowed down in recent years, due to the difficulties in reaching the remotest and most vulnerable populations, as well as the devastating effects of the COVID 19 pandemic. At the current rate of progress, 670 million people will remain without electricity by 2030.

Now more than ever, solar mini grids are a core solution for closing the energy access gap,” said Riccardo Puliti, Infrastructure Vice President at the World Bank. “The World Bank has been scaling up its support to mini grids as part of helping countries develop comprehensive electrification programs. With $1.4 billion across 30 countries, our commitments to mini grids represent about one-quarter of total investment in mini grids by the public and private sector in our client countries. To realize mini grids’ full potential to connect half a billion people by 2030, several actions are needed, such as incorporating mini grids into national electrification plans and devising financing solutions adapted to mini grid projects’ risk profiles.”

The deployment of solar mini grids has seen an important acceleration, from around 50 per country per year in 2018 to more than 150 per country per year today, particularly in countries with the lowest rates of access to electricity. This is the result of falling costs of key components, the introduction of new digital solutions, a large and expanding cohort of highly capable mini grid developers, and growing economies of scale.

Solar mini grids have become the least-cost way to bring high-quality 24/7 electricity to towns and cities off the grid or experiencing regular power cuts. The cost of electricity generated by solar mini grids has gone down from $0.55/kWh in 2018 to $0.38/kWh today. Modern solar mini grids now provide enough electricity for life-changing electric appliances, such as refrigerators, welders, milling machines or e-vehicles. Mini grid operators can manage their systems remotely, and paidsmart meters enable customers to pay as they use the electricity.  Connecting 490 million people to solar mini grids would avoid 1.2 billion tonnes of CO2 emissions.

Further acceleration is needed, however, to meet Sustainable Development Goal 7 (SDG7). Powering 490 million people by 2030 will require the construction of more than 217,000 mini grids at a cumulative cost of $127 billion. At current pace, only 44,800 new mini grids serving 80 million people will be built by 2030 at a total investment cost of $37 billion.

Produced by the World Bank’s Energy Sector Management Assistance Program (ESMAP), the new book, Mini Grids for Half a Billion people: Market Outlook and Handbook for Decision Makers, identifies five market drivers to set the mini grid sector on a trajectory to achieve full market potential and universal electrification:

  1.  Reducing the cost of electricity from solar hybrid mini grids to $0.20/kWh by 2030, which would put life-changing power in the hands of half a billion people for just $10 per month
  2. Increasing the pace of deployment to 2,000 mini grids per country per year, by building portfolios of modern mini grids instead of one-off projects
  3. Providing superior-quality service to customers and communities by providing reliable electricity for 3 million income-generating appliances and machines and 200,000 schools and clinics
  4. Leveraging development partner funding and government investment to “crowd in” private-sector finance, raising $127 billion in cumulative investment from all sources for mini grids by 2030.
  5. Establishing enabling mini grid business environments in key access-deficit countries through light-handed and adaptive regulations, supportive policies, and reductions in bureaucratic red tape.

The handbook is the World Bank’s most comprehensive and authoritative publication on mini grids to date.

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Price Cap on Russian Oil: The Mechanism and Its Consequences

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G7 countries are working hard to coordinate a sanctions regime to cap prices on Russian oil and oil products. The United States is already drafting a mechanism for applying these sanctions, which its allies and partners will use as a guideline. The new sanctions in the form of legal arrangements are expected to be formalised very soon. How will this mechanism work, and what consequences can this lead to?

An unprecedented range of economic sanctions has been used against Russia since the beginning of the special military operation in Ukraine in February 2022. Their primary aim was to deal the largest possible economic damage to force Moscow to revise its policy and to undermine its resources provision. Since energy exports are extremely important for funding the Russian economy, sanctions against its oil and gas sector were more than just predictable. However, the United States, the EU and other initiators had to act cautiously, because Russia is a major player on the global market. US restrictions on the export of Iranian oil had little impact on the global market, whereas blocking sanctions against Russian oil companies could lead to uncontrollable price hikes. This could accelerate inflation, which was growing fast on the back of COVID-19 and other factors.

Nevertheless, the sanctions noose on the oil sector was tightening. Some sectoral sanctions have been applied since 2014, such as restrictions on loans and on the supply of products, services, technologies and investment in the Arctic shelf oil projects. Blocking sanctions were adopted against a number of co-owners, owners and top managers in the fuel and energy sector. In March 2022, Washington prohibited the import of Russian energy resources to the United States. Canada acted likewise. The EU started with banning Russian coal imports and later spread the ban, with a few exceptions, to oil and oil products. The bans are to come into force on December 5, 2022, and February 5, 2023, respectively. The UK plans to stop the import of Russian oil this year. Overall, Western countries are working to gradually banish Russian oil and oil products from their markets.

However, Moscow has quickly redirected its deliveries to Asian markets, where Western countries cannot easily impose similar restrictions, especially since Russian companies are selling their products with large discounts. The idea of a price cap has been proposed to be able to influence Russian oil prices outside Western countries.

The essence of the proposed mechanism is very simple. The United States, G7 and any other countries that join the coalition will legally prohibit the provision of services which enable maritime transportation of Russian-origin crude oil and petroleum products that are purchased above the price cap. The US Treasury has issued a Preliminary Guidance to explain the essence of the forthcoming bans, to be formalised in a determination pursuant to Executive Order 14071 of April 6, 2022. Section 1 (ii) of the executive order empowers the US Treasury and the Department of State to prohibit the export or re-export of “any category of services” to Russia. The upcoming Determination will explain the ban for American parties to provide services which enable the transportation of Russian-origin crude oil and petroleum products above the price cap. The US administration plans to enforce the ban on oil on December 5, 2022, and the ban on oil products on February 5, 2023, simultaneously with the EU bans on Russian oil imports.

But what is the exact meaning of the phrase “services which enable maritime transportation”? The US will most likely offer an extended interpretation. In other words, such services will include transportation, related financial transactions, insurance, bunkering, port maintenance and the like. This would allow Washington to influence a broad range of service providers outside the United States. For example, the US administration might consider dollar-denominated transactions on oil transportation to fall under US jurisdiction, so that very many players outside the US will face fines or prosecution. Punishment for avoiding the price cap, as well as for using deceptive shipping practices, have been set out in the new Guidance.

It is another matter how strictly the other coalition countries will implement this guidance and how large this coalition can be. The level of coordination within the initiator countries will likely remain very high, which means that the allied countries will do this in accordance with their national legislations. The coalition will include the countries that have already adopted sanctions against Russia.

The biggest question is whether the countries that have not adopted such sanctions, including Russia-friendly countries, can be convinced to join the coalition. The answer is most probably negative, but this will not settle the problem. Despite the official position of the friendly countries, their businesses could surrender to the US demand to avoid the risk of persecution.

The G7 statement and the new Guidance of the US Treasury imply that the sanctions are being imposed out of concern for the international community rather than solely for the purpose of punishing Russia. They say that the price cap is designed to stop the growth of oil prices that have been artificially inflated by the conflict in Ukraine. However, this “concern” can lead to unpredictable consequences.

To begin with, the latest attempt at the political mandating of prices will increase uncertainty, which will further drive the prices up. Prices can grow on expectations of problems with signing deals on the delivery of Russian oil and oil products over excessive compliance, which will lead to temporary shortages. Another problem is that the other oil producers will have to lower prices as well. They will not like this.

In fact, the sellers’ market is being changed into the buyers’ market by artificial political methods rather than for economic reasons.

And lastly, Russia is being forced to become the leader of dumping. Demand for its oil could be higher than for the products of other suppliers, and Moscow can make up for its profit shortfall by increasing deliveries. If the Western countries that prohibit the import of Russian oil and oil products buy other suppliers’ oil at higher prices while Asian countries continue to buy Russian products, this will artificially increase the competitiveness of Asian economies.

It is time for Russia to start thinking about adjusting to the Western restrictions, including by developing its own tanker fleet and abandoning the US dollar in oil deals. The latter is the prevalent task of Russia’s foreign trade in the new political conditions.

From our partner RIAC

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