Research interest in Russia’s role in the Eastern Mediterranean region remains high. The increasing Russian presence in the Eastern Mediterranean is explained by energy and security issues. It is noted that Moscow has opted for a more balanced policy of maintaining non-aligned relations. This approach implies political risks, but it appears to be working in terms of the flexibility of Russian policy in the face of increasing pressure from other global actors, a competitive environment and the next round of transformation processes in the region. At the same time, this resilient approach of Russian policy includes and promotes ideas of inclusiveness, finding a balance of interests between global and regional powers, and the need to stabilise the region.
Russia’s Energy Policies in the East Med
One of the key elements of Russian foreign policy in the Eastern Mediterranean subregion—and more broadly in the Middle East—is the desire to ensure stable interaction with major players in the energy market. From this perspective, Moscow’s intensified attention to regional issues is linked to three factors: 1) the need to ensure stability in the oil market by creating coalition formats to regulate oil prices; 2) nuclear energy exports; and 3) surveillance of and partial inclusion in the most promising energy exploration, production and export projects from the region. COVID-19 has forced adjustments to be made to these plans, but Moscow is successfully adapting to the new realities.
Energy price regulation
The intensification of Russian foreign policy in the Eastern Mediterranean has facilitated contacts with influential actors. Given the importance of the Eastern Mediterranean and the often-overlapping interests of regional powers in the Middle East, Russia and the Gulf monarchies have been able to advance both the bilateral agenda and key energy issues. The increase in official visits from Middle Eastern capitals to Moscow in the second half of the 2010s, like the historic visit by the king of Saudi Arabia, was a clear indication of Moscow’s increased role in the region. Meanwhile, the effect of the OPEC+ deal to keep oil prices at an adequate level—in which Russia and Saudi Arabia were the key players—allowed Moscow to receive an additional US$100 billion (according to Russian officials) to its budget. The Syrian operation can thus be considered a springboard to the Persian Gulf, among other things.
At the end of 2016, OPEC and several non-member states (OPEC Plus), including Russia, agreed to reduce oil production to stabilise prices. Thus, Moscow sought to develop systematic interaction with influential international organisations, whose key members are the energy exporting states of the Middle East and North Africa. Joint monitoring of the oil market, production adjustments and other measures stabilised the situation. However, with the coronavirus crisis, the global oil market began to falter again and energy prices became volatile. Negotiations between OPEC Plus members became more difficult, partly due to the non-participation in the negotiations of the US, the third-largest oil producer after Russia and Saudi Arabia. Demand in the COVID-19 era began to fall sharply and additional cuts in oil production were required. However, oil players did not immediately manage to reach a compromise. In March an oil conflict broke out between Russia and Saudi Arabia when Russia did not agree to the terms proposed by OPEC. The result was a precipitous drop in oil prices, with Brent crude falling by 30% in March 2020. Saudi Arabia and many other players started to sharply increase production. Eventually the parties managed to reach an agreement again, not without the attention of the US. Russia and Saudi Arabia returned to dialogue, becoming the key guardians of order in OPEC Plus, leading to a relative stabilisation of the market. However, price increases and rising demand only appeared in early 2021. A market recovery—in the optimistic scenario—is expected precisely at the end of 2021.
Rapid population growth, urbanisation, and other factors have led a number of developing nations—including those in the Eastern Mediterranean region—to diversify their energy sources. In this context, the Russian state corporation Rosatom is creating a fundamentally new industry for its Eastern Mediterranean partners in the form of “peaceful atom”. Moreover, Russia is the only global power building nuclear power plants (NPPs), in the north of the Eastern Mediterranean in Turkey and in the south in Egypt. Both the Akkuyu nuclear power plant in the Turkish province of Mersin and the planned Ad Dabaa nuclear power plant near the Egyptian city of El Alamein, 3.5 km from the Mediterranean Sea, are strategic to Russia’s relations with the Eastern Mediterranean states. Such costly and long- term projects will help to strengthen the multifaceted relations between Moscow and its partners and take them to a new level. The Akkuyu NPP project in Turkey is well underway and construction is at an advanced stage. Despite COVID-19, the parties have remained committed to the project, taken strict measures to protect the employees of the organisations involved in construction against the coronavirus, and managed to begin construction of Unit 3 on time. As Russian President Vladimir Putin noted in the video-conferenced ceremony marking the start of construction of Unit 3 of the Akkuyu NPP, “all of the construction works have been completed on the Akkuyu NPP site”. A total of four power units with reactors providing a total capacity of 4,800 MW will be installed at the Akkuyu site, producing up to 37 billion kWh of electricity annually. The construction is being carried out with the involvement of Turkish business, and more than a hundred nuclear engineers are being trained at Russian universities for Turkey. The first unit of Akkuyu NPP is due to be commissioned for the 100th anniversary of the Turkish Republic in 2023.
In Egypt, the start of construction of the Ad-Dabaa NPP, scheduled for 2020, has been delayed due to the coronavirus crisis. Nevertheless, the parties have worked hard and reached agreements on all aspects of the US$30 billion project. Most of this amount, about US$25 billion, will be financed by a Russian loan. The first of four units is expected to be operational in 2026. Rosatom’s projects in Turkey and Egypt are implemented under the Built-Operate-Own system.
Russia and Projects in the Eastern Mediterranean
Russian oil and gas companies had an interest in the Eastern Mediterranean even before the Russian military operation in Syria. Several contracts from Russian oil and gas and construction companies signed before 2011 were disrupted in Libya and Syria by wars, external interference, and US support for the policy of “overthrowing undesirable regimes”. The discovery of new fields in the Eastern Mediterranean (Tamar, Leviathan, Zohr and others) raised the question of Russian companies’ activism in a region already destabilised by social and political turmoil. Russia began to explore the possibility of joining the most promising projects for exploration, extraction and export of energy resources from countries in the region. The development of the Eastern Mediterranean projects themselves was hampered by long-standing conflicts, the absence of maritime border demarcation, the policies of regional powers (competition) and external interference. The US sees Eastern Mediterranean gas as a tool to reduce the role of Russian gas in the European market and subsequently to increase the share of American gas in Europe. As Sergey Lavrov said during the Rome MED 2020 — Mediterranean Dialogues international conference: “We are not against the implementation of energy projects aimed at diversifying gas supply routes to Europe, including in that region. At the same time, we refuse to accept political bias in cooperation in this sphere. The choice must be made by the consumer countries themselves based on the logic of free competition, economic expediency and benefit, rather than under the influence of ultimatums and threats made across the ocean”.
With their technological and organisational capabilities, as well as their vast experience in the energy sector, Russian oil and gas giants entered many new Eastern Mediterranean projects in the second half of the 2010s. Regional nations themselves have been receptive to Russian interest. Several contracts were signed between Russian companies and Eastern Mediterranean states, but Russian participation in the projects was generally rather restrained. Russia’s Rosneft, which is looking to compete with Gazprom on the European gas market, has been most successful in Egypt. Egypt’s largest project, Zohr, is being run as a concession by Italy’s Eni S.p.A. (50%), Rosneft (30%), Britain’s BP (10%) and Mubadala Petroleum (10%).
Using Egyptian LNG capacity, Rosneft can achieve the coveted goal of supplying its own natural gas to the European market to compete with Gazprom. Gazprom itself also supplied LNG to Egypt until recently. However, the situation has changed in recent years. For the time being, only LNG from the Egyptian Damietta terminal has come online.8 The key players here are not Russian, but US Chevron with 39.66% of the Leviathan project and 32.5% of the Tamar project, as well as the Israeli Delek Drilling and others. By linking the Israeli fields with Egyptian LNG terminals, all these players plan to take a share of the gas market. To do so, they are investing in improving the gas pipeline infrastructure to the Egyptian terminals, expanding their capacity. This will allow them to export up to 7 billion cubic meters of gas per year.
While this approach by Chevron and its partners could weaken the position of Russian companies, it also calls into question the need to build the EastMed pipeline (planned at 10 bcm/y) under an agreement between Israel, Cyprus and Greece.
In January 2019, an intergovernmental organisation, the Eastern Mediterranean Gas Forum (EMGF), was established to unlock the potential of the region’s gas resources and monetise their reserves. Many Eastern Mediterranean states (apart from Turkey and Syria) joined the organisation, along with European states with interests in the region (France and Italy are members) and even an external one, the US (as observer). Th United Arab Emirates’ (UAE) desire to join the EMGF in March 2021 was vetoed by one of the founding members, Palestine. Russia, on the other hand, is still absent from the organisation, and the reason may be that the Eastern Mediterranean Gas Forum is seen to compete with Russian plans. Th Forum has also yet to prove its worth, both in terms of gas prices (which have been kept low for the last year, though this situation may not continue) and competition from US, Russian and Qatari gas. Th is not to mention the competition between Turkey and Egypt for the role of main gas hub. Russia’s energy policy in the subregion should also be seen in the context of current realities and security threats.
Security Is Key
Despite the importance of energy for Moscow, geopolitics and security issues have underpinned Russian foreign policy. Firstly, in the second half of the 2010s, the need to respond to terrorist threats from the Middle East became apparent. Secondly, the deterioration of relations between Russia and NATO, and especially the US, underscored a need to demonstrate Russian capabilities. Thirdly, Russian military presence required working relations and contacts with regional powers and the consolidation of Russia’s position in the Eastern Mediterranean.
The second half of the 2010s drew a line under the previous period of Moscow’s absence from the Eastern Mediterranean. This was primarily due to the activation of Russian diplomacy and economic cooperation with the states of the region: Russia became an important trade and investment partner for a number of states (e.g. Cyprus). Secondly, it was a result of the Russian troop grouping in Syria in 2015, marking the start of the counter-terrorism operation in that country. At the beginning of the crisis in 2011, the US did not want to get actively involved in the Syrian question. It was simply not a priority, as the US was still to overcome the results of its activities in Iraq and Libya. However, while for many Russia filled the vacuum created by the US’ desire to rebalance its policy from the Middle East to the Asia-Pacific, for Moscow itself, it was the threat of terrorism that was at the heart of the move. Thus, the first tasks of the Russian military in Syria, according to Defence Minister Sergei Shoigu, were “to eliminate terrorist groups in Syria and also to prevent fighters from coming back to Russia”. These were very practical issues requiring the attention of Russian decision makers. The outcome of the Russian operation showed that Moscow had succeeded in preventing the creation of a “terrorist safe heaven”. As Chiara Lovotti says: “The Russian military intervention was furthermore fundamental in destroying the Islamic State: this is an unquestionable fact”. It is worth recognising, however, that Moscow was also addressing geopolitical concerns along the way.
In Moscow’s calculations, the issue of its own security from its southern borders was on the agenda. Following Russia’s increased positioning in the Black Sea, access to the Mediterranean retained and intensified its importance. For Russia, access through the Bosphorus and Dardanelles straits is crucial, in the context of addressing issues of state development as well as its presence on the world’s oceans. The latter is of strategic importance to Russia’s response to the US policy of global dominance of the world’s oceans. Given this and the history of Russian presence in the Eastern Mediterranean, Russia modernised its fleet and established a permanent Mediterranean navy taskforce in 2013. The prototype for the Russian Navy’s permanent Mediterranean taskforce operating today is the former Soviet Navy’s 5th Mediterranean Squadron, which was disbanded on 31 December 1992. In the Cold War period the 5th Soviet Squadron was considered a rival to the US Navy’s 6th Fleet.
According to doctrinal documents, Moscow also saw NATO’s expansion closer to its borders as a threat. Within the framework of major external military risks, Russia’s Military Doctrine noted a “build-up of the power potential of the North Atlantic Treaty Organization (NATO) and vesting NATO with global functions carried out in violation of the rules of international law, bringing the military infrastructure of NATO member countries near the borders of the Russian Federation, including by further expansion of the alliance”. Nevertheless, within the context of its objectives of preventing and containing conflicts, in the same military doctrine Russia sees the necessity of “maintaining equal dialogue in European security with the European Union and NATO”, among other things.
For Russia, the actions of NATO’s main policy driver, the US, are perceived as a key threat. Washington not only pressures Moscow with its actions and anti-Russian rhetoric, but also seeks to undermine Russia’s relations with the Black Sea and Eastern Mediterranean states. Moreover, there has been a consistent US policy of supporting anti-Russian initiatives in the Eastern Mediterranean. These are expressed in the Eastern Mediterranean Security and Energy Partnership Act. The “Caesar Act”, which establishes tough sanctions against Syria, is also a matter of concern for Moscow. But, as further analysis shows, there is no support for these US policies from regional states. Most of them prefer to maintain stable ties with Moscow because of their national interests. For instance, with regard to the Caesar Act, many states do not support the sanctions imposed by the US. The problem is that those sanctions are secondary and prevent Middle Eastern and European states from engaging with Damascus. Some of these states, including such American partners as the UAE, have openly criticised US policy and would like to see Syria back in the region.
Several NATO member states evidently disagree with Washington’s assessment of Russia. This is confirmed by the position of one of NATO’s largest forces, Turkey. Turkey prefers to engage with Moscow both in the Black Sea region and in the Mediterranean. Despite different positions on many issues, Russia and Turkey have managed to find complex answers to difficult questions through hard work together. For instance, despite taking opposite sides in the Syrian conflict, Moscow and Ankara managed to create de-escalation zones and to set up, together with Iran, the Astana talks, which went on to become a major negotiating tool. In 2017, Russia and Turkey also signed a US$2.5 billion deal to supply the S-400 Triumph air defence system, in the national interests of Turkey. The US, however, is pursuing a campaign against Turkey and trying to make it give up the Russian air defence systems. The media have reported that, during the meeting between the United States Secretary of State Antony Blinken and Turkish Foreign Minister Mevlut Çavuşoğlu, Blinken “urged” Turkey not to retain the Russian S-400 air defence system, while his Turkish counterpart answered that it is a “done deal”. Even in the case of Libya, Turkey tried to engage with Moscow, and many observers began to say that Russia and Turkey were deciding the fate of states together. This was nevertheless not quite true. Moscow’s efforts at resolving the Syrian or other crises drew the attention of Western states (beginning with Russian activism in 2015). When Moscow sent its military contingent to Syria, the Russians wanted to work together with the US (Lavrov- Kerry format). Attempts to work with European powers also failed (Istanbul meeting of Russia, Germany, France and Turkey). Since then, Russia has been more active in working with regional powers, including the Gulf monarchies. Both Russian and European experts have nevertheless repeatedly discussed opportunities for interaction between Russia and Europe.
In Libya, the Russian approach assumed a rather tactical nature with various players. It was therefore not a problem for Russia to engage with Turkey when it needed to, or to support the Berlin process and the position of individual EU states on Libya. It is worth noting that “Russia certainly has the ability to influence the unfolding events in Libya, having diplomatic weight and even a military presence in the Eastern Mediterranean, as well as working and special relations with many regional sponsors of the Libyan conflict. Nevertheless, Moscow has already shown that in such matters it prefers to rely on regional players with real influence on the situation in crisis zones (as was demonstrated in the framework of the Astana format on the Syrian issue)”.
Of course, Turkish actions in the Eastern Mediterranean have been a source of considerable wariness. Though these were initially explained by Turkey’s having been sidelined by regional states in various issues, Turkey decided to escalate its rhetoric. In December 2019, Turkish President Tayyip Erdoğan received the head of Libya’s GNA, Fayez al-Sarraj, in Istanbul and signed a Turkish-Libyan agreement on military cooperation and a memorandum of understanding on the demarcation of maritime zones between the two countries. This did not please Turkey’s Mediterranean neighbours. Nevertheless, this escalation also suggested that at some point the Turks would have to de-escalate and seek compromises, which is what eventually happened.
What Room for Dialogue in the Eastern Mediterranean?
Changing regional dynamics in the Eastern Mediterranean have revealed the need to reshape the policies of regional and global powers. The normalisation of relations between Israel and several Arab states, most notably the UAE and Bahrain in 2021, could not fail to have an impact on the situation in the Eastern Mediterranean. The re-establishment of ties between the UAE, Saudi Arabia and Egypt on the one hand, and Qatar on the other also opened new opportunities for strengthening ties. These developments ran in parallel with Turkey’s attempts to break out of the isolation it had fallen into in the Eastern Mediterranean. Rumours of rapprochement between Ankara and Cairo—the region’s two most populous countries—were particularly prominent in February and March 2021, though more likely to come from the Turkish side. On May 5-6, the Turkish Deputy Foreign Minister Sedat Onal visited Cairo following consultations by the two states’ special services. Despite the fact that even a meeting of the Egyptian and Turkish foreign ministers is expected, progress in Egyptian-Turkish relations takes more time than one could expect. It is obvious that it is not easy for the parties to reach agreements on regional issues. The start of dialogue between Turkey and Greece is also worth noting. After rounds of serious escalation, the sides are taking their first steps towards compromise. Russia monitors these developments and supports de-escalation in the area while also maintaining relations with Turkey, Egypt and Greece. With reference to the latter, as Russian Prime Minister Mikhail Mishustin noted during his visit to Athens, on 24–25 March, to attend the celebrations marking the 200th anniversary of the Greek Revolution “The Russian-Greek relationship is based on special historical, cultural and spiritual closeness”. If we take Russia’s attitude to the Eastern Mediterranean in general, there is also a sense of the need to support interfaith dialogue between Christian (Orthodox, especially important to Moscow), Muslim, and other communities. As for Egypt, it is worth noting that Russia maintains high contacts at the military-political level and conducts joint naval exercises (the last of which took place in the Black Sea).
Both the US and the EU have agreed to work “hand-in-hand” on stabilisation in the Eastern Mediterranean. But how inclusive would this be on their part? The Americans are known for their policies of “isolationism” or “exceptionalism” when they do not like something. Europe, for its part, has shown that EU capitals can assume different positions on crises. When one of the European powers intervenes more actively, it does not always lead to a more effective outcome (as with France in Lebanon). At a joint meeting, European diplomacy chief Josep Borrell and Antony Blinken also declared that “… they are ready to engage with Russia on issues of common interest …”. It remains to be hoped that the Eastern Mediterranean will become an area for discussion rather than confrontation between the US, the EU and Russia. In the meantime, in March 2021, during a visit to China, Russian Minister of Foreign Affairs Sergey Lavrov said: “If and when the Europeans deem fit to eliminate these anomalies in contacts with their largest neighbour, of course we shall be ready to build up relations based on equality and balanced interests. In the meantime, there are no changes on the Western front, while in the East, in my opinion, we have a very intensive agenda, which is becoming more diverse every year”. In 2021, Russia’s aim is to “keep its finger on the pulse”. This is due to the complex logic of transforming tactical alliances in the Middle East. With many changes in regional dynamics, regional and global powers should not go out of their way to ignore each other’s interests. Doing so could lead to an escalation or to the activation of the proxy powers that all of the external and regional players possess.
Russia has yet to find its place in Eastern Mediterranean affairs, though joining the subregion’s energy projects can be seen as a reasonable route towards Russian engagement. Given Russia’s experience, and that energy can provide a basis for building a more stable Eastern Mediterranean, Moscow should be perceived as a constructive partner in this process. Several regional powers are interested in the stability of the subregion, but so are global powers, like Russia and the US (though with different visions). Cooperation is the key to establishing a stable region. Russia’s bilateral relations with Eastern Mediterranean countries were clearly quite successful by the start of the new decade. COVID-19 provided a further catalyst for regional dynamics. Russia became increasingly pragmatic and domestic policy issues took precedence over foreign policy issues by 2020 (and even more so during the pandemic). This can be seen clearly from Russia’s policy in the Levant: the intensification of 2015–2017 was superseded by greater moderation in 2018–2020. The treaties signed with the Syrian government consolidated Russia’s position and presence in the Eastern Mediterranean. Understanding its limitations, however, Russia did not expand its presence in Syria or increase its influence in other parts of the region. Instead, Moscow opted for a more balanced policy of maintaining neutral-positive non-aligned relations. This approach implies political risks, but it is the most correct in terms of the flexibility of Russian policy in the face of increasing pressures, a competitive environment and the next round of regional transformations. At the same time, the resilience of Russian policy promotes inclusiveness, the establishment of a balance of interests between global and regional powers, and the need to stabilise the region.
From our partner RIAC
China’s Unorthodox Intervention in the Global Oil Market
Apparently, China has been the talk of the town for quite some time. While the entire yesteryear passed in a flurry of blame game over the pandemic, this year has been nothing short of a blessing for Xi’s regime. However, while China rapidly compensated for the drastic slump last year, the bustling economy has now cooled down – though a bit prematurely. Due to the expansive outbreak of the delta variant, China – like most countries around the world – now faces surging inflation and a crippling shortage of raw materials. However, while one might get a bolder vibe from China’s recent crackdown on industrial giants, the supposed ‘Second Cultural Revolution’ seems on a divergent path from the government’s latest aspirations for the domestic industry.
China seems to be on a path to harness growth that appears to be slowing down as the global economy battles uncertainty. However, while many expected China to take orthodox measures to prolong growth, hardly anyone expected a drastic change of strategy: intervening in a close-knitted global market like never before.
China recently posted its most robust trade surplus in history, with a record rise in exports jumping 25.6% from last year to stand at $294.3; $10 billion more than any previous month. However, while the glowing figures imply sturdiness, the underlying fragility of the Chinese economy is not disguised. In the past few months, China’s production engine has taken a toll as surging energy costs have inhibited production capacity. The factory-gate inflation stands at a 13-year-high which has forced factories to cut output. Amid declining domestic demand due to covid restrictions, manufacturing surveys show that China’s export orders are eroding as supply bottlenecks coupled with energy costs have weighed heavily on the production function. To counter the problem, China recently supplied its reserves into the domestic market; undercutting the surging global price tag dictated by the petroleum giants.
Last Thursday, China’s National Food and Strategic Reserves Administrator made a press release, confirming that the world’s second-largest economy tapped into its crude reserves – estimated at 220 million barrels – to “ease the pressure of rising raw material prices.” While China is known to intervene in commodity markets by using its strategic reserves, for example, Copper, Aluminium, or even grains.
Recently, China tapped into its national reserves to intervene in the global commodity market of industrial metals for the first time since 2010. The intervention was situated as a release to normalize surging metal prices and retain domestic manufacturers’ margins. However, it is a novelty that a national agency confirmed an active supply of petroleum buffer via an official press conference. And while no additional details were offered, it is presumed by global strategists that the press release referred to the 20-30 million barrels allegedly poured into the domestic industry around mid-July: when Xi’s government offered to supply crude to the OPEC.
Furthermore, China’s Stockpile Agency claimed that through open auctions, China’s reserve crude was intended to “better stabilize the domestic demand and supply.” It was apparent that as China ventured through a supply crunch when Brent Crude – Global Crude Index/Benchmark – breached the $76 bpd mark, the country instead resorted to utilizing its own stockpile instead of relying on expensive imported petroleum. Thus, it shapes a clear picture of how China managed to clock a phenomenal trade surplus despite not importing its usual crude quota.
While it is common knowledge that economies like the US and Europe maintain strategic petroleum reserves, the buffers held by China were utilized to actively manipulate the price in a ‘normalized’ oil market instead of their designated usage in supply crunches or wars. The situation today is anything but critical for the oil market to warrant such an intervention. As OPEC+ has boosted its output by 400,000 bpd starting August, output has bloomed beyond its peak since the price war back in April 2020. While the oil market is still well below the output capacity, mutually curbed by the OPEC+ alliance, the demand is still shaky and an equilibrium seems set. Yet, when we observe China – the world’s largest oil importer – we extricate reason that despite a growing economy, China continues to experience massive shortages: primarily in terms of oil, gas, coal, and electricity.
Furthermore, with the ensue of Hurricane Ida, massive US crude reserves have been wiped which has majorly impacted China as well. The US and China rarely stand on the same page on any front. However, even the White House recently asked OPEC to pump more crude into the market due to the rising gasoline prices in America. The same scenario is panning in China as energy shortages have led to surging costs while domestic demand is diminishing. The brunt is thus falling on the national exchequer: something China is not willing to haggle. While it is highly unorthodox of China to explicitly announce its intervention, many economists believe that it was a deliberate move on part of China’s communist brass to amplify the impact on the market. The plan seemingly worked as Brent fell by $1.36 to stand at $71.24 on Thursday.
If China’s commitment to normalize domestic energy prices is this significant, it is highly likely that another intervention could be pegged later in the fourth quarter. Primarily to counteract the contraction in export orders by cutting imports further to maintain a healthy trade surplus. In my opinion, it is clear that both the US and China are not willing to let Brent (and WTI) breach the $70-$75 bracket as key industries are at stake. However, while one takes a passive approach, the other is touted to go as far as pouring another 10-15 million barrels of crude by the end of 2021. Yet revered global commodity strategists believe that the downturn in prices is “short-lived” just like any other Chinese intervention in a variety of other commodity markets globally. And thus, experts believe that the pump is simply “not enough physical supply” to quite strike a permanent dent in an inherently flawed market mechanism.
Energy Forum Seeks To Analyze Africa’s Energy Potentials And Utilization
African Energy Week (AEW) 2021 in Cape Town, fully endorsed by the Government of South Africa, is committed to accelerating Africa’s energy growth with the aim of establishing a secure and sustainable energy future for every individual on the continent. Accordingly, AEW 2021 firmly believes in the role that oil and gas will continue to play in Africa and will emphasise the continent’s upstream market through a collaborative, International Oil Company (IOC) forum. Led by IOC executives, as well as government representatives from notable energy markets in Africa, the IOC forum aims to address the upstream challenges faced in Africa, providing solutions and strategies to drive exploration and make Africa more competitive for investment.
With the discovery of sizeable oil and gas reserves across the continent in recent years, regional and international explorers are turning an eye to the world’s final frontier market – Africa. Nigeria’s 200 trillion cubic feet (tcf) of gas reserves and 37.2 billion barrels of oil (bbl); Mozambique’s 11 tcf of gas; Senegal’s 450 billion cubic meters of gas; Libya’s 48 billion bbl and 53.1 tcf; and Egypt’s 77.2 tcf of gas have all made Africa the ideal destination for hydrocarbon exploration. What’s more, with many African countries making significant steps to enhance their regulatory environments, implementing legislation to create an enabling environment for investment, the continent has become a highly competitive market for exploration and production. Nigeria’s recently implemented Petroleum Industry Bill, Gabon’s new Hydrocarbon Code, and Angola’s inclusive petroleum regulation, to name a few, have all ensured a competitive and highly attractive market.
With the world’s six oil ‘supermajors’ – BP, Chevron, Eni, ExxonMobil, Royal Dutch Shell and TotalEnergies – all actively present in mature and emerging markets across Africa, the continent has become an upstream hotspot. AEW 2021 aims to accelerate this trend, promoting new upstream opportunities and ensuring both National Oil Companies (NOC) and IOCs drive the continent into a new era of energy and economic success. Accordingly, Africa’s premier energy event will host an upstream-dedicated IOC forum in Cape Town, led by IOC executives and government representatives. The IOC forum aims to address key challenges in Africa’s upstream market, whereby the diverse speaker panel will offer up solutions to expand exploration and production, while ensuring the continent remains competitive for investment in a post-COVID-19, energy transition era.
In addition to the discussion on upstream activities, the forum aims to highlight the role of IOCs in enhancing capacity building, whereby emphasis will be placed on IOC-NOC collaboration. IOCs have a critical role to play in Africa, not only regarding resource development, but human capital and local business development. In order for the continent to become truly sustainable and competitive, NOCs require support from IOCs. Accordingly, the forum aims to identify strategies to enhance cooperation and partnerships, with IOCs taking the lead in Africa’s energy development.
“AEW 2021 in Cape Town will offer a real discussion on Africa. Oil and gas are critical in Africa’s development and the African Energy Chamber (AEC) will not succumb to the misguided narrative that Africa should abandon its potential. The IOCs in Africa have demonstrated the continent’s potential, and by sharing strategies to enhance growth, address challenges, and accelerate upstream activities, they will be key drivers in Africa’s energy future. The IOC forum will not only offer a description of African reserves, but will provide clear, attainable solutions to exploitation, exploration and production with the aim of using energy to enact stronger economic growth. By coming to Cape Town, attending the IOC forum, and interacting with African ministers from across the continent, you will be able to be a part of Africa’s energy transformation,” stated NJ Ayuk, Executive Chairman of the AEC.
Nord Stream 2: A Geopolitical Tension between Russia and Ukraine and the European Dependence
Nord Stream 2 gas pipeline is a 1,230-kilometer direct linkage between the Russian natural gas producers and the consumer market of Europe. The model was made keeping in mind the successful operation of the existing Nord Stream pipeline after a thorough analysis by Nord Stream AG. The main aim of NS2 is said to be the increase in the annual capacity of the existing pipeline up to 110 billion m³. The pipeline starts from the Russian region of Ust-Luga then stretches through the Baltic Sea and ends at the area of Greifswald in Germany. It is due to this route that the project is mainly considered to be controversial. Bypassing directly through the Baltic Sea, the importance of Ukraine for Russia for exporting natural gas to the European market would reduce significantly which will end the $3 billion transit fees gained by the Ukrainian government in the year 2018 alone, causing a sudden and huge strain on the GDP of the country.
This project worth $11 billion would double the market of Russia in Germany which is the largest market in Europe, possessing a key position in international politics. It is said by the Russian officials that the pipeline has almost been completed and it may get operational by the end of August in the year 2021. Some analysts and International Relations experts have considered this as a geopolitical weapon that gives leverage to Russia to influence future events in the region particularly the ones related to the Crimean annexation.
Threat to Ukraine
Recently in a meeting with German Chancellor Angela Merkel, the President of Ukraine appeared to be displeased by the Western recognition of the NS2 pipeline. He called it a “dangerous political weapon” in the hands of the authoritative regime of Russia which has already annexed an integral part of their country to fulfill their geopolitical and economic desires. The desperate opposition of this project by the Ukrainian government has several underlying factors which are very important to discuss.
Firstly, the transit fees earned by Ukraine just by giving passage to the gas going from Russia to Europe make up a fine amount of the GDP of the country. If projects like NS2 get operational then the importance of Ukraine will decline, causing an end to the $3 billion transit fee. Although Russia has ensured to still use Ukrainian passage for the export of their gas, this does not seem to be happening in the future. States are after their national interests and Russia would prefer the direct linkage with the European market instead of paying billions to the Ukrainian government. Currently, out of the quarter of natural gas transported to Europe, around 80% has to pass through the Ukrainian territory.
Secondly, after the expiry of the transit deal between Russia and Ukraine in 2024, it would depend upon the negotiations between the two parties to revive the fate of this deal. Although Kremlin’s Spokespersons have ensured the revival of this deal after its expiry in 2024, debates still exist about the prospects. No one can claim with certitude about the future of this deal between the two states.
Thirdly, Ukraine is intimidated by the future of the country if the Russian gas pipeline bypasses its territory. There already exist many gas-related disputes between the two states which resulted in the cut-off of the gas supply in 2014 and later on in 2015. Russia can pressurize Ukraine for accepting their demands to get their gas supplies back. Recently, Ukraine has started to reduce its dependence on Russian natural gas by switching back to European gas. But this would not be beneficial in any sense if the Russian monopoly over the gas market increases through the NS2 pipeline.
And lastly, the dependence of European markets on Russian gas can undermine the Crimean cause. Once a state has to depend on the other state for the necessities, it has to let go of many important causes and decisions. As Angela Merkel has repeatedly called the NS2 pipeline a geo-economic project rather than a geopolitical “weapon” that can be used by the Russian government as a decisive tool at times of disputes and crises, this already shows the drowning picture of the cause. In addition to this, previously the US administration was very aggressive towards the pipeline but the current government despite its opposition, is unable to do much for stopping the project which can get operational very soon.
Role of US and NS2 Pipeline
The United States of America is well aware of the changing dynamics of the region and the intentions of resurgent Russia. The Republican government under Trump proved to be very destructive for the project. The US did not only oppose the gas pipeline openly but also imposed sanctions on entities aiding Russia in the development of this gas pipeline. In January 2021, Trump imposed sanctions on the gas-pipeline laying ship, “Fortuna” and its owner under the Counter American’s Adversaries Through Sanctions Act (CAATSA). Previously, work on the pipeline had to be suspended as the US imposed sanctions on the main company, Allseas. President Biden was one of the many policy-makers who opposed this pipeline and considered it dangerous for the US and its allies. Although it was not clear what Biden’s policies would be, Blinken ensured to use “persuasive tools” against the pipeline, after acquiring the office. President Biden indeed imposed sanctions on the Russian ships and other companies involved in the laying of pipeline, but analysts think this would not cause any impact on the project as it is almost running towards completion. Rather, anti-sanction policy-makers consider it more important to waive off these sanctions and get into formal negotiation talks with the Russian government.
In May 2021, the President of the US and the Chancellor of Germany gave a joint statement for the agreement signed between the two countries related to the NS2 project. Some of the main features incorporated in the agreement are the announcement of sanctions on Russia in case it violates the peaceful use of the pipeline and utilizes it as a weapon against Ukraine. Germany would not only oppose such a step but would also press on the EU to take counter-measures. Similarly, it was decided to revolutionize the energy sector of Ukraine by the creation of a Green Fund for Ukraine by Germany worth $1 billion. Initially, it was decided that Germany would contribute an amount of $175 million. Also, it is said that Germany would use all its leverage to ensure an extension of the current transit agreement (which is going to expire in 2024) between Russia and Ukraine for at least up to 10 years. This would continue the role played by Ukraine as a transit state, helping its GDP and putting off the security threat over it. There is a sharp criticism on the Biden administration over this agreement which did not involve Poland and Ukraine while deciding their future. Also, the deal does not put any process of hindering the pipeline which is against the aspirations of all Americans and most of its allies.
In addition to limiting the role and influence of Russia in the European continent, the US is also looking forward to the opportunities of fulfilling its national interest. If the US becomes successful in hindering the operation of NS2, it can expand its gas buyers in the European countries. This way, like the post-war era the US can get a strategic and decisive role in this part of the world which can ultimately help it to counter the threats related to the rise of China and the Sino-Russian nexus. We can say that the US cannot only use this as an economic incentive but also utilize its importance in the future of great power rivalry.
Why states are against this Pipeline Project?
Along with the direct impacts of this project on Ukraine and Poland (to some extent). The major concerns of the states which oppose the NS2 pipeline include the additional leverage which Russia will gain when its national gas firm would directly export gas supplies between Russia and the European continent. This may result in a sudden disruption of the supplies, influenced by the changing dynamics of the region. The Russian authorities had cut off the gas supplies of Europe in the winters of 2006 and 2009, leaving millions without gas for days. Similarly, the increased dependence of Europe on Russian gas can be counter-productive and may hinder the interests of the states and the US soon. This situation can be utilized by both Russia and China to exploit the bonding between the US and its allies.
From the security perspective, the presence of Russia and its naval forces can cause a security threat to the states surrounding the Baltic Sea. The unsettled conditions may lead to chaos and problems in the region.
If Russia was to get a high stake in the energy market of Europe, this would also allow it to exploit the situation and create a monopoly over the market. This may not also lead to political outcomes and consequences but can also end the game of local and international gas market players in the continent. This is the biggest threat that is encouraging the US to make NS2 a security threat for itself and its allies.
Keeping in view the nature of international politics and changing economic dimensions to the project, the only possible way forward is an agreement between Russia and the US related to the pipeline and the future of Ukraine. If developments can be made over the existing US-Germany agreement then concerns of the states can be mitigated to a huge degree. The options of imposing sanctions on the pipeline are no more practical and can be counter-productive for the US concerning its allies especially Germany.
The Nord Stream 2 Pipeline despite its economic benefits cannot be separated from its geopolitical aspects and consequences. In international politics, the hardest thing to do is to trust the intentions of the other state, especially when it was a superpower previously and has several examples of violating the sovereignty and rights of neighboring states. But presently, all those who oppose the pipeline have no other option than to allow its proper functioning under certain terms and conditions.
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