Putin’s Plan To Take Control Of The Middle East

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By Simon Watkins

Putin's plan

Having secured pivotal economic and political influence in recent months with Iraq (both north and south), Syria, Iran (and by dint of this, the rest of the countries constituting the Shia arc of power, including Lebanon, Jordan, and Yemen), Russia appears to be in the process of ‘completing the set’. Last week saw a range of done deals and hints at more secretive deals that point to Russia taking full advantage of the power vacuum created in the Middle East by U.S. President Donald Trump’s renewed isolationist policy focus. “The withdrawal of U.S. troops from Syria – even at the cost of breaking the promise made to the Kurds that they would be given independence in exchange for defeating Islamic State on the ground – was a clear signal to Russia that it can do what it wants in the region,” a London-based risk analyst told OilPrice.com last week.

First up for Russia’s attention was the UAE, one of the last longstanding allies of the U.S. in the region. Only a month or so ago, the U.S. Treasury undersecretary for terrorism and financial intelligence, Sigal Mandelker, flew to the UAE to meet with the chiefs of the country’s banks and shipping companies as part of Trump’s attempts to tighten up sanctions against Iran. “Dubai [one of the seven emirates whose federation constitutes the UAE] has long been known as an absolutely reliable banking and finance house conduit for funds making their way to Iran in payment for oil and gas, among other things, so it was this that the U.S. wanted to stop,” a senior oil industry source who works closely with Iran’s Petroleum Ministry told OilPrice.com. Just prior to this, a generally overlooked – but enormously significant – meeting took place in Tehran between the commanders of the border and coast guard units of the UAE and Iraq, the first such meeting for six years. The two countries signed a memorandum of understanding laying out the commitments of each to boost maritime co-operation in the Strait of Hormuz and agreed to hold six-monthly meetings to co-ordinate activities to deal with threats to their security.

Nonetheless, barely had Mandelker left the UAE than it announced a slew of deals relating to the oil and gas sector. One especially notable example was the announcement from the Abu Dhabi National Oil Company (ADNOC) that it had agreed to sell a stake in the Ghasha gas project to Russia’s Lukoil, the first time that a Russian company has joined an ADNOC concession and Lukoil’s first project in the UAE. Additionally, ADNOC said that it had also signed a strategic framework agreement with Gazprom Neft on upstream, downstream and technology cooperation. “Lukoil and Gazprom Neft are two of Russia’s slicker Western-oriented corporate power proxies but – make no mistake – they are always working in line with the Kremlin’s overall geopolitical strategy,” said the Iran source.

These deals, however, significant though they are, are just a small part of a typically Russian strategy in areas of interest of concluding ‘wide-ranging co-operation agreements’. One key element in the new agreement, according to Russia’s energy minister, Alexander Novak, will be co-operation on nuclear power – plus oil, gas, liquefied natural gas (LNG), electricity, and various transport projects. Indeed, the energy ministry said that Rosatom had also signed a memorandum of understanding with the UAE Atomic Energy Corporation on cooperation on nuclear energy. “What the statement did not say was that as part of this nuclear co-operation, Russian nuclear industry personnel – and security personnel, of course – would be working inside various key facilities in the UAE, and a number of the transport projects would relate to the movement of nuclear industry-related materials from Russia and Iran to the UAE,” the Iran source told OilPrice.com.

Even if the Russian agreement did not include any nuclear element, it would be of concern to the West, as it effectively adds the huge gas assets of the UAE to Russia’s massive gas reserves, through which it wields already extraordinary influence over Europe. Some years ago, Russia had fully developed plans to enhance co-operation between some of the member states of the Gas Exporting Countries Forum (GECF), which comprises Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, the UAE, and Venezuela. In particular, Russia believed (and still believes) that just three of these – Russia, Iran, and Qatar – would be able to form a ‘gas cartel’ able to influence prices and to control sufficient supply and demand to such a degree that they could wield more power in the global gas market than OPEC used to in the oil sector. “As the U.S. has gradually increased its use of sanctions to such a degree that they have become the policy rather than simply being an instrument of policy as they were before, more and more of the big oil and gas powers have found themselves ostracised, so the impetus for them to co-operate between each other has grown exponentially, and now this includes the UAE,” said the Iran source.

Saudi Arabia’s relationship with the U.S. has been increasingly fractious and ill-humored since Saudi embarked on its strategy in 2014 to destroy the U.S. shale oil industry and has worsened from then, as thoroughly examined by OilPrice.com. At the same time, though, Saudi has tentatively sought to hedge this risk of abandonment by the U.S. by building up its relationship with Russia. This began with the two working together on the December 2016 OPEC+ production cut agreement but has broadened and deepened since. Indeed, early this year, Russia’s President Vladimir Putin and Saudi King Salman bin Abdulaziz confirmed that they are ready to continue cooperation in the global hydrocarbons markets. Officials from both sides said that the two countries would be cooperating in the future on the OPEC+ crude oil production agreement and in the LNG market, in addition to various petrochemical projects and matters adjunct to these, such as trading. On the face of it, the Kremlin statement was in line with what the oil markets had been expecting, which is the formalisation of the previously ad hoc cooperation between Saudi and Russia – the number two and number three oil producers in the world, which can pump around 20 million barrels per day of oil between them (roughly a quarter of global production) – on the oil price, as Saudi working on its own to support oil prices was ineffectual.

The recent announcements from Saudi Arabia, then, are entirely in line with this shift in alignment and again, in true Russian fashion, Moscow’s approach to Saudi pulls on all the strings available, even involving Putin’s first visit to Saudi Arabia in over a decade earlier this month. A particularly sensitive issue for Crown Prince Mohammad bin Salman is that no one with even half a brain voluntary wants to take part in his omni-toxic Aramco initial public offering (IPO). Cue Russia, which has an altogether more complex agenda: last week saw the head of the Russian Direct Investment Fund (RDIF), the enormously clever Kirill Dmitriev, say (without laughing) that a number of Russian investors were interested in the Aramco IPO. By complete coincidence, of course, Russia’s Novak said that Russian gas behemoth, Gazprom, was ‘interested in cooperating’ with Saudi firms on natural gas, which would be a geopolitically very welcome (but logistically unnecessary) addition to Russia’s planned ‘Gas OPEC’ variant.

This co-operation does not end there, as Russia and Saudi Arabia signed new agreements covering oil services and petrochemicals as well. Specifically, the RDIF, Aramco, and Saudi Arabia’s Public Investment Fund (PIF) agreed to acquire a 30.76 percent stake in Russian services company, Novomet, from Rosnano, the first joint investment by RDIF, Saudi Aramco, and PIF through their energy investment platform established in 2017. Additionally, the RDIF agreed with SABIC and Russian private equity group ESN to invest in design, construction and operation of a methanol plant in the Amur region. To top it all, according to various reports from the Russian and Saudi sides last week, Russia and Saudi Arabia have also established a Russia-Saudi Economic Committee, that will take a leading role in developing economic and trade ties as well as investments between Russia and Saudi Arabia across all sectors.

By Simon Watkins for Oilprice.com




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