One of the key things to understand about the war in Syria is that in many ways, it’s a perfect example of how the energy-geopolitics nexus has tremendous explanatory power when it comes to analyzing the events that shape the world and show up on the nightly news.
As we’ve been at pains to explain for quite some time, Bashar al-Assad’s decision not to sign off on the Qatar-Turkey natural gas pipeline and instead to support the proposed Iran-Iraq-Syria line, may very well have prompted Qatar and Assad’s other regional rivals to begin the process of fomenting discord within Syria’s borders. The strategy was familiar and indeed, it was spelled out in a leaked 2006 diplomatic cable from Washington’s then-acting Deputy Chief of Mission in Syria William Roebuck: play on the sectarian divide. Thus, Sunni extremists were emboldened to take up arms against the regime and the rest, as they say, is history.
Note that the difference between the two proposed pipelines mentioned above comes back to power politics. That is, Iran’s regional sphere of influence depends on preserving close ties between itself, Iraq, Syria, and Lebanon. The Islamic Line would run through all of those states. The last thing Saudi Arabia and Qatar want is for Iran to embark on a regional power grab and so, Syria became the swing state. Dethrone Assad and Tehran’s supply line to Hezbollah is broken - the door would then open up for Riyadh to essentially install a puppet government (with Washington’s help under the guise of promoting “democratic regime change”) that would be open to helping Qatar get its natural gas to Europe. That’s where the Russians come in. The more non-Gazprom supply that gets to Europe, so much the worse for the Kremlin in terms of the leverage Moscow has with the EU.
Again, it’s the quintessential example of how energy and geopolitics conspire to create the events that shape the course of history.
Of course the interesting thing about the above is that both the Qatar-Turkey line and the Islamic Line pipe gas from the same field and both lines aim at supplying Europe. The question then, is this: why should Moscow prefer one over the other?
One more time: it comes back to power politics.
Russia and Iran are allies and so, as we’ve said on a number of occasions since Moscow stepped up its involvement in Syria, there will undoubtedly be a number of deals between The Kremlin and Tehran that ensure Russia’s interests are protected once Iran’s regional power grab is complete and once economic sanctions are lifted.
Sure enough, we’re already beginning to see the beginnings of what will likely be a series of energy partnerships between the Russians and the Iranians. Here’s Reuters:
Russian Energy Minister Alexander Novak said on Friday Kremlin-controlled gas producer Gazprom has offered gas supplies to Iran under a swap arrangement, and similar oil deals were also under consideration.
Moscow has boosted efforts to foster political and economic ties with Tehran and increased its activity after a decision in July to lift international sanctions on Iran in principle. The ending of sanctions, related to Iran's nuclear programme and including restrictions on oil exports, have yet to take effect.
Novak said Iran normally supplies gas to its northern regions from the south of the country and the proposed swap deals would help to cut its transportation costs.
"We could supply gas through to Iran's north and receive gas from the south (of Iran) via swap deals in the form of liquefied natural gas or pipeline gas," Novak told Russian state-run TV Rossiya-24.
"Similar swaps could be done with oil. This is a reduction of transportation costs. Our colleagues have given a positive response to the idea," he added.
And a bit more from Sputnik:
Under the plan, Iran will receive Russian oil and gas through its northern terminals on the Caspian Sea and will sell its oil to Russian clients from its southern terminals. A similar mechanism of oil swaps is used by Iran in its bilateral trade with other Caspian states, including Azerbaijan, Kazakhstan and Turkmenistan.
During the visit, Moscow and Tehran signed a number of agreements. Novak said that the deals are worth a combined total of up to $40 billion.
Details regarding the purported $40 billion in new projects are sparse but consider the following bullets from Bloomberg out this morning (note the suggestion that Russia and Iran will set up what amounts to a joint development bank):
- Russian oil cos. ready for competition w/ Iranian oil
- Iran to hold road show on oil development deals soon
- Russia considering projects of up to $40b in Iran
- Russia, Iran agreed to consider setting up bank to fund projects
- Russia may invest $2b in Iran power projects
- Bushehr nuclear power unit may cost $11b
- Zarubezhneft considering projects worth $6b in Iran
Notably, Iranian Oil Minister Bijan Namdar Zanganeh said last week that Tehran is seeking around $100 billion in oil and gas investments by 2021. What the above seems to suggest is that Russia is willing to bankroll nearly half of that amount.
Meanwhile, the Russians are putting on a brave face in the face of Riyadh's attempt to essentially starve out the competition. Here's Novak again:
"OPEC’s self-established quota of 30 million barrels per day (bpd) is fully used by OPEC countries. Subsequently, if a member exceeds its quota, OPEC should redistribute its production among other members."
It’s very important whether OPEC will rebalance or if there will be extra output. There is a lot of uncertainty, but in general we are ready for it. And our oil companies are ready for this competition.”
And here's what Zanganeh had to say on the same subject (via Bloomberg):
Iran’s oil minister sees no imminent change in OPEC’s output strategy even as he urged fellow members of the group to cut their collective production to buoy crude to a range of $70 to $80 a barrel.
Iran is preparing to ramp up its own output once world powers remove sanctions on its economy, regardless of any decisions by the Organization of Petroleum Exporting Countries, Oil Minister Bijan Namdar Zanganeh told reporters Monday at an industry conference in Tehran.
“No one is happy” with prices at current levels, he said. “OPEC should decide to manage the market by reducing the level of production,” Zanganeh said. “It seems that the atmosphere is not well for making a change in the market.”
No, the "atmosphere is not well," because again, the Saudis are out to achieve "ancillary diplomatic benefits" (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to the market.
As you can see, all of this is inextricably linked and it looks as though Russia and Iran may be on the verge of attempting to challenge the Saudis for domination of the oil market (don't forget Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).
Is a "new oil order" in the works? We shall see.