Russia Eyes Rapid Middle East Energy Expansion

Graph 1. Russian Participation within the framework of the Iran Petroleum Contract.

 

Having battled through the travails of an ever-tightening sanctions regime and a prolonged economic downturn, which in most cases led to a freezing up or lowering of expenditures and the adoption of a very risk-averse investment strategy, Russian companies are now destined to embark upon a new expansion, this time in the Middle East. With the recently imposed U.S. sanctions further impacting Russia’s ability to form partnerships with Western majors, Iran, Iraq and possibly even Syria will become the new hub of Russian oil-related investments. Immensely rich in oil, yet lacking the funds necessary to exploit it, virtually unsanctionable for any potential cooperation with Russian companies (even sanctions vis-à-vis Iraq are implausible given the ongoing fight against the Islamic State) and brought ever closer together politically on the back of recent developments in the region, the Middle East-Russia axis is bound to get stronger with time.

The most notable external stimulus for Russia’s Middle Eastern drive will be the tightening of the U.S. sanctions regime, limiting partnerships involving Russian oil companies and Western majors. As all big Russian oil & gas companies have a good relationship with the government (NOCs are tangibly closer than others, though), sanctions could be levied against virtually anyone, even against independents. For instance, it was feared that the U.S. Congress might sanctions LUKOIL’s Romanian Trident project (72 percent share), on which it collaborated with the American PanAtlantic (18 percent).

Iran is not the only Middle Eastern country that will witness an influx of Russian companies. Rosneft and Gazprom Neft are developing eight blocks in Iraqi Kurdistan, with the former effectively helping the KRG to stay financially afloat thanks to its prepayments within a long-term supply deal. Russian companies seem to be warming up to the Iraqi mainland, too – LUKOIL has strived to expand its dealings in Iraq, where it currently operates the 14 BBbl West Qurna field, by clinching the Nasiriya Integrated Project. Talks have yielded no significant result so far. However, with Rosneft having spudded its first exploration well in the Western Desert this year and Gazprom Neft ramping up its 3 BBbl Badra project, LUKOIL might get back to the negotiation table. All the more so as LUKOIL’s own Eridu-2 exploratory well, spudded in February 2017 and located right next to Nasiriya, confirmed expectations of a large hydrocarbon field.

The Syrian civil war remains a significant factor in dovetailing the Russian and Iraqi/Iranian points of view. By demonstrating that it is willing to commit substantial resources to the Syrian cause, by shoring up military cooperation with Baghdad and Iran, including the sales of military equipment and arms, Moscow’s status within the region has been cemented. In case the Syrian civil war ends with the current government staying in force, either to the full extent or by means of a political division of powers, Russian companies (the state-owned ones and perhaps Tatneft, too, as it had assets in Syria before the onset of the war) are expected to take part in the resurrection of the Syrian oil & gas sectors. Syria’s reserves – 2.5 BBbl of oil and 241 BCm of gas – might seem small compared to Iraq or Iran, however, they would also constitute an important piece in the jigsaw puzzle of Middle Eastern energy.

Full article: Russia Eyes Rapid Middle East Energy Expansion (OilPrice)

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