Russia looks for economic gain in Syria

The Syrian government has confirmed a preliminary agreement with Soyuzneftegaz, a Russian oil and gas company, for the exploration of the country’s offshore waters, highlighting Moscow’s desire to capitalise economically on its sustained political and military support for the Assad regime.

No details have emerged on the specifics of the agreement between Soyuzneftegaz and the Syrian government but its timing is significant. For Damascus the deal represents a much needed attempt to secure energy supplies and revenue flows.The November announcement capped more than five months of negotiations between the government and Soyuzneftegaz and a formal agreement is expected to be signed between the two parties in the next few weeks.

Recent gas finds in the offshore areas of Israel and Cyprus have raised the energy prospects of the eastern shore of the Mediterranean. However, Syria has been slow in exploring its offshore potential, partly because of the 30-month old conflict gripping the country.

In 2007, the Syrian government did launch a bidding process for the exploration and development of four offshore blocks over a total area of 5,000 square kilometres. However, because of the poor terms offered and the high risks and costs associated with offshore exploration the process was largely unsuccessful – only one small independent oil company submitted a bid. Another licensing round with improved terms was initiated in March 2011, only days after the beginning of the first protests. Unsurprisingly that round also failed to attract much interest.

In the last two years all international oil companies have withdrawn from the country. European and Canadian companies quickly left because of sanctions imposed by their home countries. Russian and Chinese companies left at a later stage due to the widening violence, particularly in the north-east where almost all oil and gas reserves are located. Some 14 foreign companies were involved in oil exploration in Syria in early 2011, of which eight were western and only two were Russian.

Soyuzneftegaz, which was exploring an area located on the border with Iraq, was among these – the company had drilled two wells in its block but has not yet made any finds. Unlike European firms, it is not now bound by any sanctions. It would also face fewer security problems in offshore exploration given that the coastal area is among the safest in the country.

Since the beginning of the uprising two and a half years ago, Moscow has been a key ally of the Assad regime, supporting it against most of the international community. Russia’s support has principally come through the use of its political weight and its veto power in the UN Security Council, but also through financial and military backing. The governor of the Syrian Central Bank has, for instance, acknowledged on several occasions that his institution is using Russian banks to escape European and American sanctions.

For Moscow, which has a controlling stake in Soyuzneftegaz through the Central Bank of Russia, the deal with the Syrian government holds several potential benefits. Firstly it enables it to capitalize economically on its support for the regime; secondly it could help it secure a foothold in the eastern Mediterranean’s potentially promising gas reserves; and thirdly it would gain an advantage over rivals, including Qatar and Iran, in any future competition to control energy supply routes from the Levant to Europe.

Despite analysis to the contrary, Russia’s direct interests in Syria over recent years were very limited. Its naval base in Tartous was more akin to a resupply station; its economic presence was restricted to a handful of companies; cultural relations were negligible; and political ties were unimpressive.

Russia’s support to Damascus since the beginning of the conflict was first and foremost a means for Moscow to reassert itself on the international stage and to rehabilitate the Security Council as the source of legitimacy for intervention in international affairs. But with the lengthening of the conflict and Damascus’ continuing dependency on it, Moscow is now trying to secure some material reward.

Note: This article appeared first in December 2013 in the blog of the European Council on Foreign Relations

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