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In the last two years all international oil companies have withdrawn from the country.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

Time to pipe up

Competition over energy resources has played a major role in the power struggles of the Middle East over the last half century. However, its importance in the Syrian conflict remains difficult to adequately assess.Syria lies at a crossroads of energy export routes and various pipelines, existing or under plan, across its territory. The most significant of these projects involve countries such as Iran, Iraq, Qatar and Turkey.

One of the pipelines being planned is the Islamic Gas Pipeline (IGP), which should see the transport of gas from Iran to Iraq, Syria and Lebanon, and from the port of Tartous in Syria to European markets. The agreement over this project was signed in early 2011 by the four countries. In its first stage leading it to Tartous, the pipeline will be 2,000-kilometers long and will cost $2.5 billion to build. When completed, it will have the capacity to transport 110 million cubic meters of gas a day from Iran, including 20 million cubic meters that will be sold to Syria and 25 million to Iraq. This pipeline would bypass Turkey.

Interestingly, the gas is supposed to come from a field shared by Iran and Qatar — named South Pars in Iran and North Dome in Qatar — that is considered to be the largest gas field in the world.

Qatar, which has developed its side of the field much more rapidly, is also reported to have a project to build a pipeline that will transport its gas through Turkey and from there to European markets. The pipeline will have the advantage, for Qatar, of bypassing the Strait of Ormuz. However, Qatar is considering two options, one that would run through Saudi Arabia, Jordan, Syria, and then Turkey, while the other would go through Saudi Arabia, Kuwait and Iraq to Turkey.

Although these facts point to strong competition between the two countries, it is difficult to draw from them clear conclusions as to their impact on the struggle in Syria.

Iran, for instance, is not yet a serious competitor for Qatar because, for obvious political reasons, European countries have refused to sign any long-term contracts with Tehran. In the absence of purchasing contracts from the EU, which is by far the largest market for natural gas, Iran will be unable to be a serious competitor. Also, the capacity of the pipeline will be relatively small compared to the consumption of the European Union, which is currently at 1.5 billion cubic meters a day, set to grow rapidly in coming years.

Meanwhile, the Qatari pipeline will not necessarily use Syrian territory and Doha would first need the approval of Saudi Arabia — never too enthusiastic when it comes to helping its small neighbor and rival — for either of the two options it considers. It is also worth noting that in the years preceding the conflict no negotiations were reported to have taken place between Syria and Qatar on the project, in spite of the very good relations existing at the time between the two governments.

There are also two arguments that diminish the importance of the energy geopolitics in the Syrian conflict. The first is that if Iran were to develop an important gas export capacity, its first and main competitor would be Russia. Indeed, Europe is currently highly dependent on Russian gas and Moscow uses this as a lever of power in its relations with the EU. Russia was actually one of the main opponents to the defunct Nabucco pipeline, which would have transported gas from Iran and Azerbaijan through Turkey to Europe.

Also, if energy had such importance in the conflict in Syria, one would have expected the Syrian regime to highlight it much more frequently. In the two years of the uprising, the Syrian authorities have almost never mentioned the issue of the gas pipelines as a reason for the involvement of regional countries in the conflict.

There is little doubt that the Syrian conflict will have consequences on regional energy projects. It is difficult, however, to make the case that this issue is the main reason for the regional competition over the struggle in Syria.


Note: This article appeared first in the November 2013 edition of Executive Magazine