Commentary: Russia’s new Middle East energy game

By Michael J. Economides and Peter C. Glover

Ever since massive quantities of natural gas were discovered in Israeli and Cypriot territorial waters, the reaction of Russia under the ubiquitous Vladimir Putin became a giant question mark. After all, Russia’s energy hegemony over Europe was at stake.

Exacerbating the Kremlin’s predicament has been the activity around shale gas, arguably the biggest story in the international energy business in the last two decades. For the United States it has been literally and figuratively earth-shattering. Not only is the US poised to become self-sufficient in both oil and natural gas but it is certain to become a large natural gas exporter in the form of LNG. Europe will be an obvious target but the retrofitting of the Panama Canal would allow US gas to travel to the mother lode of all future destinations, Asia and in particular, China.

Russia, where energy sources form the lifeblood of the economy, had to react. That included making some whimsical statements from Gazprom – suddenly finding environmental religionism – invoking the dangers of “fracking,” a radical green mantra against the only way to produce shale gas. They’ve since ‘recanted’ that opinion.

But if anything offers a litmus test for trends in hard-nosed realpolitik, it’s the cutting of strategic international energy deals. While the Western media persists in warning of apocalyptic consequences should Iran’s nuclear ambitions lead to outright conflict with Israel – a conflict drawing in Russia et al. – an entirely different scenario is developing as Moscow is buying long-term into the Israeli-Cypriot gas and oil energy bonanza.

Israel has had trouble attracting large international oil companies to invest in its energy sector because of the company fears to antagonize Arab and Moslem countries, owners by far of the largest oil and gas reserves in the world.

Thus, despite of the Kremlin’s apparent public support for its traditional Middle East (ME) partners, its actions represent nothing less than a paradigm shift in the tectonic plates of regional power. More specifically, they represent an effective selling out of Russia’s backing for both Iran and Syria – something we predicted in Has Russia Sold Out Iran for a Stake in Israeli Gas? last year.

Only too aware of the threat of east Mediterranean supply if Europe is able to diversify away from Russian gas dependency,  Moscow has been steadily feting Israel to buy into a piece of the action. On February 26, that effort culminated in Russia’s Gazprom clinching a key deal to market Israeli liquefied natural gas (LNG).  But the 20-year contract between Gazprom Marketing, Trading Switzerland and Levant LNG Marketing Corporation represents only the first step in Russia’s new Middle East energy game.

As veteran observer M.K. Bhadrakumar wrote in the Asia Times, “The Tamar deal rewrites the ABC of geopolitics of energy security” being “an important milestone for strengthening Gazprom’s position in the global LNG market … and in the booming Asian LNG market.” More than that, however, it’s a masterstroke that reflects Russia’s underlying priority across the Middle East itself.

Discovered in 2009, the Tamar and Dalit offshore fields hold around 9 trillion cubic feet (tcf) of gas. Due to come online in 2017, the Tamar LNG Project is expected to produce a cool 3 million metric tons of LNG annually. A multi-billion dollar LNG terminal is to be built to handle the conversion from produced natural gas. The plant will also bring into play gas piped from Cyprus own Aphrodite field – another 7 tcf. That Moscow is in this for the long haul with its Israeli-Cypriot partners is plain enough. Moscow has already advanced a $3.5 billion loan and attempted to gain more leverage over Cyprus’ economic and energy assets during the recent bitter negotiations in the banking crisis.

But the Tamar deal is just for starters. The Kremlin is playing a much bigger game. Gazprom is already eyeing a role in the development of Israel’s gigantic Leviathan gas field. With its estimated 25 tcf of gas Leviathan is due to come onstream by 2016.  And the eastern Mediterranean bonanza is potentially huge. The US Geological Survey estimates the eastern Mediterranean Levant Basin contains around 123 tcf of gas and 1.7 billion barrels of oil. Apart from the potential of supplying Europe by pipeline, the Mediterranean LNG offers Russia, already the global leader in gas trade, a major role in exporting Mediterranean gas to the highly lucrative and burgeoning Asian market, including China, India and Japan.

Given that the Leviathan-Tamar holdings are dominated by a raft of Israeli companies (Delek, Avnar Oil Exploration and others) together with a 39 percent stake held by the US oil major Noble Energy – effectively a joint Israeli-US venture – one can only surmise that critical security commitments have been made by the Kremlin to their new Israeli and US partners.

Russia’s economy depends on its energy revenues. As we have said before: “Putin is only too aware of the triple whammy of falling domestic energy productivity, surging global shale development in the wake of the US shale revolution, and the new threat posed to a European market still dependent on Russian gas imports – the significant potential of Israeli gas exports”.  At a stroke Russia has now achieved a major role, and a serious piece of the eastern Mediterranean energy scene.

Gazprom is not likely to leave things there.

According to the details of the February deal, Gazprom has also been granted the exclusive right to purchase the LNG produced by the terminal. Thus, the Tamar deal greatly strengthens Gazprom’s hand in fulfilling commitments made in a raft of medium and long-term deals with India and in north-east Asia.

Russia’s state-backed Gazprom is being used to extend and secure Russia’s global energy hegemony. But while the Tamar deal did make one or two headlines in the media’s business and energy sections, its wider ramifications for Middle East security has largely been lost on Middle East observers.  So let’s spell them out.

First, it sends a clear message to Turkey should the Ankara Government consider military intervention in an attempt to stop Greek Cypriot gas and oil exploration and infrastructure development. Second, for all its apparent support for Syria’s Assad regime, Russia’s energy partnership with Israel is clearly meant for the long haul whichever side gains control in Damascus. No wonder Israel has recently felt sufficiently emboldened to issue oil and gas exploration rights on the disputed Golan Heights.

But, most significantly of all, Russia’s ME ‘re-alignment’ delivers a powerful retort to the hand-wringing angst of Western intellectuals and media ‘experts’ who persist in invoking the fear-laden question: what would Russia do if Israel decides militarily intervention is the only way to end Iran’s nuclear ambitions?

While we have consistently made out a strong case that the (Iranian-Syrian) Shia v Sunni (Saudi and much of the rest of the ME) divide would, despite the rhetoric, means not a single ME government would come to Iran’s aid in the event of an attack, we can also state precisely what Russia won’t do. Moscow won’t jeopardize its new deeply strategic energy partnership with its Israeli-Greek Cypriot ‘Western’ partners – in particular, its burgeoning relationship with the Middle East’s coming energy superpower, Israel.

Michael J. Economides is a leading US energy analyst and Editor-in-Chief of the Energy Tribune. Peter C. Glover is a British energy journalist. They are co-authors of the bestselling Energy and Climate Wars (Continuum).