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Russia Strengthens Its Grip On Syrian Oil

Simon Watkins

Following the various recent announcements from U.S. President Donald Trump that he wants the country to withdraw from all areas of potential conflict in the Middle East – except Saudi Arabia, for the moment, at least – Russia continues to fill the power vacuum. In the centre of the Middle East – Iran and Iraq – it is aided by China, which is stealthily and relentlessly pursing its ‘One Belt, One Road’ project, and to which Iran and Iraq are irreplaceable transit points through which it can reach deep into Europe, as analysed in detail in my new book on the global oil market. Russia is happy to go it alone, however, putting all of the pieces in place prior to Trump’s official Middle East disengagement statements so that it has been perfectly positioned to take over since then. Perhaps no country acts as a better template of this Russian Middle East strategy than Syria, which saw Russia take a definitive military stand in favour of the incumbent president first, followed by the rollout of various business initiatives – two more deals were announced last week - followed by the use of its geographical and infrastructural position to gain strategic military advantage.

The two oil exploration contracts announced last week for two (barely known) Russian firms - Mercury, and Velada - were approved by Syria’s parliament earlier this year and cover exploration and production in three blocks including an oilfield in northeast Syria and a gas field north of the capital Damascus. Just in case anyone was in any doubt about exactly why Syria chose to award these contracts to Russian firms, Syria’s Oil Minister, Ali Ghanem, said that it: “...was in line with the government’s strategy towards friendly states that stood by Syria, with Russia and Iran at the forefront.” According to a senior oil and gas industry source who works very closely with Iran’s Petroleum Ministry, spoken to exclusively by OilPrice.com last week, a slew of new deals – both in the oil and gas sector but also relating to broader infrastructure projects (read ‘military’) – will continue to be signed by Syria with Russia in the coming years, with Iran acting as the local enforcer (especially with the Kurdish diaspora in the region) as and when necessary. “It’s true that the U.S. has kept a few troops in Syria [around 600, in fact] but that was just to allow the U.S. to claim that as and when Turkey and/or Syria massacred the Kurds the U.S. had tried to stop it,” said the Iran source. “In reality, the U.S. is helping the Chinese to advance its ‘One Belt, One Road’ into areas in Afghanistan and Pakistan, so that it [the U.S.] can completely withdraw all of its people form there too, and Syria will follow,” he added.

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Despite the many military and geopolitical advantages that a major presence in Syria allows the Russians – more of this later – it has largely been forgotten that Syria has genuinely good levels of oil and gas resources available for exploration and development. Indeed, as a senior source who works closely with Russia’s Energy Ministry exclusively told OilPrice.com earlier this year: “The cost of [Russian] expansion in Syria is offset in good part by the oil and gas we can sell.” Specifically, before the need for enhanced oil recovery techniques at the major Syrian fields (mostly located in the east near the border with Iraq or in the centre of the country, east of the city of Homs) arose – but was slow to be rolled out – the country was producing around 600,000 barrels per day (bpd) on average for a number of years.

At the height of the civil war, production dropped to an estimated 15,000 bpd, but, as Richard Mallinson, head of Middle East analysis for global energy consultancy, Energy Aspects, in London, told OilPrice.com: “The potential is still there, and it has been shown in areas where there has been some relative degree of stability in control of wells that output increases can be effected.” Syria’s gas production has remained in better shape overall, he added, and “there is a lot of opportunity there over time.” Indeed, Syria has proved natural gas reserves of 8.5 trillion cubic feet (Tcf), and combined oil and gas exports accounted for a quarter of government revenues prior to 2011, making it the eastern Mediterranean’s leading oil and gas producer at the time. During the financial year 2010/11 – the last under normal operating conditions – Syria produced just over 316 billion cubic feet per day (Bcf/d) of dry natural gas and, although over the course of the conflict gas production has also dropped, it has not done so by anywhere near as much as oil, with current output estimated at least 120 Bcf/d.

“Not only does Syria have current oil and gas assets that are worth getting back into full production but there is also a potentially huge oil deposit in the Golan Heights that the Israelis are redoubling their efforts to develop, which only adds to Syria’s geopolitical importance,” the Iran source underlined. Indeed, for a few years now, Afek Oil and Gas - the Israel subsidiary of U.S. oil company, Genie Energy, which has former U.S. vice president Dick Cheney on its advisory board – has been prospecting on the Heights, which is now believed to have billions of barrels of oil present, according to Genie’s chief geologist, Yuval Bartov. “Russia, with Iran’s help, is moving faster now in Syria because they think that although [U.S. President, Donald] Trump became the first U.S. president to recognise Israel’s jurisdiction over the [Golan] Heights [in March], he [Trump] may not want to support that view in any meaningful way, given his Middle East-withdrawal bias.” said the Iran source.

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Even without this, Syria is a uniquely important geopolitical state in the region for all of the major power blocs, bordering the southern land access route of Europe via Turkey, and with sea routes to the major oil and gas hubs in Greece and Italy, in addition to being near-neighbours of Saudi Arabia, Qatar, Iraq, and Iran. Iran, then, announced a while back that it is to build an oil refinery in Syria, but not just near any of its many oil industry sites but right by Homs, a city of unparalleled significance in the recent Syrian troubles. Dubbed the ‘capital of the revolution’ against President al-Assad after its residents embraced the call to overthrow the president in early 2011, it has been a key battleground in the uprising against the al-Assad dynasty. For two years it was under the control of the U.S.-backed opposition until the middle of 2013 when fighters from the Lebanese Shia Islamist movement Hezbollah – backed by Iranian equipment and special forces-training and supported by Russian technology in the first instance and later by airstrikes - arrived to bolster pro-Assad forces. “There is absolutely no reason to pick Homs as the site for this refinery except to give a huge ‘screw you’ to the Americans,” said the Iran source. This message was further underlined at the time by the fact that Iran’s partner on the refinery would be Venezuela.

Iran’s and Russia’s plans, though, do not end there, as a meeting earlier this year between al-Assad and his advisers and senior figures from Iran’s Islamic Revolutionary Guards Corp reiterated plans for Iran, with the help of Russia, to build-out or rebuild Syria’s telecommunications, mining, oil and gas, and power sectors. Among these are building a 540 megawatts power plant, a memorandum of understanding for which has now been signed, in order to expedite the resuscitation of Syria’s power grid, and the restoration of the main control centre for the grid back to Damascus. As part of the broad-based agreement reached between al-Assad and the IRGC, Iran is also planning to restore a 90-megawatt power station in the Deir al-Zor province, and to supply power to Aleppo city. In a similar vein, this year also saw the mysterious announcement that Stroytransgaz (an almost unknown Russian oil and gas company) was to take over the development of the (almost as previously unknown) ‘Block 17’ in Iraq’s lawless wasteland of Anbar. However, as uniquely highlighted by OilPrice.com at the time, it was the absolute clear sign that the Iran-Iraq-Syria oil and gas pipelines system is now going ahead.

By happy ‘coincidence’ the major power plant is to be located in the coastal province of Latakia, which is also home to the massive Russian Khmeimim Air Base and the S-400 Triumf missile system. Although the base only came in to operation in 2015 supposedly to help in the fight against Islamic State, Russia appears to have changed its tactical plans for it, having now signed a 49 year lease on it, with the option for another 25 year extension. A short flight away is Russia’s Latakia intelligence-gathering listening station and the newly re-staffed and re-stocked Tartus Naval Base.

By Simon Watkins for Oilprice.com

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