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Background Basics

Russian Energy Forays in the Middle East

posted on 04/25/08

Russia has recently shown an increased interest in developing its energy ties to the Middle East. One of the issues that Russia and other members of the Gas Exporting Countries Forum (GECF), which includes many Middle Eastern countries, have begun to explore is a gas charter similar to OPEC. There is, however, no consensus about the idea as there are problems unique to the natural gas market that have not been worked out. Energy officials representing GECF countries will meet in Tehran on April 28, and ministers from those countries will meet in Moscow in June.

Egypt
On March 25, following a meeting between Russian President Vladimir Putin and Egyptian President Hosni Mubarak, the two countries signed an agreement that allows Russian firms to bid for contracts to build nuclear power plants in Egypt. Egypt, which does not currently have any nuclear plants, seeks up to four with the first contract expected to range from $1.5-1.8 billion.

Iran
On April 23, an agreement was signed between the National Iranian Oil Company and the Russian-owned oil company, Gazprom, to develop Iranian oil and gas fields. Russia also helped build and supply fuel for the Bushehr nuclear power plant in Iran. On January 28, Iran received its final shipment of fuel from Russia for the Bushehr plant. While in Iran, the fuel is to be under IAEA control and is slated to be returned to Russia for processing and storage.

Iraq
In February, Russia agreed to write off most of Iraq’s $12.9 billion debt for Soviet-era arms purchases, to open possibilities for new investments in Iraq. The final agreement had been delayed since last year when the Russian government indicated that it sought preferential access to Iraqi oil. Upon agreement, Iraqi Foreign Minister Hoshyar Zebari offered no guarantees that Russia would receive preferential treatment, while Russian officials claimed they won an assurance of favorable treatment. The deal is seen as a setback to U.S. policy encouraging the Iraqi oil industry to lessen its ties to Russia.

Separately, Russia agreed to invest $4 billion in Iraq, including projects in the oil sector. Lukoil, Russia’s largest private crude oil producer, hopes that it can now revive a contract for the oil fields in West Qurna, an oil rich region to which it previously had access under Saddam Hussein.

Algeria
The presidents of Algeria and Russia, two of the largest natural gas suppliers to Europe, met in February to discuss the proposed gas cartel. On April 10, Sonatrach, Algeria’s state-owned gas company and Africa’s largest producer of natural gas, denied claims that it was negotiating with Russia’s gas monopoly, Gazprom, for a possible joint venture. Sonatrach officials also stated that a memorandum of understanding between the two companies to work on joint ventures which expired last year, will not be revived.

Libya
During a visit to Libya in mid-April, President Putin canceled Libya’s cold-war era debt in exchange for expanded business deals with Russian companies. Russian officials stated the deal included a $3.4 billion contract to build a railroad line in Libya. During the visit Libyan leader Moamar Ghadafi indicated his support for the proposed “gas OPEC.” Gazprom also announced a MOU with Libya’s state oil producer and the Libyan African Investment Fund to cooperate in oil and gas production. Gazprom also received a proposal for taking over an Italian company’s oil fields in Libya.

Saudi Arabia
In February 2007, Putin visited Saudi Arabia, the first such visit by a Russian leader. Putin stated that the two top oil-producing countries were partners—not rivals—in the energy sector. Putin also said that Lukoil plans to invest more than $2 billion in new gas fields in Saudi Arabia. In 2004, Lukoil signed a 40-year deal with the Saudi government to develop an 11,200 square-mile gas field in Saudi Arabia.

During the visit, Putin also considered moving towards developing a civic atomic energy program with Saudi Arabia and other GCC countries. Analysts said the nuclear discussions served as warning to Iran that Saudi Arabia could enter the regional arms race.

Qatar
In February 2007, Putin discussed security, trade and the possible formation of the “gas OPEC” with Sheik Hamad bin Khalifa al-Thani, the emir of Qatar. Both leaders remained tentative about the possible formation of the gas cartel. Gazprom and Qatar’s state-owned oil and gas company, Qatar Petroleum, indicated on April 4, 2008, that they are considering joint investment projects in the energy sector.