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Russian interest in East Med and Cyprus gas

Russian interest in East Med and Cyprus gas Energy

In a week that saw Russia pulling some of its armed forces out of Syria and signs of increasing cooperation between Russia and the US in the region, it is important to examine Russian interest in energy, and particularly gas, in the wider East Med and Cyprus.

Many in the past tried to explain this interest on the basis of Russia protecting its global energy interests and particularly its dominance of the EU gas market. However, the contention that Russia’s involvement in Syria is driven by natural gas interests may be far-fetched.

Russia’s deep involvement in Syria, and cooperation with the US, has changed the East Med regional reality, redirecting the bloody conflict from a dead end to another path.

These issues are examined in this article.

A good place to start is Syria. In a recent article in Foreign Affairs it was highlighted that most of the countries involved in the Syrian war are gas-exporting countries with conflicting interests in the region and that these have been contributing to the conflict.

In 2009, Qatar proposed to build a pipeline to send gas through Saudi Arabia, Jordan, and Syria to Turkey and then Europe, supported by Saudi Arabia. The US also supported this plan as a way to diversify Europe’s gas supplies away from Russia. However, Syrian President Bashar al-Assad refused to support it.

The following year a Iran-Iraq-Syria pipeline deal was announced. Assad signed a preliminary agreement in 2012. Russia supported this plan. Some said that this project would allow Russia “to control gas imports to Europe from Iran, the Caspian Sea region, and Central Asia”.

However, one has to treat such pronouncements about ambitious pipeline projects with a pinch of salt. It is rare for such projects to progress beyond the early stages. Many such proposals have been made, but only few projects progressed to realisation.

At the end of 2013, Russia signed a deal with Syria to explore its Exclusive Economic Zone (EEZ) for gas.

It remains to be seen how this progresses. With the current state of affairs it will be many years before the oil and gas industry in Syria becomes operational again.

Evidently, Russia’s interests in Syria are more strategic and less energy-driven.

But it matters to Turkey
What happens in Syria, though, and Russia’s actions there and in the region, matter to Turkey. In terms of energy, Turkey’s geographic position makes it the best option for transporting gas supplies from the Middle East and Asia to Europe, and Turkey aspires to become a regional gas hub.

Turkey relies on Russia for gas for 55% of its needs. Following the downing of the Russian fighter plane, freeing itself from this dependence has been made a priority.

But with Russia strengthening its presence in Syria and the region, Turkey could be facing a formidable barrier to its aspirations. This includes its quest to access East Med gas and particularly Israeli gas.

Russian interest in East Med hydrocarbons may be wider than just Syria. Adding another twist to a complex situation is an article this month by Reuters that in response to a request by Russian President Putin in October last year, Israel should consider bringing in Gazprom to develop the Leviathan field.

This would be controversial, but the article states that it could enhance Israel’s security and strengthen its broader geopolitical position. That Russia wants in on Israel’s gas is not new. Over the past four years Russia has made several attempts to enter Israel’s gas market.

In 2012, Gazprom bid for 30% share of Leviathan, but lost out to Woodside, and in 2013 it signed a deal to market LNG from Tamar, but the project did not proceed.

Russia may prefer that Israel’s gas does not compete with Gazprom, not only for sales to Europe but mainly to Turkey. In fact, there are reports that Russia may be dissatisfied with Israel-Turkey rapprochement, especially with regards to Israeli natural gas exports to Turkey.

Such opposition may have significant impact on Israel. Damage to its ties with Russia could do harm to its interests in Syria, such as Israel’s air force freedom of action there, Russian support to Hezbollah in Syria and stronger support to Iran.

However, at a time when the US and the EU seek to lessen Gazprom’s influence on European gas, rather than increase it, Israel could expect intense American pressure not to work with Gazprom. But with Israel’s dwindling options to develop Leviathan, engagement with Gazprom may still receive support.

There is a view in Israel that a close Israeli-Turkish cooperation will not materialise as long as “Erdogan’s AK Party remains in power”. It is clear to Israel that Turkey is angling for reconciliation only because of its political weakness, its problems with Russia and Israel’s natural gas.

Turkey also has an interest in balancing the axis of Russia, Cyprus, and Egypt in the East Med.

As a result of the above, there is now a view that Israel should not be in a hurry to sign the agreement with Turkey. Israeli officials have said that several disagreements still need to be resolved.  In any case, global gas prices, Noble’s financial problems and the questioning of the gas deal stability clause by Israel’s Supreme Court may delay any gas developments.

In addition, Israel is not likely to do anything to antagonise Russia. Israeli national security decision-makers increasingly recognise the role that Russia is playing in regional security.

Interestingly, the Israeli Energy Minister recently invited Russian oil and gas companies to participate in offshore exploration in Israel’s EEZ.

Russian interests in East Med hydrocarbons also include Cyprus. The Russian Ambassador to Cyprus Stanislav Osadchiy confirmed in a television interview on March 3 that there might be Russian oil company interest to participate in the third offshore block licensing round in Cyprus.

He said that the recent rounds of cooperation summits between the leaders of East Med countries have rekindled interest. In particular, the recent meetings and discussions between Cyprus, Greece and Bulgaria and earlier between Cyprus, Greece and Egypt, Russia’s ‘friends’, have raised Russian interest in the region.

There have already been sounding meetings with the Cyprus government and the response was positive.
Russian companies Gazprombank and Novatek participated in the previous licensing round. Novatek was actually shortlisted with Total for Block 9, before Total opted for Blocks 10 and 11.

It is understood that Novatek may be one of the companies showing new interest. Lukoil is already operating in Cyprus with a chain of petrol stations.

The timing of the third licensing round is not clear yet, but having announced it last month, the Energy Ministry is in the process of preparing the relevant documentation.

Clearly, Russia’s energy interests in the region, its longer-term commitment to Syria and its relationship with Turkey are inter-linked, mostly for geo-strategic reasons. How these issues will manifest themselves in the medium term remains to be seen, but it is likely that we are only seeing the beginning of evolving Russian interests in East Med and Cyprus gas.

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