China and Russia emerging key players of energy markets

Joe Biden’s presidency will hopefully not interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said recently.

“We can see that the new US administration is making statements contradictory to the country’s policy from the last four years,” Novak said, adding, “As far as we can see there will be more discussion of climate topics. This could affect US oil production.”

“We hope that the changes to the policy of the US administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets,” Novak also said.

The president-elect has prioritized climate action and has threatened a ban on oil and gas drilling on federal land, which caused a vocal reaction from the industry, with the American Petroleum Institute pledging to use “every tool at its disposal” to fight this plan.

Biden has also promised to end fossil fuel and mining subsidies, which would be difficult to do with the current make-up of Congress as well as opposition from within the Democratic Party. Instituting a drilling ban for federal lands will also face challenges from opponents, but, interestingly enough, some in the oil industry are not that worried, the President cannot ban drilling on private lands, and this is where most of US drilling done.

If anything, a Biden presidency should be positive news for OPEC+ on the face of it and with his making climate change a top priority. However, Biden has already declared Russia the biggest threat for the United States and has suggested a rethink of relations with Saudi Arabia, meaning he would be hardly willing to make any moves that would benefit either of the two countries.

China Iran joint drilling

Drilling operations of the first well of the game-changing but highly-controversial Phase 11 of Iran’s supergiant South Pars non-associated natural gas field officially began lately. Significant gas recovery from the enormous resource will commence in the second half of the next Iranian calendar year that begins on 21 March 2021. The long-stalled Phase 11 development supposedly saw the withdrawal of all Chinese involvement in October 2019. In reality, though, China is still intimately involved in its development and is looking to further scale up its activities following the inauguration of Joe Biden as US President on 20th January 202.  Along with completing the crucial Goreh-Jask pipeline oil export route by the end of the current Iranian calendar year (ending on 20 March 2021), building out its value-added petrochemicals production to at least 100 million metric tons per year by 2022, and ramping up production from its hugely oil-rich West Karoun cluster of oil fields to at least one million barrels per day (bpd) within the next two years, optimizing the natural gas production from its South Pars gas field is a top priority for Iran.

With an estimated 14.2 trillion cubic meters (tcm) of gas reserves in place plus 18 billion barrels of gas condensate, South Pars already accounts for around 40 per cent of Iran’s total estimated 33.8 tcm of gas reserves – mostly located in the southern Fars, Bushehr, and Hormozgan regions – and about 80 per cent of its gas production. The 3,700-square kilometer (sq.km) South Pars sector of the 9,700-square km basin shared with Qatar (in the form of the 6,000-square km North Dome) is also critical to Iran’s overall strategy to sustain natural gas production across the country of at least 1 billion cubic meters per day (Bcm/d), with Phase 11’s target production capacity being 57 million cubic meters per day (mcm/d), and to its corollary plans to become a world-leader in the liquefied natural gas (LNG) market. 

Given the size and scope of Phase 11, it became a focal point of U.S. attention in the aftermath of its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and during the active re-imposition of sanctions toward the end of that year. “The pressure that the US put on [French oil giant] Total [which at the time of its withdrawal in the middle of 2018 from Phase 11 held a 50.1 per cent stake in the US$4.8 billion project and had already invested around US$1 billion] was enormous,” a senior Iranian oil and gas industry source told OilPrice.com. “Its ruthless handling of Total was designed by the US to show the EU [European Union] – which was trying to find a way to ignore the new U.S, sanctions – that, regardless of the EU’s efforts to avoid going along with the new US restrictions on Iran, it had better do so, or else,” he added. “On the eve of the signing of the next wave of financing for SP11, the US Treasury Department telephoned senior bankers at the bank that was organizing the money and told them that if the financing went ahead then the U.S. would instigate a full historic investigation of all of the bank’s dealings since 1979 to every country that had been blacklisted by the US, and it told the French government the same thing,” he underlined. “The US Treasury also said that all French companies would not win any major contracts with US companies whilst Total stayed in Iran, but if Total withdrew then the US would make a similar project available to it to compensate,” he said. 

Iran-Russia

Iran has stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said, quoting Iranian Oil Minister Bijan Zanganeh. Iran is hoping to not only attract investments into its oil industry, but looking to increase its energy cooperation with Russia to offset the harsh US sanctions that have reduced its oil exports over the last year.

Deputy Prime Minister Alexander Novak met with the Iranian Oil Minister recently. “A broad range of trade and economic cooperation matters is also successfully explored between our countries. Although this year has become a tough challenge for the whole global community, economic relations between Russia and Iran do not lose prior dynamics but become more active and meaningful instead,” Novak said.

The talks come at a time when Iran is hit particularly hard by the effects from the Covid-19 pandemic, on top of the US sanctions that have hampered Iran’s main source of income, oil exports. According to some medical professionals, the country may be quickly approaching a catastrophe, on top of the economic depression it is currently going through. For Iran, the culmination of an economic depression and an unprecedented health crisis has resulted in crime sprees, a rash of suicides, business closures, lower standards of living, substance abuse, and evictions.

All this may make Iran more amenable to energy deals that Russia proposes. China and Iran are essentially the last development firms that remain in Iran. Iran has gotten the short end of the stick when it comes to energy deals with Russia before, most notably when Iran was facing the threat of US sanctions in May 2018. Then, too, Iran was on the back-foot.

India holds joint naval exercises with Vietnam Navy

Lately, Indian Navy sent a warship to hold joint exercises with Vietnamese warships to assert navigation rights on the South China Sea as both countries try to boost maritime cooperation amid rising border disputes with China.

The INS Kiltan, an anti-submarine warfare corvette, took part in a two-day Passage Exercise or ‘PassEx’ with the warships of Vietnam after it arrived at Ho Chi Minh City to deliver humanitarian assistance for those affected by floods in central Vietnam. The Indian Navy said that the drill was aimed to "reinforce maritime interoperability and jointness."

The Indian Navy's assertion of navigation rights is on the lines of the Freedom of Navigation patrols that the US regularly takes out in the South China Sea to challenge Chinese territorial claims. 

Beijing, which has made expansive maritime claims in the South China Sea and militarized islands there, has watched the exercises with a wary eye. Liu Zongyi Shanghai of the Institute of International Studies (SIIS) wrote in the state-sponsored China Military Online that the joint operation is a bid by India to exert pressure on China through the South China Sea, to force it to back off from eastern Ladakh. The Indian and Chinese militaries are locked in a stand-off in the Himalayan border region of Ladakh after Chinese soldiers intruded into territory claimed by both countries. A border clash in Galwan in June killed about 20 Indian soldiers and an unspecified number of Chinese soldiers. 

The opinion piece, authorized by the Central Military Commission of China, says India's meddling with South China Seas and strategic partnership with Vietnam was to counter China on the land boundary issue. It said the Indian army was finding it "extremely challenging" to supply the troops in the Galwan Valley and Pangong Tso lake area in Ladakh. But those assertions were not independently verified and Chinese party mouth-pieces are known to make such propaganda claims. India has refused to back off in the face of Chinese aggression, with Indian troops moving quickly and boldly to outmaneuver Chinese troops and occupy mountain ridges, putting intruding Chinese troops at a tactical disadvantage.

Both nations have stationed thousands of troops in the frigid heights and have dug in for the long haul, recent reports have said.

The Indian Navy also adopted an aggressive posture during the Ladakh clashes and could, in the event of a war, hold an advantage in the Indian Ocean basin through which Chinese shipping has to pass.

Zongyi added that India's recent strengthening of military cooperation with Vietnam and Indonesia and building of military facilities near the Malacca Strait was with an "important purpose of guarding against China, even throttling its development."

Vietnam also has maritime disputes with China in the South China Sea region. Though China claims sovereignty over the region and its vast reserves of oil and gas, Vietnam has made counterclaims, along with other littoral states like Indonesia, Malaysia, Brunei and the Philippine. 

According to the Deccan Herald, the 'PassEx' comes a week after Indian Prime Minister Narendra Modi had a virtual summit with his Vietnam counterpart Nguyen Xuan Phuc. Modi had then formally handed over a high-speed patrol boat, which was the first of a fleet of 12 that India had promised to Vietnam to help it guard its maritime boundary in the face of growing Chinese aggression. The leaders had also stressed the need to maintain freedom of navigation and over flight in the South China Sea.

India's ONGC Videsh has a long-standing partnership with PetroVietnam for exploration of oil and gas in Vietnam, which has irked China, says Deccan Herald.

 

Will Saudi-Israel relations normalize after Joe Biden takes oath?

The Jerusalem Post has disclosed, there are expectations that there will be normalization of relations between Israel and Saudi Arabia by the end 2021. There is high confidence among some that normalization will not come before the Trump administration exits nor in the early stages of the Biden administration, but certain trends will be evident in their own ways.

The assertions come following a series of sometimes complementary and sometimes seemingly contradictory statements by top Israeli officials in recent months as the normalization trend lurched forward. Confronted with the assertions, the Foreign Ministry had no official comment.

Last week, Intelligence Minister Eli Cohen said that a deal could come with the Saudis in the next few years, but not before 20th January 2021 – nor did he publicly specify by the end of 2021.

This came following Cohen’s statement on 2nd November 2020 that a deal with the Saudis could be close, though he qualified his prediction in light of uncertainty at the time about who would win the US election as well as future Iran policy.

On 23rd November it was widely reported that Prime Minister Benjamin Netanyahu had recently met with Saudi Crown Prince Mohammed bin Salman (MBS) as part of a joint visit to the Kingdom along with US Secretary of State Mike Pompeo.

A flood of confirmations and denials – Netanyahu himself publicly refused to comment - appeared to make it clear that the visit had happened and was viewed as a sign of relations moving forward, but was supposed to have been kept secret.

Incidentally, the Post has learned before that MBS has previously secretly visited Israel.

Back on 25th October 25021 Channel 12 had reported that Mossad Director Yossi Cohen had privately said to those around him that the Saudis were waiting until after the US election, but that they could potentially announce normalization as a “gift” to the winner.

The implication from the report was that such an announcement could even come almost immediately after the election.

However, the Post reported later that the Channel 12 report either misunderstood or did not fully flesh out what the Mossad’s Director had said. In actuality, Cohen’s comments in closed conversations in October had been more nuanced.

Speaking a week before the US election, the Post learned that the spymaster had said that if US President Donald Trump won, there could be an almost immediate announcement.

Yet – if as the polls correctly predicted – now President-elect Joe Biden won the election, although the Saudis would still want a normalization deal with Israel, there would not necessarily be a clear timeline.

Cohen had emphasized that the Saudis did not want to give a gift to Trump and then get nothing for it upon a Biden administration taking over the reins.

Rather, Cohen understood at the time that a Biden administration may want to link normalization with the Saudis to progress with negotiations with the Palestinians.

This was the opposite tactic of the Trump administration, which was trying to pressure the Palestinians to show flexibility in negotiations with Israel by moving ahead with normalization deals without them.

What is interesting about the latest information learned by the Post is that now, almost two months after the US election, there is once again higher confidence that there will be a deal with the Saudis by the end of 2021.

If before November 3, there was far more uncertainty from both Intelligence Minister Eli Cohen and Mossad Director Yossi Cohen about how the Saudis would conduct themselves with Biden, now there are top officials who have greater confidence on the issue.

Though some of this could be from informal signals sent between Israeli officials and Biden transition figures, some of the confidence may come from a renewed understanding of the Saudis’ intentions regardless of how exactly they are treated by the incoming administration.

Mossad chief Cohen first suggested the possibility of official ties with the Saudis in a rare on-record interview with Channel 12 in mid-September and has been secretly visiting there for years.

Former IDF chief Lt. Gen. (ret.) Gadi Eisenkot in 2017 publicly announced that Israel was sharing intelligence with the Saudis as the countries grew closer. 

Mideast tensions reach new highs with Trump's term nearing end

Israel’s normally tense relations with the Islamic Republic of Iran has grown more taught in recent days, as mutual threats and promises of retaliation have been lobbed by both governments while the sides await Joe Biden to take oath. 

On Sunday, the spokesman for the National Security and Foreign Policy Committee of the Iranian Parliament reacted harshly to last week’s news that an Israeli submarine had crossed the Suez Canal on its way to the Persian Gulf.

 “Israel must know that our response to aggression against our national security will be strong and massive,” Abu al-Fadl Amoui, told reporters, accusing the Jewish state of dragging the region “into a tension that creates chaos in the last days of the Trump presidency.”

Last week, a surfaced Israeli Dolphin AIP class submarine was spotted crossing the canal separating Israel and Egypt. According to several news outlets citing multiple sources, the rare – but not unprecedented – occasion was carried out with the approval of Cairo’s government and was meant to send a message to Tehran.

A few days later, Israeli military spokesperson Hidai Zilberman addressed the naval maneuver in an interview to a Saudi news site, noting that “Israeli submarines can sail everywhere” and urging Iran not to escalate the volatile situation.

“This isn’t the first time the navy has crossed the canal, so let’s not make too much of this. But yes, this was definitely meant for Iranian consumption,” a former commander within the Israeli submarine unit disclosed.

On Wednesday, US President Donald Trump joined the fray himself, responding to a reported Iranian attack on the American diplomatic compound in Iraq with a series of direct threats at the ayatollah regime.

 “Our embassy in Baghdad got hit… by several rockets… guess where they were from: IRAN,” Trump tweeted. “Now we hear chatter of additional attacks against Americans in Iraq. Some friendly health advice to Iran: If one American is killed, I will hold Iran responsible. Think it over.”

Precisely one month ago, Iran’s top nuclear official Mohsen Fakhrizadeh was assassinated on the outskirts of Tehran, in an ambush blamed by Iranian security authorities on Israel. In recent years, top officials within the Republic’s nuclear program, as well as its most senior military commanders, have been the target of successful strikes by Israel and the US.

The most noticeable of these was the January killing of Qasem Soleimani, commander of the Revolutionary Guard’s elite Quds force, in an American drone attack in a Baghdad airport.

“The main reason for the current tension between the US and Iran is the remaining time [President] Trump has in the White House,” Prof. Eytan Gilboa, an expert on US policy in the Middle East at Bar-Ilan University’s Begin-Sadat Center for Strategic Studies, informed.

“There are three more weeks, and Trump is known for his unexpected nature of decisions,” Gilboa notes, adding: “I would give a very low probability to an initiated American or Israeli attack onn Iran. But with Trump - you never know. A small incident can develop into war.”

President-elect Joe Biden has in recent months stated he plans on rejoining the Joint Comprehensive Plan of Action, which was reached between Iran, the five permanent UN Security Council members and Germany in 2015.

The deal called for the winding down of Iran’s nuclear aspirations and efforts in return for a lifting of sanctions by Europe and Washington.

In May 2018, President Trump pulled out of the pact and embarked on his ‘maximum pressure’ strategy of imposing crippling economic sanctions on Iranian individuals and institutions. Tehran responded by restarting its uranium enrichment program several months after Trump’s announcement.

Following Biden’s victory in the November presidential elections, Iran’s top officials have repeatedly insisted they will refuse to renegotiate the JCPOA and will not consider reducing the Republic’s military involvement in other arenas in the Middle East, two demands Biden’s incoming team has hinted it will present in future talks.

“What we have now is psychological warfare and an exchange of messages, both for immediate military purposes and for the post-Trump diplomacy,” says Gilboa, who in the past has served as senior adviser to Israel’s Foreign Ministry and prime minister.

“Biden will eventually have to articulate a policy and decide which, if any, of the Iranian preconditions – removal of sanctions, the return to the unchanged 2015 deal, the freezing of the Gulf normalization process with Israel – he’ll accept.”

Another factor that may directly affect the Tehran-Washington-Jerusalem relationship in the coming months is the 2021 presidential election in Iran.

“Those are critical,” Gilboa stresses. “We’ve seen in the past how domestic events influenced Iran’s foreign policy,” he said.