US-Turkey Relations and future of NATO

At present, the North Atlantic Treaty Organization (NATO) faces more challenges than ever. For some, NATO is ‘clinically dead’. After the fall of the Soviet Union, NATO has become a Cold War remnant of a global security organization, whose mission and existence is being questioned openly.

Geopolitical developments over the last three decades have further marginalized NATO’s role around the world. In the past, military intervention decisions were usually made within an alliance framework by some powerful NATO member states.

The biggest challenge facing NATO cohesion is the US-Turkish antagonism that has arisen mainly as a result of the different geopolitical priorities set by Ankara and Washington in the Eastern Mediterranean and the Middle East.

The US sanctions against Turkey have highlighted deficiencies in the Alliance’s ranks. Among other urgent issues, the new US administration will need to focus on NATO cohesion issues and take important initiatives along with other member-states about the future of the Alliance.

The new US President faces the difficult task to restore trust in US-Turkey relations. This dialogue will entail existing and new areas of collaboration to de-escalate tensions in bilateral relations. Yet, such de-escalation presupposes a US initiative require US concessions for Ankara. The next few months will be of utmost significance both for the prospects of US-Turkey relations and the NATO future of Turkey.

The US sanctions against Turkey are a source of concern in the ranks of the Alliance. The suspension of the shipment of F-35 fighters to Turkey based on the signed purchase contract and their prepayment by Ankara was an introductory part of these sanctions.

Their significance is mainly psychological and confirms the tense US-Turkish relations and lack of trust as a result of developments in North Syria. Ankara’s calm reaction to the US sanctions in terms of words and actions does not mean that there is no US-Turkey crisis or the issue is over.

It is the Russian-Turkish approach that has challenged US-Turkish relations, because the revisionist policy of Moscow and Ankara aims to reshape the post-WW2 power balance in the Eastern Mediterranean and the Middle East.

The existing power vacuum in the region and the inability of the US to fill it allows new revisionist forces to emerge and fill the gap. Russia and Turkey are in effect seeking to redistribute the geopolitical power share in the region.

Turkey is the first NATO country to use both Russian and US technology. Many believe that Russian-Turkish cooperation is just the beginning, and other forms of such cooperation will follow against the NATO set of principles and modus operandi.

US must lift curbs before Iran rejoins deal; Khamenei announces final and irreversible decision

Iran’s Supreme Leader Ayatollah Ali Khamenei said on Sunday that Tehran’s “final and irreversible” decision was to return to compliance with the 2015 nuclear deal only if Washington lifts sanctions on the Islamic Republic, Iranian state TV reported.

The deal between Iran and six major powers limited Iran’s uranium enrichment activity to make it harder for Tehran to develop nuclear arms - an ambition Iran has long denied having - in return for the easing of the US and other sanctions.

It may be recalled that former US President Donald Trump had abandoned the deal in 2018, denouncing it as one-sided in Iran’s favour, and reimposed sanctions that have crippled Iran’s economy.

“Iran has fulfilled all its obligations under the deal, not the United States and the three European countries ... If they want Iran to return to its commitments, the United States must in practice ... lift all sanctions,” state TV quoted Khamenei as saying in a meeting with Air Force commanders.

“Then, after verifying whether all sanctions have been lifted correctly, we will return to full compliance ... It is the irreversible and final decision and all Iranian officials have consensus over it.”

Western media has been saying that in response to Trump’s withdrawal, Tehran has breached the deal’s key limits one after the other, building up its stockpile of low-enriched uranium, refining uranium to a higher level of purity and using advanced centrifuges for enrichment.

US President Joe Biden, who took oath last month, has said that if Tehran returned to strict compliance with the pact, Washington would follow the suit and use that as a springboard to a broader agreement that might restrict Iran’s missile development and regional activities.

Iran has repeatedly said it could quickly reverse those violations if US sanctions are removed but has ruled out any talks over the country’s ballistic missile programme and Tehran’s influence in the Middle East, where Iran and Saudi Arabia have been involved in proxy wars for decades.

Will United States allow Iran to meet global gas shortage?

Qatar witnessed a prosperous start to 2021, first scoring a major political goal by restoring diplomatic relations with Saudi Arabia and ending its almost 4-year long embargo. Qatar’s capacity to meet the global demand for LNG has elevated the Middle Eastern state into worldwide limelight.

The LNG price hike in Asia was a combination of 3 key factors – low temperatures, low spot cargo availability and persisting COVID-19 ramifications. All three were badly intertwined; low temperatures by themselves need not cause a market distortion if there is ample LNG availability in the market. Qatar’s competitors, due to their geographic location and previously concluded commercial commitments, could not reorient such volumes towards Asia.

The fact that Asia needed LNG urgently was further supported by the fact that January 2021 LNG arrivals have reached an all-time high of 28 million tons LNG. A whopping 23% of this came from Qatar and only 6% and 5%, respectively, from the United States and the Russian Federation.

Under the prevailing circumstances, the world has to find another dependable source of supply, which is Iran, to the utmost displeasure of United States and its Middle Easter allies. To save the world from tyranny, Iran must be allowed to sell its gas.

Lately, Managing Director of Pars Oil and Gas Company (POGC), responsible for developing Iran’s giant South Pars gas field, has said that the development of the mentioned field is nearly completed and all phases of the field will be fully operational in near future.

South Pars, which Iran shares with Qatar in the Persian Gulf waters, is currently divided into 24 standard offshore phases, the output of which is processed by 14 gas refineries on land.

South Pars gas field covers an area of 9,700 square kilometers, 3,700 square kilometers of which are in Iran’s territorial waters and the remaining 6,000 square kilometers, called North Dome, are situated in Qatar’s territorial waters.

The first train of the South Pars phase 14 Refinery is going to go operational early next Iranian calendar year, after which every three months another train will be inaugurated, and by the end of the next Iranian calendar year this refinery will be fully operational.

Underlining the reliance of domestic capacities and capabilities for the development of the mentioned field, it is worth noting that only 33% of the required equipment for this field was produced in Iran, but at present 75% of the necessary equipment has been indigenized.

Initially, the first two projects of the field, namely phase two and three and phase four and five, were carried out with the participation of France’s Total and Italy’s Eni, but after that the remaining phases were completed by the Iranian companies.

At the beginning of the work, five platforms were built abroad, but after that all the remaining 35 platforms were built within the country.

Iran has attained complete self-sufficiency in all aspects of gas production from South Pars field that include drilling, platform building, pipeline construction, and onshore refineries, which are the four main sectors in extracting gas from South Pars field. All equipment and machinery have become indigenized and the operators are also domestic companies.

OPEC is dead, long live OPEC plus

OPEC has been the most important factor in global oil markets with the ability to influence prices for decades. The shale revolution in the United States has brought much uncertainty for traditional producers due to the vast amounts of oil and gas that are flowing from the American energy heartland in a short period. 

The looming threat is so big, that the traditional competitor Russia agreed to align its policies with that of cartel. Moscow seems eager to squeeze all it can from the agreement, leaving little for Saudi Arabia in particular who risks losing much more due to the particular phase of the country’s economic development.

Over the years, geopolitical and economic developments have transformed the power balance between the organization’s members. One factor that determines influence more than any other is production capacity. In this context, Saudi Arabia has been the undisputed king for decades.

The level of professionalization of national oil company Saudi Aramco has made it into a formidable energy king that controls the world’s second-largest conventional oil reserves. While Venezuela's reserves are bigger, Aramco's low production costs continued Western, in particular the US political support, and relative political stability have gradually increased and maintained OPEC’s largest production capacity.

Influence is not only derived from how much one can produce but more specifically from how much one chooses not to produce. Spare capacity is the defining factor behind leverage over price development. In this area, none is bigger than Saudi Arabia. The geography and type of wells make it possible for Aramco to ramp up and bring down production relatively quickly. On average, the Arab country has usually kept 1.5 - 2 million barrels per day (mbpd) of spare capacity on hand, which is 1.5 – 2 percent of global oil demand before the Covid-19 pandemic.

The unprecedented threat of the US shale industry drove Moscow and Riyadh into each other’s arms in 2016. The first time an agreement was struck, the participants agreed to cut production by 1.8 mbpd (1.2 from OPEC and 600,000 from non-OPEC). Despite some friction and disagreements, the OPEC+ format has survived for years.

However, the disparity in interests and share of dependence on oil revenues is a continuous source of instability. According to Ronald Smith, a Moscow-based analyst at BCS GM, “as long as oil is US$45/barrel or below, it is pretty easy to get everyone in OPEC+ on the same page and cut production. And when it is US$65-70, everyone agrees it is time to put oil back on the market. But between US$50 and US$60, that is where the interests diverge.”

The price of oil currently is hovering around US$55, which means that Riyadh finds the alliance with Russia more important than the other way around. The IMF estimated that Saudi Arabia's fiscal breakeven oil price for 2021 is at US$68. Russia, in contrast is US$46. Furthermore, a larger share of the Saudi production is exported while Russians consume more of their produce domestically. Also, the economy of the latter is more diversified which gives it another trump in its negotiations with Riyadh.

Another advantage in the hands of Russian producers and the Kremlin is the weak ruble. While the riyal in Saudi Arabia is fixed against the US$, oil is traded internationally in US$ meaning the export from Russia earns producers a handsome fee when exchanged into rubles. Saudi Arabia does not enjoy the same benefit and won’t any time soon either.

The low production costs in the Arab country give it an advantage over competitors such as shale producers in the US. Riyadh expects demand for oil to return later this year when vaccination against Covid-19 kicks-in. Therefore, policymakers in the Kingdom think they'll claw back customers when oil becomes scarcer.

Recently, Saudi Crown Prince Mohammed bin Salman announced that Aramco may offer additional shares to the market in the next dew few years. This shows the necessity for Riyadh to voluntarily lower production by one mbpd while Russia will increase by 130,000 bpd. Saudi Arabia is in a rush to modernize and diversify the economy by earning much-needed petrodollars while it still can.