Geoenergetics as the basis for the second “cold war”

Geoenergetics as the basis for the second “cold war”

Dear readers, we live in a time which is peculiar indeed. Yet another “cold war” is declared on Russia with no ambiguity or double meaning but we are still unwilling to admit this. Some Russian politicians are telling us stories about opportunities to find common ground with so called “American partners” and on top of that we are lulling ourselves with fanciful hopes. “Everything is going to be eventually all right, the sanctions cannot possibly last forever, the USA understands that it hurts their own economy” and so on. In our opinion all of the above is just an attempt to ignore the obvious facts.

Official documentation outlining US national security concept is lined up according to the relevance and importance. At the very top is the National Security Strategy (NSS) which is signed by the president. It outlines the overall US government goals and priorities regarding the national security. One step below is the National Defense Strategy signed by the defense secretary which is focused on defense matters within the framework of the National Security Strategy. Further down is the National Military Strategy (NMS) developed by Joint Chiefs of Staff, the committee supervising the US military. NMS further details the role of the military in view of the goals outlined by the higher authorities. In addition to that Quadrennial Defense Review is published every four years, the most recent one came out in 2014. To put it short, once the National Security Strategy gets signed by Donald Trump the brass salute and proceed with their defensive and offensive planning, as required for the tasks outlined by Mr. President. Once the document is finalized any speech by Trump who feels free to say the following from time to time:

“My feeling is that relationship with Russia on friendly terms as different from our usual antagonism is valuable accomplishment for the benefit of the whole world and our country, not a burden”

becomes nothing more than a string of empty words, some acoustic vibrations. Now we should simply look into the published non-classified section of NSS and say goodbye to our illusions.

Donald Trump, President of USA

One of the headers in this document is straightforward and simplistic: “Peace through Strength”:

“We will modernize our nuclear enterprise to ensure that we have the scientific, engineering, and manufacturing capabilities necessary to retain an effective and safe nuclear Triad and respond to future national security threats”

Against whom exactly? There is no ambiguity, everything has been spelled out. Among the three biggest challenges/threats to the greatness of USA are “revisionist powers of China and Russia”. The “revisionism” in the document is understood as principled denial of unipolar world. The number two threat are “rogue states of Iran and North Korea” while No. 3 is now traditional: “jihadist terrorist groups”. We may discuss at length this number three, the topic is wide ranging: who creates these jihadist groups and for what purpose, who uses them and how exactly, the means of their material support, etc. As an Analytics magazine would not dare to hint that the United States’ nose ain’t clean; we are not ill-mannered and if anyone suspects anything of the kind we have nothing to do with it.

Our magazine is independent so it would not bow to political correctness and we would rather call spade a spade. This non-classified text of NSS is the final nail in the coffin of any hope that the relationship between USA and Russia may improve in any foreseeable future, at least until the current or maybe future US president enacts a different kind of NSS. Howsoever we mince the wording of NSS, the simple truth is that the United States unilaterally branded Russia, China, Iran and North Korea as their national security threats. We may go down the rabbit hole to search for specific American reasons that shaped the NSS document as it is. The task would be interesting and worth of detailed research but it is rather in the realm of philosophical activity. Political pundits may find patterns, analyze various political factions in USA and so on but the fact remains that all kinds of planning is put in motion based on NSS and with its implementation in mind. These plans are going to be military, both offensive and defensive. Such stern NSS wording may have the effect of dismay and bewilderment or consternation if we don’t understand it as the response to Vladimir Putin’s speech as he addressed his countrymen back in 2014 after re-unification of Russia with Crimea, when he called on USA to accept the reality of multi-polar world. We apologize for the lengthy quotation below which is necessary for our readers to contemplate the following shining example of demagogue presentation, and the ability to cover up down-to-earth purposes with fanciful words.

“During the Cold War, a totalitarian threat from the Soviet Union motivated the free world to create coalitions in defense of liberty. Today’s challenges to free societies are just as serious, but more diverse. … China and Russia want to shape a world antithetical to US. values and interests. … Russia aims to weaken US. influence in the world and divide us from our allies and partners. … China expanded its power at the expense of the sovereignty of others. … China has mounted a rapid military modernization campaign designed to limit US. access to the region and provide China a freer hand there. … The United States and Europe will work together to counter Russian subversion and aggression, and the threats posed by North Korea and Iran.”

Is there any room for ambiguous interpretation of the above? In our opinion the question is rhetorical, apparently the menace from Russia is now more diverse than the previous incarnation emanating from the Soviet Union during the cold war, so welcome to the “Cold War #2”. It has been declared on us with uncompromising attitude and total disregard of the opinions expressed by the multitude of liberals nesting in our top echelons of power. We may adhere to the policy of peace as much as we want but the proverbial Rubicon has been crossed, the bridges went up in flames and the masks have slipped – you are free to add whatever you feel appropriate for the occasion.

The role of energetics

It should not be a surprise to anyone that is so much focused on the above military-political document. The nice people who compiled NSS were kind enough to provide us with the sound validation that we need.

“Russia… projects its influence economically, through the control of key energy and other infrastructure throughout parts of Europe and Central Asia”

The following is one of NSS sections’ titles: “Embrace Energy Dominance”. The idea is to accomplish “Energy dominance—America’s central position in the global energy system as a leading producer, consumer, and innovator”. Thank you Mr. Donald John Trump for bringing us so much joy! If anyone is still not fully convinced that the main events of our time are revolving around the key issue of energetics you are free to dispute the narrative with none other than the President of USA. Go ahead and find arguments to convince him otherwise, keep on searching for persuasive talking points while we acknowledge the authority of this political leader, following the progressive liberal civil society of today.

In USA they understand that Russian “attack” is developing on the frontline of energetics, and would first and foremost put up their resistance in this realm trying to stop our energetics in its tracks and ultimately destroy it. Following Vladimir Putin’s presentation several years ago of the concept for developing Russia as superpower in energetics, the United States picked up the gauntlet. This is the main point of our adversity, all the others are secondary. Anyone who has a different opinion may dispute against the White House. Like the famous letters of Lord Chesterfield, it would be an exercise in futility.

As in war, so in chess

Any war, even the cold one, enforces its own rules. The United States of America is most powerful adversary indeed, the “battlefield” is all about the economy whereas the American GDP is towering over Russian. The extent to which US national interests coincide with the interests of many US-based multinational corporations is subject to debate. But even though some controversy may exist it is not so easy to identify. Such task is important but it is not very likely that we may find out from open sources who and how exactly is trying to research the matter. There are more obvious and glaring issues, like allies that Russia needs to face off such formidable adversary. We mean “allies” because the only true friends Russia ever had over quite a few centuries are its army and navy. Allies come and go – today we are in the same boat, tomorrow the external circumstances can change and the former ally would melt away. It may seem weird but we should thank Mr. Donald John Trump for the crew that we found ourselves in. Our team composition could have been worse.

North Korea is really not regarded by Russia as ally because Comrade Kim Jong-un’s refusal to sign the Nuclear Non-proliferation Treaty overrides all the other considerations. Now everything follows the time-honored Russian tradition, we split the proverbial bottle three ways with China and Iran. Let us reiterate that “eternal friendship” is not in the cards, the crew got together not just out of mutual desire but mainly due to the external pressures as the three countries are branded as enemies. All the countries in so-called Europe are paraded in NSS as “allies and partners” but the matter is far from trivial. There are quite a few countries sharing the venerable Europe, herding cats there is a notoriously thankless task. This is exactly what NSS says in spite of the all-American energetic enthusiasm:

“Russia seeks to… establish spheres of influence near its borders”

You know, the ocean is big, their binocular telescope not sufficiently powered to see the small details. This time around we are not going to discuss Europe, European Union and the adjacent territories.

So it happened that thanks to the United States China, Russia and Iran found themselves in the same boat. Obviously it is impossible to color everyone with the same brush; China is much larger considering the size of its population, economy, industry, financials, and there are two other notable differences on top of that. Iran has come under serious pressure of sanctions from both US and EU, the issue are far from over. Russia has been sanctioned since 2014. In recent years China became number one importer of energy resources; this is exactly the kind of mineral wealth that Russia and Iran have in abundance. If we take at face value the data from Iranian oil ministry and OPEC, proven Iranian oil reserves stand at 19 billion tons or 140 billion barrels, number three in the world rankings according to the International Energy Agency (IEA). With its reserves of 26.7 trillion cubic meters of natural gas Iran is the world’s number two after Russia. Info about Russian reserves remains murky in line with our national legislation, but the prevailing consensus is that we have one third of the world’s gas reserves, no less than 150 trillion cubic meters; our oil reserves as estimated by IEA stand at 14.1 billion tons (103.2 billion barrels). These numbers may get updated quite substantially as the result of exploration in the areas across Arctic shore and ocean shelf. The trio of Russia, Iran and China fits nicely as both the Russians and the Persians can satisfy China’s appetite for energy resources which is trending to increase annually by almost 10%. We have already mentioned the strategy chosen by China.

Since the initial publication of this article there has been just a single update: international oil trading platform based in Shanghai was scheduled to become fully operational on March 26, 2018.

Even though China is ruled by the Communist party the country was never sanctioned, its status of “workshop of the world” seems unassailable. Even the USA is not risking it in spite of all the NCC tenets while Europe may not want to heed – on the contrary, there is growing competition within the Old World to participate in the “Belt and Road Initiative” and get the investment that comes in its wake. The situation for Russia and Iran is entirely different as non-resource exports from the two countries are on the rise but their growth is hardly spectacular.

Russia, Iran and hydrocarbons

Europe has its own point of view: in a radical departure from the US standpoint Europe is not inclined to brand Iran as “rogue state”. This is not the result of humanitarian considerations or strict adherence to the spirit of Iranian nuclear deal. As we all know the European Union is anything but highly predictable partner. It is sufficient to recall the guarantees that foreign ministers of Germany and France gave to Ukrainian president Yanukovich in February 2014. The true reasons for such benevolence are the above mentioned barrels and cubic meters of hydrocarbons.

The situation with Russia is similar, the difference being long distance supply pipelines, some of them already pumping and others under construction. In the future Iran may become equally desirable supplier of oil and gas to the EU. On the flip side the value of European Union for Iran amounts to 27% of its hydrocarbon exports while Iran sells both oil and gas for euros. The tangle of contradictions is nothing short of amazing. The only way for Europe to dramatically reduce its dependence on Russian oil and gas (discounting the much-touted decorative fixture of natural gas pipeline from Azerbaijan that is limited to 10-15 billion cubic meters per year) is to get its oil and gas from Iran or gas from Qatar, the country ensnared by problems with its neighbors and their sanctions. At the same time there is no shortage of alternative suppliers of oil, not only from the Persian Gulf but also from a number of African states. It is the situation with gas which is really tough for Europe. Even supposing that Qatar is about to see its problems with sanctions imposed by Arab countries evaporate, it is only able to supply LNG to Europe. The plan to lay a natural gas pipeline (NGP) across Syria is still just a pipe dream for reasons that are well known.

The peculiar setup of natural gas supplies may bear strange fruit as plainly seen in Turkey. In spite of Erdogan’s ambitions and all of his efforts to play on multiple sides Turkey emerged as one of the three members of coalition for de-escalating Syrian conflict, alongside with Russia and Iran. Any considerations of geopolitical chess would not outbalance the main reason for Turkey’s compliance: over 80% of natural gas supplies to the country come from either Russia or Iran. Such outlook may be not very appealing to Europe but there seem to be no alternatives on the horizon. Any LNG supplies from the United States are more expensive and less flexible than deliveries over the pipelines from Russia. Similar pipeline supplies can be arranged from Iran via Turkey. At the same time North Sea deposits are mostly depleted, Norway has only “Troll” gas field with sizable deposits remaining while supplies from Algeria and Tunisia are also gradually winding down. What are the other news concerning natural gas?

Egypt has its own giant “Zohr” offshore gas field. It can not only become the solution to the country’s growing demand for energy, this may potentially turn Egypt into one of natural gas exporters to Europe. A 30% share in the project has been secured for Rosneft by none other than Igor Sechin who is much vilified and cursed in Russia by just about everyone: patriots, liberals, left and right of the political spectrum, all at the same time. How about offshore gas deposits in Cyprus? Before their development has even started Europe should help to resolve a territorial dispute with the wonderful neighbor of Cyprus: Turkish Republic of Northern Cyprus. As of last summer the negotiations were dead-ended. Northern Cyprus is certainly a republic but the republic is Turkish.

To put it mildly, Turkey is not looking forward to see a competitor to the second “Turkish stream” natural gas pipeline. There are a couple reasons for that. Firstly, who would refuse the income generated by gas transit (Bulgaria not to be mentioned because of the dubious moral character)? Secondly, Turkey has already experienced a debacle with Russia which was “not limited to tomatoes only” as it was said at the time. Basically this is the end of the story if only we do not take into account the theoretical possibility of submarine pipeline from offshore deposits in Israel that would be laid at the depth of five kilometers, at astronomical cost. Of course the project is not forgotten in Europe; they review it from time to time apparently shuddering at the cost and shelving once again. Sorry there is no other planet for Europe. In the spirit of democracy they have free choice between allowing the dreadful regime in Kremlin to gain influence or developing closer ties with the regime of ayatollahs. Use your own discretion in choosing. Be careful as the matter is left to your discretion.

In search of common ground

From the Russian standpoint the same situation looks topsy-turvy: if only we could properly coordinate European supplies with Iran so that our natural gas deliveries become choreographed, all the sanctions levied against the two countries would seem to their supporters rather mild by comparison. The coordinated export policies may also help solving the potential problem of increasing shipments from Qatar as the country is pumping its gas for liquefaction from the North Pars field which is also Iranian South Pars. Is the idea overly tough, maybe too aggressive? Let us refresh the memorable NSS-2018:

“The United States and Europe will work together to counter Russian subversion and aggression, and the threats posed by North Korea and Iran

We are not proactively putting up borders, appointing enemies and competitors. There has been zero outrage in Europe over the contents of NSS, not even a whiff of contrarian opinion. EU member states have more than enough of their own headaches, they are oblivious to Russian or Iranian problems. Is there any reason to be delicate with these characters? In our opinion there is a reason. In spite of the growth in non-commodity exports both Iran and Russia are still dependent on hydrocarbons which underpin their respective state budgets.

Every medal has its reverse, and natural gas supplies from Russia and Iran are no exception. If Russia and Iran would start close coordination between themselves it may elicit a tough response from Europe. If Europe agrees to LNG supplies from the United States it may cause a lot of pain. Obviously such blow can be softened to some extent: both Russia and Iran should boost hydrocarbon exports to other regions improving their market diversification. Actually Russia is doing just that, the facts are well known.

“Power of Siberia” natural gas pipeline is under construction, together with the associated gas processing facility in Amur region of Russia. The first stage of Yamal LNG project is operational since November 2017; the whole output is scooped by customers in South-East Asia. On January 1 the second oil pipeline to China came online bolstering Russia’s position as the main oil supplier to the Celestial Empire. Negotiations about “Power of Siberia-2” gas pipeline are under way. This particular pipeline could be supplied from the same production fields that sustain the exports to Europe.

At the same time Iran faces a more difficult situation as several of its natural gas projects were cut short by Western sanctions, but in a twist of fate the blow has been blunted. Iranian joint projects with Europe were thwarted but new opportunities emerged enabling fuel supplies to China, Pakistan, India and Oman, among others. These developments may in future provide the solution to yet another issue: a history of cloudy relationship between Islamic Republic of Iran and the Soviet Union. These days not everyone remembers that the Soviet Union supported Iraq during the war with Iran and because of that ayatollah Khomeini called our country “little satan” while America is the perennial “big satan”. The more numerous are joint projects that Iran and Russia have in the area of energetics the better is the relationship between the two countries which may become the basis for developing a joint policy towards exports to Europe.

Russian president Vladimir Putin and Iranian president Hassan Rouhani

Opportunities for Iran and Russia to develop their trade are not limited to the realm of energy. Russia has already supplied its S-300 missile defense system and there are ongoing negotiations about continuing military and technical arrangements within the framework of existing agreement on cooperation. The problem is, in this area a lot depends on the progress in Russia on the thorny issue of imports substitution. A prime example is the failed contract for delivery of 100 passenger jets “Sukhoi Superjet 100”. We may call this civil aircraft Russian as much as we wish but 90% of its avionics consist of equipment patented in the United States and produced there. Supplies of the equipment to Iran have been vetoed by USA and the contract just fell apart. The situation with energetics is quite different because there are no prohibitions. One other area in which the setup is radically different is cargo shipment route from India to Europe and back, it bears repeating that there is no other planet for Europe. Furthermore there is no other planet for China, the third member of the group that USA sees as “strategic” competitors. “Belt and Road Initiative” is ambitious and attractive but as long as China with its population of one and half billion remains at odds with India with its own one and half billion there is no reason for Russia and Iran to ignore the interests of the emerging Indian giant.

Joint Russian-Iranian projects in energy and transit

As the scope of this article is rather limited we are not going to delve into every joint project in energy and transit that Russia and Iran have. The projects are listed below; their detailed analysis will follow in another publication:

  1. “Bushehr” Nuclear Power Plant; the number of its nuclear units can be upgraded to eight according to the existing memorandum.
  2. “North – South” power bridge; the participants are Russia, Georgia, Armenia, and Iran.
  3. Rail and sea transport corridor; the participants are India, Iran, Azerbaijan, and Russia. Here are some news about the project just in case they were missed: on February 8th 2018 the rail link was tested, a train which arrived to Azerbaijan from Russia proceeded further to Iran en route from Astara (Azerbaijan) to Astara (Iran). Azerbaijan already proposed passenger train service from Iran (Astara) to Moscow.
  4. On December 22, 2017 Iranian oil minister Bijan Namdar Zanganeh invited Gazprom to join the Iran – Oman gas pipeline consortium.
  5. In 2016 National Iranian Oil Company signed the contract with South Korean KOGAS for engineering design of IGAT 9 gas pipeline. Starting in port city Asaluyeh which is the closest to South Pars gas field this pipeline will transport gas north-west to the border with Turkey. It is meant for exporting natural gas to European markets. On January 22, 2017 Iranian deputy oil minister Hamid Reza Araki commented that Iranian government is “delighted” about Russian energy companies’ participation in IGAT-9 project. Turkey became the third country assuming responsibility for de-escalation zones in Syria, it takes into account Russian and Iranian viewpoints about the conflict. Among the many reasons for that we may name two that are really important – “Turkish Stream” and IGAT-9.
  6. In September 2017 Iranian oil minister Bijan Zanganeh stated that development project of the Farzad B gas field and construction project of submarine gas pipeline from Iran to Pakistan and India were both falling substantially behind schedule but eventually they are going to be completed “even though Russian participation is required to overcome the problems”.
  7. Russia – Azerbaijan – Iran power bridge.
  8. On December 12, 2017 GazpromNational Iranian Oil Company, Iranian Oil Industry Pension Fund Investment Company, and Saving and Staff Welfare Fund signed their memorandum outlining cooperation on “Iran LNG” project that includes construction of two LNG trains with capacity of 5.25 million tons each.
  9. On the same day a “roadmap” was signed between Gazprom and National Iranian Oil Company, it specified that Gazprom is about to start feasibility study of projects with integrated extraction, transportation, and processing of hydrocarbons in Iran, including natural gas-based petrochemical industry. Following the signing ceremony Alexey Miller said to the journalists that Gazprom is looking forward to present the results by the first quarter of this year.
  10. On February 20, 2017 energy ministers of Russia and Iran attended the foundation stone laying for thermal electric power plant “Sirik”. The plan is to construct 4 blocks having the output of 350 MWt each, made possible by the Russian credit of 1.2 billion dollars. Commissioning of the power plant is slated for 2021. “Sirik” is located 130 km from Bandar Abbas, a port city on the Persian Gulf. This is where the ferry from Mumbai will be docking. It is also the starting point of railway section within the transit corridor India – Iran – Azerbaijan – Russia.

One final item that does not yet have a number is the outcome of six-nation parliamentary conference that was convened in Islamabad on December 24-26, 2017 to debate challenges of terrorism and inter-regional connectivity. The attending heads of parliament came from Russia, Pakistan, Afghanistan, Iran, Turkey, and China. The discussions were focused exclusively on the terrorism-related problems, but on December 27 speaker of the Parliament of Iran Ali Larijani announced that he and his Russian counterpart Vyacheslav Volodin inked the agreement creating a joint committee to oversee implementation of bilateral energy and railway projects.

As apparent from the above not only and Donald Trump, but also high-profile Iranian and Russian politicians believe that today’s world is centered around energetics. Irony aside for once, the list of joint Russian-Iranian energy projects is vast, multifaceted and interesting enough to merit detailed follow-up in further articles.

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