The Conflicts in Syria and Iraq have headlined the news for the better part of the last decade. The gruesome violence shocked the world, the anger and disgust evoked by the barbaric behaviour displayed by Isis is almost universal. On the other hand, attempts to find the source of these conflicts often get mired in murkier waters.
Fault attribution tends to follow preconceived notions, while a realistic solution is nowhere to be seen. There is no clear path to remedying the situation because there is no single definitive root cause for all these problems. Instead of hoping for straight forward solutions to fall on our lap, we need to delve deep and investigate each pertinent issue within the complex Geo-political quagmire that is the middle east.
The Pipelines Fuelling an Already Heated Quandary
These conflicts are the result of several factors: spanning from specific domestic issues to overarching international geo-political chess plays. The Sunni-Shia religious divide, which so often gets touted by the media, is indeed an important issue; but it is not the only one. The Post-colonial borders drawn up by the French and the British Empire with no respect towards historical, cultural, or ethnic realities complicate matters even further.
While all these factors are important, and deserve to be analysed in-depth on their own, this article is going to focus on the less frequently mentioned issue of two competing pipelines meant to carry natural gas from the Persian Gulf to Europe. The first of these pipeline was planned to start in Iran, pass through Iraq, Syria, and Lebanon before reaching Europe through a pipeline submerged under the Mediterranean sea. The other prospective pipeline would start from Qatar and make its way through Saudi Arabia, Jordan, Syria and finally connect to Europe through Turkey.
Qatar-Saudi Arabia-Jordan-Syria-Turkey Pipeline
The small kingdom of Qatar has the third largest proven natural gas reserves in the world (24.5 trillion cubic metres), and is currently the leading global exporter of LNG (liquefied natural gas). Qatar has been actively seeking to build a pipeline which allows it to export its natural gas directly to Europe, bypassing the liquefaction process; allowing it to increase both exports and profitability. A pipeline which would start from Qatar, goes through Saudi Arabia, Jordan, Syria, and connects to Europe through Turkey, would be the preferred option; however this proposal was rejected by Basshar Al Assad.
An alternative route would be to connect Qatar to Turkey through Saudi Arabia, Kuwait and Iraq. Iraq has already committed to another pipeline, and if faced with a choice the Shia-majority government is unlikely to put Qatar’s interest ahead of Iran’s. The Qatari pipeline’s major hurdle is its need to pass through either Syria or Iraq to make its way to Turkey, where it could connect with the Nabucco Pipeline.
Iran-Iraq-Syria(-Lebanon) Pipeline: The Friendship Pipeline
In July 2011 Iran, Iraq, and Syria announced plans to sign a contract (potentially worth around $6 billion) to build a pipeline which would transport natural gas from the South Pars/North Dome Gas-Condensate field in Iran to Europe. The Friendship Pipeline, as these countries called it, was planned to be 5,600 km long and have a diameter of 142 centimetres with a capacity to stream 110 million cubic metres of natural gas per day. The pipeline starting in Iran would pass through Iraq, Syria, and Lebanon; while a refinery and other related infrastructure would be located in Damascus.
The choice to route the pipeline through Damascus (southern Syria) may seem questionable, as this requires roping in Lebanon in addition to the countries which already signed up for it. This could be an attempt to circumvent Sunni-majority areas in both Iraq and Syria. Lebanon’s religious composition is quite varied, and no religious faction holds a controlling grip on the country.
The Friendship Pipeline would connect to Europe through an undersea pipeline passing through the Cypriot and Greek exclusive economic areas. This poses a major engineering challenge, as the sub-marine stretch of the pipeline would be quite long. Theoretically this pipeline could converge with potential supplies from Egypt, Israel, and Cyprus, but this option would be too speculative to consider for the time being.
Iran’s Previous Try: The Persian Pipeline
A previous proposal called the Persian pipeline was planned to connect the South Pars/North Dome Gas-Condensate field in Iran to Europe through Turkey. The 3,300 km long pipeline would have had an estimated capacity of 37-40 billion cubic metres of gas per year, or 110 million cubic metres per day. The Iranian section (IGAT-9) would be 1,800 km long with an estimated cost of $7 billion, and would include 17 compressor stations costing around $100 million each.
On July 23 2010 Iran’s Oil Ministry announced it had reached an agreement to build the 660 km long Turkish section which would cost around 1 billion Euros. Turkey’s Energy Minister Taner Yildiz said that neither the Turkish Government nor Botas, the state-owned crude oil and natural gas pipelines and trading corporation, were involved in this deal; however he pointed out that several private firms were interested in such project. Sitki Ayan, Chairman of Turkish energy firm Som Petrol, announced that his company was the one which signed the 1 billion euro pipeline deal with the Iranian National Gas Company.
The Persian Pipeline would make its way to Europe through Greece and on to Italy where it would split into 2 routes: one feeding the French and Spanish market; the other carrying gas north towards Switzerland, Germany, and Austria. In 2006, the United Nations Security council passed a resolution (1696) demanding Iran to suspend all activities related to uranium-enrichment and processing. Further resolutions passed between 2006 and 2010 (1737, 1747, 1803, 1835, 1929) imposed various sanctions, which were renewed in 2011 and 2012. Following these developments and pressure from the United States, the European Union imposed its own sanctions on Iran; which ultimately caused the Swiss energy company Elektrizitätsgesellschaft Laufenburg to back down from this project in October 2010 bringing it to a halt. The United Nations started the process to lift these sanctions in 2015.
European Union: The Market at Stake
The Current State of the Natural Gas Market
In order to understand the relevance of these pipelines we need to first examine the economic backdrop, underlying socio-cultural issues, and geo-political scenario in which such projects would be carried through. Europe is the largest import market for pipeline natural gas. In 2014 Europe (including Norway) produced 250 billion cubic metres of natural gas covering only 50% of its needs while importing the rest.
In 2015 natural gas fuelled 22% of the European Union’s total energy consumption, which includes electricity generation, heating, and transportation amongst others. According to the European Commission, pipelines delivered approximately 87% of this natural gas, the main suppliers being Russia（40%), Norway（37%), Algeria（7%), and Libya（2%); while the remaining 13% was made up of Liquefied Natural Gas (LNG).
In 2016, Europe’s net imports of LNG totalled 51 billion cubic metres, which represented 15.3 per cent of the global
LNG market. The existing regasification infrastructure provides Europe with enough overcapacity for an additional 160 billion cubic metres, but the European LNG market is mired by regional mismatches and weak interconnections.
Projections
European domestic gas production has fallen by around 41% over the past decade, and is expected to keep declining at a rate of 3.2% per year till 2035. In 2007 the European Union imported 57% of its natural gas; while in 2016, according to Eurostat, the EU was only able to cover only 30% of its needs. BP Energy Outlook projects that by 2035 Europe will have to import 80% of its natural gas.
The European Union’s natural gas imports are expected to increase significantly, as demand is poised to grow, or remain constant while domestic production is projected to decline. Exxon Mobil forecasts European demand to grow to 594 billion cubic metres by 2035, while the US Energy Information Administration estimates it to reach 716 bcm in 2040. On the other hand, the International Energy Agency (IEA) forecasts gas demand in OECD Europe to reach 521 bcm in 2030.
Norway’s production is expected to plateau by 2020 and slowly decline thereafter. Norway is aiming to output an average of 100 bcm per year over the next 20 years compared to the record high of 115 bcm in 2015. Barring one-offs resulting from the odd new discovery, natural gas production is expected to constantly decline all over the European Union. Prospects for unconventional gas in Europe are dim even without factoring in environmental concerns.
Forecasting Europe’s domestic production of natural gas to stand at about 150 million cubic metres per year for the 2030 – 2040 period, would be realistic verging on the optimistic. This means that Europe’s imports could soar to 370 to 550 bcm compared to the current 250, an increase of 120 to 300 billion cubic metres of natural gas per year. The competition for the European natural gas market, which risks facing a shortage of supply, is the main economic backdrop of the current turmoil affecting the Middle East (and Eastern Europe to a lesser degree). Many contenders have stepped up; which is good because most of them would not be able to satisfy the demand on their own, but there might not be enough room for all to partake.
Nabucco Pipeline
The Nabucco Pipeline is a planned pipeline traversing from the Turkish-Bulgarian border to Austria to accommodate the transportation of natural gas from the Caspian sea and middle eastern countries to Europe. Originally the main supplier was expected to be Iraq, but now it is more likely to be Azerbaijan which may be joined by Turkmenistan. Russia has been trying to block the Nabucco pipeline and possibly reroute Azerbaijan’s gas exports through the Mozdok–Makhachkala–Kazi Magomed pipeline or another pipeline on its territory.
The Shah Deniz gas field, which was discovered in 1999, is situated in the South Caspian Sea off the coast of Azerbaijan. Its natural gas reserves are estimated at 1.5 trillion cubic metres, and has been operational since 2006 currently extracting gas at a rate of 7 billion cubic metres per year. The Shah Deniz field is already connected to Turkey through the South Caucasus Pipeline which can have its capacity upgraded to deliver up to 25 billion cubic metres of gas per year.
The Russian Federation: The importance of Natural Gas
Natural Gas: A Source of Revenue and Political Leverage for Russia
Russia has the world’s largest proven natural gas reserves, estimated at 48 trillion cubic metres, and is the largest exporter of natural gas. The extraction and sale of natural gas is pivotal for the economy of the Russian Federation. As of 2012 the oil (13.2%) and gas (2.3%) sector made up 16.2% of Russia’s GDP, constituted over 70% of total exports, and generated 52% of federal budget revenues.
In 2015 natural gas accounted for 3.2% of GDP, while oil and gas made up 62.8% of total exports. In 2016, Russia (through Gazprom) exported 178.3 billion cubic meters of gas to European countries; a figure which rose by 8.1% to a record high of 193.9 billion cubic metres generating $37 billion in revenue in 2017. Pipeline gas constitutes the bulk of Russia’s gas exports and flows mainly to Europe, while LNG is shipped mainly to Asian countries.
Supply tightness grants Russia the market power to charge the European market a higher price for its gas than a competitive market would dictate. Europe’s dependency on Russian gas can also be used as a bargaining chip whenever disagreements arise between the two parts. While Russia is unlikely to shut down the westward flow of gas; the possibility itself can be used to mitigate, delay, or shield itself from potential sanctions.
Plans for Expansion: South and North Streams
Russia is not oblivious to the fact that Europe’s demand for natural gas is increasing and that new pipelines to transport the hydrocarbon need to be build. In fact Russia had (and still has) its own plans for further pipeline construction, namely the South Stream and the North Stream 2.
The South Stream was planned to transport Russian gas through the Black sea to Bulgaria, Serbia, and further to Europe; which was perceived as an alternative project to the Nabucco Pipeline. Following the Crimean Crisis and the subsequent EU sanctions the project was cancelled and exports were rerouted to Turkey.
North Stream 2 is a € 9.5 billion project planned to run alongside the North Stream 1, meant to carry 55 billion cubic metres of natural gas per year from Vyborg near St. Petersburg to Greifswald in Northeastern Germany. Critics of the project claim Russia’s objective is to replace gas exports currently transiting through Ukraine rather than increase supply, and cite solidarity with Ukraine as a reason for opposing the North Stream 2 project.
The Other Russian Fronts
Syria is host to Russia’s only naval base in the Mediterranean sea: the Tartus Naval Base; and presumably an Airbase in Palmyra. The two countries also have (or had) a strong economic relationship with Russian investments in Syria valued at $19.4 billion (2009) and exports worth $1.1 billion (2010). Syria is also a customer of Russia’s weaponry manufacturing industry.
The Tartus facility was originally established during the 1970s as a support point; while in 1984, it was upgraded to the 720th Material-Technical Support Point. In 2005 Syria agreed to allow Russia to develop and enlarge the naval facility in exchange for the latter to waive off 73% of its $13.4 billion Soviet-era debt. On January 2017 Russia signed a favourable treaty with the Assad-led government allowing it to expand, use, and enjoy sovereign jurisdiction over the naval base at Tartus for 49 years free of charge.
Russia cannot challenge directly the United States’ interest in every major region anymore, and has to rely on other regional powers rising up to the task. Iran is the only viable option which could challenge the United States’ hegemony in the Middle East, hence supporting Iran could be an effective way to put a spoke in the wheel of its American antagonist. The more interests the U.S.A. has to actively protect, the more thinned its resources allocated to protect those in contrast to Russian ones will be.
The Russian Federation has significant clout in Central Asia mainly as a result of strong relationships with fellow former Soviet Union member states, fostered through economic cooperation within the Commonwealth of Independent States. This sphere of influence offers a security buffer zone while also legitimises Russia’s role as a main player on the Asian Geo-political stage. As these countries drift away from this economic inter-dependency, perhaps by diversifying their natural gas export routes, Russia’s regional power is bound to shrink.
The United States: Seeking opportunity
For the United States the shortage of supply in the European markets represents an opportunity for its own Energy Corporations. Advances in technologies like hydraulic fracturing and horizontal drilling significantly improved the ability of the sector to feasibly extract natural gas. This increased the available amount of recoverable natural gas leading to a considerable reduction in price since 2008.
The Game Changing Impact of Fracking
The United States’ proven natural gas reserves amount to about 10.4 trillion cubic metres. The advent of fracking made it technically possible to feasibly recover natural gas from shale rock formations. In 2006 the recoverable gas reserves located in the United States’ Outer Continental Shelf were estimated at 15 trillion cubic metres; which was equivalent to 25 years of domestic consumption. Later on this estimate was revised upward to 30-50 trillion cubic metres (equivalent to 40-70 years of domestic consumption); and even hypothesised there might be enough natural gas reserves to satisfy the projected domestic demand for more than a 100 years.
The introduction of fracking resulted in an energy glut which caused the price of natural gas in North America to drop to around $4 per million British thermal unit (mmBTU), even bottoming at $2 per mmBTU at times. This prompted american companies to pressure law makers to relax the country’s tight regulations on energy exports allowing them to look for opportunities in foreign markets. Natural gas tends to fetch a much higher price in Europe and East Asia where the price of natural gas was $8/mmBTU and $11+/mmBTU respectively last January. However, there is no such thing as a global natural gas market; as transportation plays a pivotal role for this commodity.
Liquefied Natural Gas vs Pipeline Natural Gas
The geographical distance between North America and the “old continent” makes pipelines a non-viable option leaving LNG as the only viable option. While pipeline projects require a very heavy initial investment, they make the subsequent transportation of natural gas relatively cheap. On the other hand, the process to liquefy gas requires significant recurring expenditure.
Exporting LNG also requires a significant initial investment to build the plants needed to convert natural gas to its liquid state, while importing terminals need to be equipped with regasification plants. LNG needs to be transported using very specialised ships which further adds to the final cost. In other words, under a competitive market regime, LNG cannot compete with gas transported through pipelines.
Russian Threat Bridling Europe
Following the fall of the Soviet Union, the United States emerged as the sole superpower at a time when the world became more connected than it ever was. The Russian Federation, the successor state of the Soviet Union, emerged as a great power and is also a major regional power both in Eastern Europe and Central Asia. The 1990s and the early 2000s witnessed these 2 countries put aside their rivalry and improve their relationship.
Eventually too many diverging interests caused old animosities to emerge back. Whether justified or not the U.S. and Russia perceive each other as an antagonist and a threat to their interest. As the old adage goes the enemy of my enemy is my friend; anything that puts a spoke in the wheels of an antagonist will contribute to spreading thin their resources, hence weaken their efforts when confronting you on an issue you’re interested in.
While on the international political stage western Europe is home to the United States’ closest allies, the economic arena tells a different tale. The European Union and the United States are each other’s largest trading partner, which should lend further credibility to conventional thinking. However, China is the second largest trading partner for both of them; and this does not preclude the emerging Asian power’s relationship with the aforementioned two from being perceived as a rivalry or even outright antagonistic.
The European Union, and Europe in general, are home to most of the advanced economies in the world; the ones most similar and most likely to be real competitors of the United States. A competitive natural gas market in Europe would lower energy costs, making the European manufacturing sector more competitive. While the achievement of a competitive natural gas market requires Russia’s dominant market position to be overcome, Russian gas supply is indispensable to achieve the total level of supply required to establish such competitive market.
Additionally the presence of a Russian threat encourages European allies to foster and tighten their friendship with the United States. Hence wedging the rift between the two at the expense of Russian natural gas exports could potentially yield the United States four positive results simultaneously:
- create an opportunity for American Energy companies to get a foothold in the European market,
- grant a competitive edge to its manufacturing sector by clipping the wings of European competitors,
- weaken a Geo-political rival,
- bolster its own influence.
Preventing the Rise of Iran: A potential challenge to America’s Hegemony in the Middle East
Since the fall of the Soviet Union no country has been able to challenge the US hegemony in the middle east. Out of the four major regional powers in the area three (Turkey, Egypt, and Saudi Arabia) are allied with the United States while only Iran is antagonistic to the american super power. However, Iran is only a middle power on the International stage; unable to mount a real opposition to any U.S.-backed design.
Economic development could lead Iran to graduate from being a middle power to becoming a great power; capable of offering leadership and an alternative view for the Middle East to that of the United States on a global stage. Therefore hindering Iran’s economic development would be a shrewd strategy to nip in the bud a potential threat to its regional hegemony. Iran’s rise to prominence could pose a risk to America’s allies, whose dictators and oligarchs tend to be donors of top-level American politicians from both sides, further weakening its grip on the region.
Iran: A Rising Regional Power
Iran has the second largest proven natural gas reserves in the world, estimated at 34 trillion cubic metres, but it currently exports only 8.5 billion cubic metres per year. For Iran the ability to sell natural gas directly to Europe would be a huge economic stimulus, possibly boosting GDP by around 2% directly. However, they would prefer to build and deliver their exports through their own independent infrastructure.
Since the Islamic Republic would have to pay transit fees anyway, Iran could use this project to prop up friendly Shia-led governments by aiding them to improve their economy. Iran could take advantage of this opportunity to strengthen its relationship with Iraq and Syria; advancing its strive to avoid being completely surrounded by Sunni-controlled countries and possibly getting isolated.
Turkey: Aspiring to Become an Energy Hub
Turkey has both an economic and a political interest in hosting a corridor for the transit of natural gas from the Middle east and central Asia to Europe. The construction of the pipeline itself would create jobs, while the Turkish state would generate revenue from transit fees. Turkey’s economic interest is for as many countries as possible to route their gas exports through its territory.
The completion of the Nabucco Pipeline which would transport natural gas from Turkmenistan and Azerbaijan is Turkey’s primary objective, but if it included a connection from Qatar it would be even better. The construction of the Nabucco Pipeline would strengthen Turkey’s already positive ties with Turkmenistan and Azerbaijan. It would also be a tangible achievement for Erdogan’s Turkic cooperation vision.
A pipeline transporting Iranian natural gas to Europe though Turkey would benefit its rival more than itself, but it would still benefit both countries. It would strengthen Turkey’s political leverage over Europe and grant it some leverage over its rival Iran. This is a much preferable scenario for Turkey than Iran opting for an alternative route circumventing it altogether, in which case Turkey would not only miss out on any potential financial gain, but would also have its political leverage potential over the EU undermined.
Turkey’s regional power aspirations live in the shadow of Russia, with whom they share a centuries-long rivalry. The fall of the (Turkish) Ottoman Empire is mirrored by the rise of Russia, while not all-encompassing the correlation is not coincidental. By providing Europe with an alternative source of natural gas, Turkey would weaken the political leverage Russia’s market power grants it over Europe; while acquiring part of that political leverage for itself.
Saudi Arabia: Fear of Too Much Change
Saudi Arabia does not have much direct economic interest at stake, but has generally been opposed to pipeline projects throughout the region. While they would arguably stand to gain financially from the construction of the Qatar-Turkey pipeline, the kingdom seems more concerned with stopping developments that could become a source of instability. Qatar’s close relationship with the Muslim Brotherhood, which was a main catalyst for many of the uprisings in North African and Middle Eastern countries this decade, is at the heart of the diplomatic conflict between the two kingdoms.
Additionally, Saudi Arabia would prefer to delay projects that have the potential to empower rival regional powers. Both Iran and Turkey have a much larger population than its own, and have historically been greater powers. Saudi Arabia’s political relevance is a relatively recent development mainly as a result of its petroleum-based economic success. If Iran or Turkey were to catch up economically, Saudi Arabia’s political clout would wane. The Kingdom is particularly concerned with the Islamic Republic of Iran with whom it already entertains a non idyllic diplomatic relationship.
Conclusion
While most mainstream media will outright avoid mentioning this issue, the outlets covering this story will push the narrative that the Iranian pipeline is backed by Russia while the Qatari one is backed by the United States and Saudi Arabia. While Russia and America do favour one of the pipelines over the other, their preference is more about which one they want the least. On the other hand, Qatar’s and Iran’s primary objective is to get their own pipeline done, with the potential competing pipeline’s failure being just an added bonus.
Both Russia and the United States do not want the European natural gas market to become truly competitive, so that the price can stay high. The U.S. energy companies need the price to be high enough for their LNG to be able to compete, while Russia wants to keep reaping abnormal profits. Both are aware that they are unlikely to be able to satisfy all the demand on their own, and would like to be able to pick and choose which supplier would be able to join the market and which would not.
Qatar’s main concern is to diversify its income stream and strengthen its economy’s resilience against possible market shocks and paradigm shifts in the natural gas market. Maintaining the current level of prosperity will foster support among the population and lend legitimacy to the monarchic dynasty, while allowing them to play a prominent role on the middle Eastern political stage despite the tiny size of the country they rule. Iran’s objective is to put in place the required infrastructure to sell natural gas to Europe as a means to generate revenue and develop its economy, while taking advantage of opportunities to strengthen its relationship with allies in the region. Saudi Arabia’s priority has shifted to discourage Qatar from engaging in any instability stirring activity. while trying to contain Iran. Turkey is interested in becoming an energy hub both for economic and political reasons.
Both sides are actually internally divided with each country chasing its own goals and sometimes pursuing an ideal result which is not reconcilable with that of its allies. Mirages of easy revelations will only lure us towards dead ends. blindly chasing straight forward trails will only leave us in the dark. Geo political affairs are rarely some one-dimensional fortuity with simple clear cut solutions, but rather the manifestation of complex multi layered jigsaw puzzles made up of multiple moving parts. Sensationalist headlines will not yield answers and solutions, only fact-based thorough analysis will.
Editorial Note: We do not believe that we could wholly cover all the pertaining issues in just one article (even a relatively long one like this); which is why we plan to further explore this and other subjects in the future. We would like to ask you for your help by sharing your thoughts, insights and relevant information below in the comment section. We would also appreciate if directed our analysis to the attention of others who could do the same, or are just curious and eager to learn more.
