Russia is planting flags in the Middle East
Pragmatism and a tolerance for risk are giving Russian energy interests an edge in the region
Sometime in 2024, capacity at Iran's sole nuclear power facility, at Bushehr on the Gulf coast, will double to 2 gigawatts. A couple of years after, another 1GW reactor is due online. If nothing else, Iran is coming good on its civilian nuclear ambitions. Russia, whose state atomic firm Rosatom is building the two new plants, is the enabler.
Russia's and Iran's energy plans don't stop at reactors. Lukoil, a private firm but Russia's second-biggest oil producer, and state-controlled Gazprom both have Tehran's approval to bid for upstream projects. Lukoil, which hopes to develop the Abe Timur and Mansuri fields, in western Iran, says the country "is our target area at the moment". Gazprom, which recently announced plans to send electricity from Armenia to northern Iran, has preliminary deals in hand to develop the Shangule and Cheshmeh-Khosh fields.
The push into Iran is just part of a wider trend—the steady rise of Russia's commercial, diplomatic and military influence in the Middle East and North Africa. From Libya to Iraq's southern oilfields, from Turkey's gas market to Egypt's energy sector, Russian firms are making the running, either cementing older alliances or grabbing a foothold that seemed unfathomable a decade ago. Moscow's support for the Assad regime in Syria has drawn much attention, but the advance of Russian energy interests has been resolute and broad.
Russia's deal with Opec was an emblem: remarkable evidence of Moscow's petrodiplomacy in the region. Without its participation, Saudi Arabia was unwilling to cut output. When it came, the deal bore the imprimatur of Vladimir Putin and Saudi Arabia's deputy crown prince Mohammed bin Salman. Still, most analysts—including many in Moscow—expected Russia to play the kingdom for fools, keeping output at record highs. Not so: Russia has met its commitment, restoring some trust between two countries that didn't even exchange ambassadors during the Cold War.
The deal with Saudi Arabia—born out of a shared need for higher oil prices—showed the dexterity of Russia's Mena strategy. The two countries support opposing sides in Syria, and Russia's alliance with Iran also puts it at geopolitical odds with Riyadh. For the Kremlin, though, that's just business. "Moscow seeks to present itself to countries in the region as a pragmatic, nonideological, reliable, savvy, non-nonsense player", wrote Dmitri Trenin, head of the Carnegie Moscow Center and a former Russian army colonel, in a paper on Russia's goals in the Middle East.
Russian commercial interests never trail far behind its diplomacy. That's not unusual-other governments ferry their arms merchants to and from the region during state visits too. But Russia is venturing where others are still fearful. In Libya, Moscow has capitalised on the confused Western position, and backs the eastern parliament and its military leader, Khalifa Hafter, against the UN-backed unity government in Tripoli. It has talked of building a Mediterranean naval base in Libya's east. Russian firms hope to participate in Libya's upstream (Gazprom already has a presence). Rosneft recently signed a deal with National Oil Corporation to lift oil.
Rosneft, run by Putin's close ally Igor Sechin, has been especially alert to Mena opportunities lately. Late last year, it snapped up a 30% stake in the giant Zohr gasfield development offshore Egypt (another Mideast country marked out by Rosatom for nuclear power projects). In Iraq, where Lukoil is already a large producer in the south, Rosneft started drilling a prospect in the Western Desert in February. It also announced plans to start marketing Kurdish crude. In a rare case of investment going the other way, the Qatar Investment Authority (together with Glencore) in December agreed to buy a 19.5% stake in Rosneft from the Russian government.
Gazprom—often considered a tool of Russian foreign policy—is advancing more sedately, but decisively. Its oil subsidiary, Gazprom Neft, holds upstream assets in both federal and Kurdish Iraq. In Libya, it holds a 49% stake in Wintershall's assets in the Sirte Basin (controlled by the eastern army Russia backs). Last year, despite a testy period in relations, Turkey and Russia agreed to a new pipeline deal, under which Gazprom will eventually supply 31.5bn cubic metres a year of natural gas. Its exports to Turkey have already reached 25bn cm, or about half of the country's consumption. Gazprom plans to start laying the new pipes this summer.
What is Russia's goal in all this? Geostrategists see grand schemes to retain a warm-water naval base (Syria), impinge on US "unipolar" ambitions, beef up arms sales (Algeria, Egypt, Iran, Iraq and Syria have all been big buyers), or, in Trenin's words, "create an axis of partners from Tehran to Cairo", while "staying in touch with Israel" and fostering pragmatic relations with the Gulf states. If so, the retreat of American influence in the region in recent years has helped.
The more straightforward answer is that Russian firms, helped by Moscow and with a higher tolerance for risk, have taken advantage of rivals' timidity and incapacity. GE was hardly able to compete for the next Bushehr nuclear reactors. Few Western firms are lining up for deals in Libya and Iran still makes many nervous. American culture still holds the edge in the region—and Western majors the clout of established clubmen—but Russian energy diplomacy has the momentum.