On the global energy chessboard, a number of interesting, intriguing and exciting moves — enough to keep pumping adrenaline — are being made simultaneously. As the New Year gets ready to unveil itself, in the ultimate analysis, one of the major issues appearing to impact the global energy jigsaw today is the emerging, postelection Iraq and who controls its prized assets.
Iraq thus continues to remain the focus of the attention of world’s only superpower — the United States — this year too. As early as May 2001, a report of the Bush administration’s Energy Task Force, headed by none other than the enigmatic Dick Cheney, declared, “The Gulf will be the primary focus of US international energy policy.” So is indeed!
And now that even President George Bush has conceded that the intelligence on the presence of WMD in Baghdad was flawed, skeptics are once again at it; it was oil and nothing else but oil that attracted Bush and his strategists to the valleys of Euphrates and the deserts of Kerbala.
And now irrespective of who within the next few weeks sits on the throne in Baghdad, in practical terms, Iraq boasting of the second largest globally proven oil reserves is under the firm control of Khalilzad & Co.
Importance of Iraq on the global crude equation could be gauged from the fact that out of the 80 known oilfields in the country; just 17 are currently in production. A further 63 underdeveloped fields have an estimated 75 billion barrels of oil, while some industry experts believe that between 100 billion and 200 billion barrels lie in unexplored fields.
However, the ongoing struggle in Baghdad — on sectarian lines — over the control of oil assets in the post election era continues to impact the destiny of Iraq and the energy world. Kurds and Shiites, who predominate in Iraq’s two main oil-rich areas — the north and south, respectively — seem determined to form virtual mini-states that have control over their oil assets and profits. Iraq’s Sunnis are concentrated in mostly oil-poor central Iraq and want central control over the resources to ensure they get a share of the profits. Achieving the improbable won’t be easy!
However, as this battle royal continues to be waged in the corridors of Baghdad governorate, another front on the global energy front is also heating up. As Russia endeavors to flex its petro-muscles, the OPEC is also striving to carve out its niche in the booming market of China. China and OPEC had their first round of talks, focused on increasing the OPEC’s share last week amid reports that Saudi Arabia and Kuwait are contemplating investments of up to $8 billion in the Chinese fuel sector.
On the other hand Russia, China’s largest non-OPEC supplier is also keen to keep its domination of the market. Moscow is reportedly discussing a pipeline to feed Serbian oil to China and raising its rail crude shipments to Beijing by 50 percent next year.
In the meantime, Russia is ever more confidently wielding now its mammoth reserves of oil and natural gas as a political tool. After spending the past year bringing key oil and gas assets back under state control, a string of events indicate Russians are serious about flexing their petro-power.
Gazprom, the state-controlled gas giant, is demanding that former Soviet states, which since the USSR collapsed in 1991 have enjoyed subsidized prices for Russian gas, finally move to market rates. But it is doing so in a highly differentiated way.
Ukraine, having shifted out of Moscow’s orbit since last year’s Orange Revolution, has been slapped with the biggest demand for a price increase. Prices charged to Georgia and Moldova, which have also turned their gaze westwards, have nearly doubled... Yet Belarus, loyal to Moscow, is still getting gas at the old price.
Russia is using its dominant position in oil, too, to further its interests. It plans to cut oil supplies to Lithuania from Jan. 1 in what analysts see as an attempt to press the Baltic republic to favor a Russian buyer over rival Polish and Kazakh bidders for the strategically important Mazeikiu oil refinery.
Russia is, moreover, squeezing potential competitors in the former Soviet Union — notably Kazakhstan — that are trying to develop their own energy industries independent of Moscow. It is attaching tough conditions to permit Kazakhstan expand a key pipeline from the vast Tengiz oilfield in the Caspian to Russia’s Black Sea port of Novorossiysk. This is crucial to plans by the field’s operator, Chevron of the US, to ramp up production.
Also this month, Russia started construction of the $5bn North European Gas Pipeline, an export route under the Baltic Sea to Germany that will bypass the Baltic States, Ukraine and Poland.
Moscow has already hinted to US officials and international energy executives that it intends to use its coming G8 presidency to assure the world it can be a pivotal energy supplier to Europe, the US and Asia. Interesting moves all around indeed!