In the last centuries, there has not been a single moment in which Russia was not looking for an access to the warm water ports along its South-Western borders. This research originated from the need to find a market for Russian goods and bypass the problem of the freezing of the Russian ports during the winter. This research then turned in a longstanding geopolitical guideline. This is the main reason for the assertive policy led by Moscow since the second half of the Nineteenth century.
Nowadays the export of Russian goods mainly means the export of energy resources, oil and gas, and the Mediterranean is not less interesting than it was before the First World War or during the Cold War. Political instability within the area makes the case for a muscular foreign policy as the one promoted by Vladimir Putin but the global political uncertainty and the trend taken by the price of oil and gas cause serious troubles to Moscow.
Russia in figures: energy reserves, production and export
Russian Federation is one of the most interesting geopolitical and geo-economic players in the world, especially thanks to the huge amount of energy resources stored under its jurisdiction and to the resulting market. Its proved oil reserves amount to 103.2 thousand million barrels according to the 2015 BP Statistical Review of World Energy. In 2014 Russia was the third-largest producer of petroleum and other liquids[1] (crude oil, shale oil, oil sands included) after Saudi Arabia and the United States and the second-largest exporter with 4.6 million barrels per day.[2] Oil exports counted for the 43% of the total production while the internal consumption (3.2 million barrels per day) counted for about the 30%. So, in the same year the 63% of the oil available for exports was actually sold to other countries (China, Germany, Belarus and Netherlands are the main importers; the European Union alone counts for about the 60% of Russian oil exports). A similar situation can be found in the gas market. Russian Federation owns the 17.4% of the global proved natural gas reserves,[3] i.e. 32.6 trillion cubic metres.[4] In 2014 production[5] reached 578.7 billion cubic metres, the 16.7% of the global natural gas production, with a slight decrease if compared to 2013 but sufficient to ensure Russia the second place as a world producer behind the United States. Most of its total gas exports (approximately 200 billion cubic metres) goes directly to European countries like Germany, Turkey, Italy, Belarus and Ukraine via pipeline, whereas Asian market (Japan as main importer) is mainly served with Russian LNG.
The Putin doctrine
It is quite clear that the Russian leverage on the global political and economic events are largely determined by the diversification and the significant amounts of its primary sources. The energy sector is the largest national economy flywheel, with an unparalleled energy potential by volume, composition and quality of the resources. Without the ability to produce and deliver energy, Russia would not have the status it has today, would not have the same influence as a member of the G8, would not attract the US attention as it does, and would not have the same special relationship with a number of leading countries of the European Union, Germany in particular. The use of energy resources as a geopolitical tool and the role of the State in managing them is Vladimir Putin’s manifesto since his ascent to the Kremlin. In a dissertation published during the 1990s, Putin wrote that in the natural resources sector the ownership and supervision of the State are necessary to give greater strength to the economy and to prevent the exploitation of Russian raw materials by foreign investors or individuals without scruples.[6] To implement this strategy Russia re-oriented energy transit flows towards Western markets from the old ‘routes’ crossing the countries of the former communist bloc to new ‘routes’ that have the nerve centers in the Russian territory and ports. Furthermore the Kremlin has sought to ensure full control over the energy sector by nationalizing several private companies and using private ones as ‘national champions’ in charge of pursuing Moscow’s foreign policy. In Russia, energy policy and foreign policy proceed side by side.
Oil price: a war
In March 2014, crude oil[7] price was $108.0 per barrel, while today[8] is $47.0 per barrel. Both the sanctions related to actions in Ukraine and the fall in oil prices have put pressure on the Russian economy in general, and have made it more difficult for Russian energy firms to finance new projects, especially higher-cost ones such as deep-water, Arctic offshore, and shale projects.[9] Russian economic growth – that allowed Moscow to enter the so-called BRICS club – was driven by energy exports which still today account for about the 50% of federal budget in terms of revenues. For this reason, leaving aside the fact that Russia is not a member of the Organization of the Petroleum Exporting Countries, in its dialogue with OPEC has been promoting for about two years a cut to the oil output and a halt to the prices downfall. But until now the organization, and especially the Persian Gulf countries (e.g. Saudi Arabia), rejected the requests, willing to put pressure on Moscow and Teheran and to stem the placing on the market of US energy commodities. In February, Russian Energy Minister Novak met Russian oil companies to discuss shared strategies and announced the umpteenth proposal for an output cut of 3-5% at a meeting with OPEC.[10] Of course no agreement was reached in the meeting held on April 17, 2016, in Doha and Moscow is not considered a reliant partner given its many broken promises about cuts to exports. Russian national budget is in trouble, deficit is increasing, the ruble is depreciating and citizens’ living conditions may be affected soon and significantly.
Mediterranean challenges
At the moment the chaotic situation on the Southern and Eastern shores of the Mediterranean Sea does not foster the development of upheavals in the energy sector within the area but opportunities for Russian economy do not lack. With regard to natural gas market, the discovery of two offshore LNG gas fields – Tamar and Leviathan in 2009 and 2010 – puts Israel in an unpredicted position, making it able to exploit a huge amount of energy sources and turning it in a potential regional energy exporter with all the related geopolitical consequences.[11] Actually Tamar (already pumping gas to Israel) and Leviathan may be especially useful for EU countries, helping them to diversify their energy suppliers and partially enfranchising them from Russia. However, many share the opinion that Russia would be a good commercial partner for Israel. With Russia deeply militarily involved in Syria, Israel could surrender to Putin’s flatteries[12] about a Gazprom involvement in Leviathan development. More precisely, granting Gazprom a role in Israel’s energy industry could be a key factor in assuring the safety and security of Israel’s offshore gas exploration infrastructure – as Israel believes Hezbollah could target this infrastructure in a future conflict, especially because there is only one pipeline connecting Tamar to Israeli shores.[13] Security in change of a Russian participation in Israeli gas exports to European countries. Of course an agreement is far from being reached because of the EU’s intention to reduce Gazprom leverage on its energy balance and United States’ support to this strategy led by both the European Commission and the Member States’ governments. But actually Israel is just a piece of a broader jigsaw puzzle Putin is trying to complete in the area. In March, Jordan officially asked Russia (i.e. Gazprom)[14] for discounted LNG supply and showed strong interest in “expanding bilateral cooperation in energy sector” meaning the set up of joint ventures for production and sale of mineral resources. Russia and Jordan also agreed to exchange experience in terms of exploration of mineral resources and estimation of reserves, as well as in the field of technologies used in shale oil production.[15] At the same time, while EU promotes its energy security strategy and is the scenario of an internal brawl over Nord Stream doubling, Gazprom reached a memorandum with the Italian company Edison and the Greek one Depa in order to bring Russian gas to Southern Europe. Moscow confirms its will to invest in this route regardless the success of South Stream and/or Turkish Stream in order to keep the competitive advantage vis-à-vis the LNG supply that may be available in the next years. Russian strategy is that of being able to put pressure on every single interlocutor by using the menace of concluding an agreement with another one, making the most convenient choice in the most favorable moment. At the moment, the Turkish Stream project seems abandoned because of the coldness in the relations between Moscow and Ankara generated by their involvement in Syria. South Stream, on the other side, is subject to continuous changes of mind and recently, after disputes with Turkey, Russia hinted to the fact that there is still hope for its realization.[16]
Francesco Angelone
Master’s degree in International Relations (LUISS “Guido Carli”)
References and notes
[1] According the U.S. Energy Information Administration and the BP Statistical Review of World Energy 2015, between 10.8 and 10.9 million barrels per day and the 12.7% of global oil production.
[2] The gap between oil production and oil consumption, i.e. the amount of oil available for exports was about 7.3 million barrels per day.
[3] Figures available within the already mentioned publications.
[4] Iran is the largest owner of natural gas reserves with 34.0 trillion cubic metres and the 18.2% of the global reserves.
[5] Natural gas produced for Gas-to-Liquids transformation.
[6] Olcott, Martha B. “The Energy Dimension in Russian Global Strategy. Vladimir Putin and The Geopolitics of Oil,” The James A. Baker III Institute for Public Policy of Rice University, October 2004. carnegieendowment.org/files/wp-2005-01_olcott_english1.pdf
[7] Brent crude oil.
[8] April 2016.
[9] “Russia,” U.S. Energy Information Administration. See: www.eia.gov/beta/international/analysis_includes/countries_long/Russia/russia.pdf
[10] Henderson, James, & Fattouh, Bassam. “Russia and OPEC: Uneasy Partners,” The Oxford Institute for Energy Studies, February 2016. www.oxfordenergy.org/wpcms/wp-content/uploads/2016/02/Russia-and-OPEC-Uneasy-Partners.pdf
[11] Angelone, Francesco. “It’s the energy, stupid! How oil & gas can reshape the Mediterranean,” Mediterranean Affairs, 29 January 2016. mediterraneanaffairs.com/its-the-energy-stupid-how-oil-gas-can-reshape-the-mediterranean/
[12] Zalel, Ya’acov. “Commentator: Putin wants Gazprom to take part in Israel’s Leviathan,” Natural Gas Europe, 22 October 2015. www.naturalgaseurope.com/putin-gazprom-interested-in-leviathan-israel-gas-26000
[13] Cohen, Josh. “Why Russia may be a smart business partner for Israel,” Reuters, 23 February 2016. blogs.reuters.com/great-debate/2016/02/23/why-russia-may-be-a-smart-business-partner-for-israel/
[14] Gazprom produces approximately a 73% share of Russian natural gas production.
[15] “Jordan is ready to buy LNG from Russia’s Gazprom,” TASS, 28 March 2016. tass.ru/en/economy/865472
[16] Blank, Stephen. “Russia Remains Set On South Stream Pipeline Project,” OilPrice.com, 24 March 2016. oilprice.com/Latest-Energy-News/World-News/Russia-Remains-Set-On-South-Stream-Pipeline-Project.html
