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The New Energy Superpower In The Middle East

Russia under President Putin has regained some of the global importance that it lost after the breakup of the Soviet Union. During the Cold War, Moscow had a significant presence in the Middle East where it supported proxies in its battle against the West. Russia’s recent advances in the region have been a reaction to the U.S.'s relative retreat.

Although Putin is accredited with excellent strategic insight, his accomplishments are primarily good decisions made at the right moment. The escalation of the conflict between the U.S. and Iran is another development that the Kremlin views favorably as they see opportunities to advance their position. The risks are severe, but so are the rewards. Moscow could make significant financial, strategic, and diplomatic advances at the expense of both Iran and the U.S.

Russia is already one of the biggest producers of oil in the world with a daily production average of 11.2 million barrels in 2019. A significant portion of the state’s budget is based on the export of oil and gas. Although conflict is usually bad for business, the rising oil prices due to the killing of General Soleimani increase Russia’s earnings in the short term.

Iranian oil is roughly the same quality as oil from Russian oil fields. Although Tehran’s exports have already collapsed due to Trump’s ‘maximum pressure policy’, Moscow still sees some room to increase market share at the expense of Iran. Every day that Tehran’s national oil company is absent from the global markets, competitors solidify their position.

Also, the recent tensions increase the risk of supply disruptions in an already sensitive region. Approximately 21 percent of the world's oil passes through the Strait of Hormuz. During the past two months, several ships have been attacked as a direct consequence of the rising tensions. Although Washington and Riyadh were quick with blaming Tehran, it is uncertain who was behind the attacks. What is certain though is that any supply disruption will have disastrous consequences for the world economy.

Related: Iranian Cyberattack Hits Bahrain Oil Company

While customers of Middle Eastern oil are aware of the risks and try to mitigate its effects, Moscow sees opportunities. East Asia’s three largest economies, China, Japan, and South Korea, have a dependency of 44, 88, and 82 percent respectively on Gulf oil. These countries have a lot to lose if the U.S.-Iran conflict escalates. Therefore, the strategic importance of alternative producers such as Russia has increased.

Traditionally, the bulk of the country’s oil is produced in Western Siberia. In recent years, however, the country has invested significantly in the Arctic and Eastern Siberia. Russia’s relative proximity to Asian customers and the lack of bottlenecks make it an ideal supplier. Russia already dethroned Saudi Arabia in 2016 as the biggest supplier in China. With additional investments and the gradual shifting of production from the west towards regions near East Asia, Moscow expects to increase its exports even further.

Lastly, the tension between the U.S. and Iran improves Russia’s diplomatic standing. Moscow has achieved the impossible: maintaining good relations with all countries in the Middle East. The relative withdrawal of the U.S. from the region has created a power vacuum that Russia partly filled. Although Moscow does not have a military, economic, and diplomatic clout comparable to Washington’s, its flexible Middle Eastern strategy has made it one of the few power brokers of the region.

The value and importance of a mediator are only appreciated when there is a conflict to solve. Although Moscow's cooled relations with Washington rule out mediation, Tehran is keen on receiving support from the Kremlin in its conflict with Washington. The unprecedented economic and political pressure has left Iran’s leadership with few options. Moscow, however, is happy to help as long as the rewards are worth it.

By Vanand Meliksetian for Oilprice.com

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