Pepe ESCOBAR: Helsinki-Summit – A walk on the wild side as Trump meets Putin at Finland station; Asia Times 17.07.2018

globalcrisis/-change NEWS
18:07.2018 – 23:00

Dear all,

following some unagitated geopolitical observations on the Helsinki Summit by Pepe Escobar.

Greets,
Martin Zeis

http://www.atimes.com/article/a-walk-on-the-wild-side-as-trump-meets-putin-at-finland-station/?cn-reloaded=1

A walk on the wild side as Trump meets Putin at Finland station

US President stirs up a hornet’s nest with his press conference alongside his Russian counterpart, but it seems that no ‚grand bargain‘ was struck on Syria, and on Iran they appear to strongly disagree

By Pepe Escobar July 17, 2018 2:29 PM (UTC+8)

“The Cold War is a thing of the past.” By the time President Putin said as much during preliminary remarks at his joint press conference with President Trump in Helsinki, it was clear this would not stand. Not after so much investment by American conservatives in Cold War 2.0.

Russophobia is a 24/7 industry, and all concerned, including its media vassals, remain absolutely livid with the “disgraceful” Trump-Putin presser. Trump has “colluded with Russia.” How could the President of the United States promote “moral equivalence” with a “world-class thug”?

Multiple opportunities for apoplectic outrage were in order.

Trump: “Our relationship has never been worse than it is now. However, that changed. As of about four hours ago.”

Putin: “The United States could be more decisive in nudging Ukrainian leadership.”

Trump: “There was no collusion… I beat Hillary Clinton easily.”

Putin: “We should be guided by facts. Can you name a single fact that would definitively prove collusion? This is nonsense.”

Then, the clincher: the Russian president calls [Special Counsel] Robert Mueller’s ‘bluff’, offering to interrogate the Russians indicted for alleged election meddling in the US if Mueller makes an official request to Moscow. But in exchange, Russia would expect the US to question Americans on whether Moscow should face charges for illegal actions.

Trump hits it out of the park when asked whether he believes US intelligence, which concluded that Russia did meddle in the election, or Putin, who strongly denies it.

“President Putin says it’s not Russia. I don’t see any reason why it would be.”

As if this was not enough, Trump doubles down invoking the Democratic National Committee (DNC) server. “I really do want to see the server. Where is the server? I want to know. Where is the server and what is the server saying?”

It was inevitable that a strategically crucial summit between the Russian and American presidencies would be hijacked by the dementia of the US news cycle.

Trump was unfazed. He knows that the DNC computer hard-drives – the source of an alleged “hacking” – simply “disappeared” while in the custody of US intel, FBI included. He knows the bandwidth necessary for file transfer was much larger than a hack might have managed in the time allowed. It was a leak, a download into a flash-drive.

Additionally, Putin knows that Mueller knows he will never be able to drag 12 Russian intelligence agents into a US courtroom. So the – debunked – indictment, announced only three days before Helsinki, was nothing more than a pre-emptive, judicial hand grenade.

No wonder John Brennan, a former CIA director under the Obama administration, is fuming. “Donald Trump’s press conference performance in Helsinki rises to exceed the threshold of ‘high crimes and misdemeanors.’ It was nothing short of treasonous. Not only were Trump’s comments imbecilic, he is wholly in the pocket of Putin.”

How Syria and Ukraine are linked

However, there are reasons to expect at least minimal progress on three fronts in Helsinki: a solution for the Syria tragedy, an effort to limit nuclear weapons and save the Intermediate-range Nuclear Forces treaty signed in 1987 by Reagan and Gorbachev, and a positive drive to normalize US-Russia relations, away from Cold War 2.0.

Trump knew he had nothing to offer Putin to negotiate on Syria. The Syrian Arab Army (SAA) now controls virtually 90% of national territory. Russia is firmly established in the Eastern Mediterranean, especially after signing a 49-year agreement with Damascus.

Even considering careful mentions of Israel on both sides, Putin certainly did not agree to force Iran out of Syria.

No “grand bargain” on Iran seems to be in the cards. The top adviser to Ayatollah Khamenei, Ali Akbar Velayati, was in Moscow last week. The Moscow-Tehran entente cordiale seems unbreakable. In parallel, as Asia Times has learned, Bashar al-Assad has told Moscow he might even agree to Iran leaving Syria, but Israel would have to return the occupied Golan Heights. So, the status quo remains.

Putin did mention both presidents discussed the Iran nuclear deal or Joint Comprehensive Plan Of Action and essentially they, strongly, agree to disagree. US Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin have written a letter formally rejecting an appeal for carve-outs in finance, energy and healthcare by Germany, France and the UK. A maximum economic blockade remains the name of the game. Putin may have impressed on Trump the possible dire consequences of a US oil embargo on Iran, and even the (far-fetched) scenario of Tehran blocking the Strait of Hormuz.

Judging by what both presidents said, and what has been leaked so far, Trump may not have offered an explicit US recognition of Crimea for Russia, or an easing of Ukraine-linked sanctions.

It’s reasonable to picture a very delicate ballet in terms of what they really discussed in relation to Ukraine. Once again, the only thing Trump could offer on Ukraine is an easing of sanctions. But for Russia the stakes are much higher.

Putin clearly sees Southwest Asia and Central and Eastern Europe as totally integrated. The Black Sea basin is where Russia intersects with Ukraine, Turkey, Eastern Europe and the Caucasus. Or, historically, where the former Russian, Ottoman and Habsburg empires converged.

A Greater Black Sea implies the geopolitical convergence of what’s happening in both Syria and Ukraine. That’s why for the Kremlin only an overall package matters. It’s not by accident that Washington identified these two nodes – destabilizing Damascus and turning the tables in Kiev – to cause problems for Moscow.

Putin sees a stable Syria and a stable Ukraine as essential to ease his burden in dealing with the Balkans and the Baltics. We’re back once again to that classic geopolitical staple, the Intermarium (“between the seas”). That’s the ultra-contested rimland from Estonia in the north to Bulgaria in the south – and to the Caucasus in the east. Once, that used to frame the clash between Germany and Russia. Now, that frames the clash between the US and Russia.

In a fascinating echo of the summit in Helsinki, Western strategists do lose their sleep gaming on Russia being able to “Finlandize” this whole rimland.

And that brings us, inevitably, to what could be termed The German Question. What is Putin’s ultimate goal: a quite close business and strategic relationship with Germany (German business is in favor)? Or some sort of entente cordiale with the US? EU diplomats in Brussels are openly discussing that underneath all the thunder and lightning, this is the holy of the holies.

Take a walk on the wild side

The now notorious key takeaway from a Trump interview at his golf club in Turnberry, Scotland, before Helsinki, may offer some clues.

“Well, I think we have a lot of foes. I think the European Union is a foe, what they do to us in trade. Now, you wouldn’t think of the European Union, but they’re a foe. Russia is a foe in certain respects. China is a foe economically, certainly they are a foe. But that doesn’t mean they are bad. It doesn’t mean anything. It means that they are competitive.”

Putin certainly knows it. But even Trump, while not being a Clausewitzian strategist, may have had an intuition that the post-WWII liberal order, built by a hegemonic US and bent on permanent US military hegemony over the Eurasian landmass while subduing a vassal Europe, is waning.

While Trump firebombs this United States of Europe as an “unfair” competitor of the US, it’s essential to remember that it was the White House that asked for the Helsinki summit, not the Kremlin.

Trump treats the EU with undisguised disdain. He would love nothing better than for the EU to dissolve. His Arab “partners” can be easily controlled by fear. He has all but declared economic war on China and is on tariff overdrive – even as the IMF warns that the global economy runs the risk of losing around $500 billion in the process. And he faces the ultimate intractable, the China-Russia-Iran axis of Eurasian integration, which simply won’t go away.

So, talking to “world-class thug” Putin – in usual suspect terminology – is a must. A divide-and-rule here, a deal there – who knows what some hustling will bring? To paraphrase Lou Reed, New Trump City “is the place where they say “Hey babe, take a walk on the wild side.”

During the Helsinki presser, Putin, fresh from Russia’s spectacular World Cup soft power PR coup, passed a football to Trump. The US president said he would give it to his son, Barron, and passed the ball to First Lady Melania. Well, the ball is now in Melania’s court.

ESCOBAR-Helsinki-Summit-A-walk-on-the-wild-side180717.pdf

Pepe ESCOBAR: Oil to Recover by July, Saudis Digging Their Own Graves to Please Global Elite; RI 22.01.2016

globalcrisis/globalchange NEWS
Martin Zeis, 22.01.2016

Dear all,

Escobar’s article – quoted in extracts below – corresponds with various reports/analysis around the dramatic oil-price-dumping and its outcome – for example:

http://journal-neo.org/2016/01/09/russia-breaking-wall-st-oil-price-monopoly
Russia Breaking Wall St Oil Price Monopoly
By F. William ENGDAHL
New Eastern Outlook
09.01.2016

www.zerohedge.com/news/2016-01-15/re-covering-oil-war
primary source: www.theautomaticearth.com/2016/01/re-covering-oil-and-war
Oil, War, & Drastic Global Change
zerohedge, 16.01.2016

Greets,
Martin Zeis

==========

http://russia-insider.com/en/business/exclusive-secret-behind-next-global-crash-read/ri12375

ESCOBAR-Saudis-digging-their-Graves160122.pdf

One Map That Explains the Dangerous Saudi-Iranian Conflict

Jon Schwarz Jan. 6 2016,

theintercept.com

One Map That Explains the Dangerous Saudi-Iranian Conflict

Jon Schwarz✉jon.schwarz@​theintercept.comt@tinyrevolution

The Kingdom of Saudi Arabia executed Shiite Muslim cleric Nimr al-Nimr on Saturday. Hours later, Iranian protestors set fire to the Saudi embassy in Tehran. On Sunday, the Saudi government, which considers itself the guardian of Sunni Islam, cut diplomatic ties with Iran, which is a Shiite Muslim theocracy.

To explain what’s going on, the New York Times provided a primer on the difference between Sunni and Shiite Islam, informing us that “a schism emerged after the death of the Prophet Muhammad in 632” — i.e., 1,383 years ago.

But to the degree that the current crisis has anything to do with religion, it’s much less about whether Abu Bakr or Ali was Muhammad’s rightful successor and much more about who’s going to control something more concrete right now: oil.

In fact, much of the conflict can be explained by a fascinating map created by M.R. Izady, a cartographer and adjunct master professor at the U.S. Air Force Special Operations School/Joint Special Operations University in Florida. (…)

shia-oil-cropped-2

The map shows religious populations in the Middle East and proven developed oil and gas reserves. Click to view the full map of the wider region. The dark green areas are predominantly Shiite; light green predominantly Sunni; and purple predominantly Wahhabi/Salafi, a branch of Sunnis. The black and red areas represent oil and gas deposits, respectively. (…)

Source: Dr. Michael Izady at Columbia University, Gulf2000, New York

https://theintercept.com/2016/01/06/one-map-that-explains-the-dangerous-saudi-iranian-conflict/?comments=1#comments

geopolitics — F.W. ENGDAHL: OPEC, Russia and the New World Order Emerging; New Eastern Outlook (NEO), Sep 16, 2015

http://journal-neo.org/2015/09/16/opec-russia-and-the-emerging-new-world-order-emerging/
— full text attached —

OPEC, Russia and the New World Order Emerging
By F. William ENGDAHL

By the day it’s becoming clearer that what I have recently been saying in my writings is coming to be. The OPEC oil-producing states of the Middle East, including Iran, through the skillful mediation of Russia, are carefully laying the foundations for a truly new world order. The first step in testing this will be if they collectively succeed in eliminating the threat to Syria of the Islamic State, and prepare the basis for serious, non-manipulated elections there. (…)

In the political, more accurately geo-political sphere, we are now witnessing huge tectonic motion, and destructive it is not. It involves a new attractive force drawing the Middle East OPEC countries, including Saudi Arabia and Iran and other Arab OPEC countries, into what will soon become obvious as a strategic partner-ship with the Russian Federation. It transcends the huge religious divides today between Sunni Wahhabism, Sufi, Shi’ism, Orthodox Christianity.
That tectonic motion will soon cause a political earthquake that well might save the planet from extinction by the endless wars the Pentagon and their string pullers on Wall Street and the military industrial complex and the loveless oligarchs who own them seem to have as their only strategy today.

Russia in OPEC?
In an interview with the London Financial Times, Russia’s most important oilman, Igor Sechin, CEO of the state-owned Rosneft, confirmed rumors that Saudi Arabia’s monarchy is seeking a formal market-share agreement with Russia, even going so far as offering Russia membership in OPEC, to stabilize world oil markets. In the interview, Sechin, considered one of President Vladimir Putin’s closest allies, con-firmed the Saudi offer. The Financial Times (FT) is an influential media owned until this past July by the Pearson Group an asset tied to the Rothschild family who his-torically also dominate Royal Dutch Shell.
The London paper chose to emphasize Sechin’s rejection of the Saudi offer. How-ever, most instructive is to read between the lines of what he said. He told a Singa-pore commodities conference organized by the FT, “It needs to be recognised that Opec’s ‘golden age’ in the oil market has been lost. They fail to observe their own quotas [for Opec oil output]. If quotas had been observed, global oil markets would have been rebalanced by now.”
Sechin well knows the background to the Saudi oil price war and the fact it was triggered by a meeting between US State Department’s John Kerry and the late Sau-di King Abdullah in the desert Kingdom in September 2014, where Kerry reportedly urged the Saudis to crash oil prices. For Kerry the aim was to put unbearable pres-sure on Russia, then hit by US and EU financial sanctions. For the Saudis, it was a golden opportunity to eliminate the biggest disturbing factor in the OPEC domination of world oil markets–the booming production of US unconventional shale oil that had made the USA the world’s largest oil producer in 2014.
Ironically, as Sechin told the FT, the US-Saudi deal and the US financial sanc-tions have backfired on the US strategists. The Russian ruble lost more than 50% of its dollar value by January 2015. Oil prices similarly fell from $103 a barrel in Sep-tember 2014 to less than $50 today. But Russian oil production costs are calculated in rubles, not dollars. So, as Sechin states, the dollar cost of Rosneft oil produc-tion has dropped dramatically today from $5 a barrel before the sanctions to only $3 a barrel, a level similar to that of Arab OPEC producers like Saudi Arabia. Rosneft is not hurting despite sanctions. USA shale oil by contrast is unconventional and vastly more costly. Industry estimates depending on the shale field and the company, put costs of shale in a range of $60-80 a barrel just to break even. The current ongoing shakeout in the US shale industry and prospects of rising US interest rates dictate the demise of shale oil from the US for years if not decades to come as Wall Street lenders and shale company junk bond investors suffer huge losses.

Unknotting the ‘not’ knot (…) — emphasis m.z. —

ENGDAHL-OPEC+Russia150916.pdf

Pepe ESCOBAR: Historic Iran Nuke Deal Resets Eurasia’s „Great Game“; zerohedge, July 18, 2015

globalcrisis/globalchange News
Martin Zeis – martin.zeis

zerohedge, July 18, 2015 — www.zerohedge.com/news/2015-07-18/historic-iran-nuke-deal-resets-eurasias-great-game
original-source:

– complete article attached (pdf-file) –

Historic Iran Nuke Deal Resets Eurasia’s „Great Game“
By Pepe ESCOBAR

This is it. It is indeed historic. And diplomacy eventually wins. In terms of the New Great Game in Eurasia, and the ongoing tectonic shifts reorganizing Eurasia, this is huge: Iran — supported by Russia and China — has finally, successfully, called the long, winding 12-year-long Atlanticist bluff on its “nuclear weapons.”
And this only happened because the Obama administration needed 1) a lone foreign policy success, and 2) a go at trying to influence at least laterally the onset of the new Eurasia-centered geopolitical order.

So here it is – the 159-page, as detailed as possible, Joint Comprehensive Plan of Action (JCPOA) (1) – the actual P5+1/Iran nuclear deal. As Iranian diplomats have stressed, the JCPOA will be presented to the United Nations Security Council (UNSC), which will then adopt a resolution within 7 to 10 days making it an official international document.

Iranian Foreign Minister Javad Zarif has described the deal — significantly — as a very Chinese “win-win” solution. But not perfect; “I believe this is a historic moment. We are reaching an agreement that is not perfect for anybody but is what we could accomplish. Today could have been the end of hope, but now we are starting a new chapter of hope.”
Zarif also had to stress — correctly — this was a long-sought solution for an “unnecessary crisis”; the politicization — essentially by the US — of a scientific, technical dossier.

Germany’s Foreign Minister Steinmeier, for his part, was euphoric; “A historic day! We leave 35 years of speechlessness + more than 12 years of a dangerous conflict behind us.”

Looking ahead, Iranian President Hassan Rouhani tweeted now there can be “a focus on shared challenges” – referring to the real fight that NATO, and Iran, should pursue together; against the fake Caliphate of ISIS/ISIL/Daesh, whose ideological matrix is intolerant Wahhabism and whose attacks are directed against both Shi’ites and westerners.
Right on cue, Russian President Vladimir Putin stressed the deal will contribute to fighting terrorism in the Middle East, not to mention “assisting in strengthening global and regional security, global nuclear non-proliferation” and — perhaps wishful thinking? — “the creation in the Middle East of a zone free from weapons of mass destruction.”
Russian Foreign Minister Sergey Lavrov stressed the deal “fully corresponds” with Russia’s negotiating points. The fact is no deal would have been possible without extensive Russian involvement — and the Obama administration knows it (but cannot admit it publicly).

The real problem started when Lavrov added that Moscow expects the cancellation of Washington’s missile defense plans, after the Iran deal proves that Tehran is not, and won’t be, a nuclear “threat.”

There’s the rub. The Pentagon simply won’t cancel an essential part of its Full Spectrum Dominance military doctrine simply because of mere “diplomacy.” Every security analyst not blinded by ideology knows that missile defense was never about Iran, but about Russia. The Pentagon’s new military review still states — not by accident — major Eurasian players Iran, China and Russia as “threats” to U.S. national security.
Now from the brighter side on Iran-Russia relations. Trade is bound to increase, especially in nanotechnology, machinery parts and agriculture. And on the all-pervasive energy front, Iran will indeed compete with Russia in major markets such as Turkey and soon Western Europe, but there’s plenty of leeway for Gazprom and the National Iranian Oil Company (NIOC) to coordinate their market share. NIOC executive Mohsen Qamsari advances that Iran will prioritize exporting to Asia, and will try to regain the at least 42% of the European market share that it had before sanctions.

Compared to so many uplifting perspectives, Washington’s reaction was quite pedestrian. US President Barack Obama preferred to stress — correctly — that every pathway to an Iranian nuclear weapon has been cut off. And he vowed to veto any legislation in the US Congress that blocks the deal. When I was in Vienna last week I had surefire confirmation — from a European source — that the Obama administration feels confident it has the votes it needs in Capitol Hill.

And what about all that oil?
Tariq Rauf, former Head of Verification and Security Policy at the IAEA and currently Director of the Disarmament and Non-Proliferation Program at the Stockholm International Peace Research Institute (SIPRI), hailed the deal as “the most significant multilateral nuclear agreement in two decades – the last such agreement was the 1996 nuclear test ban treaty.” Rauf even advanced that the 2016 Nobel Peace Prize should go to US Secretary of State Jon Kerry and Iran’s Foreign Minister Zarif.
Rebuilding trust between the US and Iran, though, will be a long and winding road.
Tehran agreed to a 15-year moratorium on enriching uranium beyond 3.67 percent; this means it has agreed to reduce its enrichment capacity by two-thirds. Only Natanz will conduct enrichment; and Fordo, additionally, won’t store fissile material.
Iran agreed to store no more than 300 kg of low-enriched uranium — a 96% reduction compared to current levels. The Arak reactor will be reconfigured, and won’t be used to produce plutonium. The spent fuel will be handled by an international team.
The IAEA and Iran signed a roadmap in Tehran also this Tuesday; that was already decided last week in Vienna. By December 15, all past and present outstanding issues — that amount to 12 items — should be clarified, and the IAEA will deliver a final assessment. IAEA access to the Parchin military site — always a very contentious issue — is part of a separate arrangement.
One of the major sticking points these last few days in Vienna was solved — with Tehran allowing UN inspectors to visit virtually any site. But it may object to a particular visit. A Joint Commission — the P5+1 + Iran — will be able to override any objections with a simple majority vote. After that Iran has three days to comply — in case it loses the vote. There won’t be American inspectors — shades of the run-up towards the war on Iraq; only from countries with diplomatic relations with Iran.
So implementation of the deal will take at least the next five months. Sanctions will be lifted only by early 2016.
What’s certain is that Iran will become a magnet for foreign investment. Major western and Asian multinationals are already positioned to start cracking this practically virgin market with over 70 million people, including a very well educated middle class. There will be a boom in sectors such as consumer electronics, the auto industry and hospitality and leisure.
And then there’s, once again, oil. Iran has as much as a whopping 50 million barrels of oil stored at sea — and that’s about ready to hit the global market. The purchaser of choice will be, inevitably, China — as the West remains mired in recession. Iran’s first order of work is to regain lost market share to Persian Gulf producers. Yet the trend is for oil prices to go down – so Iran cannot count on much profit in the short to medium term.
Now for a real war on terror?
The conventional arms embargo on Iran essentially stays, for five years. That’s absurd, compared to Israel and the House of Saud arming themselves to their teeth.
Last May the US Congress approved a $1.9 billion arms sale to Israel. That includes 50 BLU-113 bunker-buster bombs — to do what? Bomb Natanz? — and 3,000 Hellfire missiles. As for Saudi Arabia, according to SIPRI, the House of Saud spent a whopping $80 billion on weapons last year; more than nuclear powers France or Britain. The House of Saud is waging an — illegal — war on Yemen.
Qatar is not far behind. It clinched an $11 billion deal to buy Apache helicopters and Javelin and Patriot air defense systems, and is bound to buy loads of F-15 fighters.
Trita Parsi, president of the National American-Iranian Council, went straight to the point; “Saudi Arabia spends 13 times more money on its defense than Iran does. But somehow Iran, and not Saudi Arabia, is seen by the US as the potential aggressor.”
So, whatever happens, expect tough days ahead. Two weeks ago, Foreign Minister Zarif told a small group of independent journalists in Vienna, including this correspondent, that the negotiations would be a success because the US and Iran had agreed on “no humiliation of one another.” He stressed he paid “a high domestic price for not blaming the Americans,” and he praised Kerry as “a reasonable man.” But he was wary of the US establishment, which to a great extent, according to his best information, was dead set against the lifting of sanctions.
Zarif also praised the Russian idea that after a deal, it will be time to form a real counter-terrorism coalition, featuring Americans, Iranians, Russians, Chinese and Europeans — even as Putin and Obama had agreed to work together on “regional issues.” And Iranian diplomacy was giving signs that the Obama administration had finally understood that the alternative to Assad in Syria was ISIS/ISIL/Daesh, not the “Free” Syrian Army.
That degree of collaboration, post-Wall of Mistrust, remains to be seen. Then it will be possible to clearly evaluate whether the Obama administration has made a major strategic decision, and whether “normalizing” its relation with Iran involves much more than meets the eye. — emphasis zerohedge —
Note
(1) http://www.documentcloud.org/documents/2165388-iran-deal-text.html

ESCOBAR-Historic.Nuke-Deal150714.pdf

The World’s Greatest Oil Chokepoints, And Why Yemen Matters

 

The World’s Greatest Oil Chokepoints, And Why Yemen Matters

About half the world’s oil production is moved by tankers on fixed maritime routes, according to Reuters. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs and thus, these checkpoints are crucial to global energy security. While Hormuz remains the largest chokepoint (and along with Bab el-Mandeb explains why Yemen matters so much), 

zerohedge, March 26, 2015 —  http://www.zerohedge.com/news/2015-03-26/worlds-greatest-oil-chokepoints-and-why-yemen-matters

 

The World’s Greatest Oil Chokepoints, And Why Yemen Matters

About half the world’s oil production is moved by tankers on fixed maritime routes, according to Reuters. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs and thus, these checkpoints are crucial to global energy security. While Hormuz remains the largest chokepoint (and along with Bab el-Mandeb explains why Yemen matters so much), Malacca (as we noted previously) is quickly becoming another area of potential problems.
 
 

And while Yemen is key for The Strait of Hormuz…

 

With Bab el-Mandeb even more specifically problematic if Yemen tensions get too extreme…

Source: JPMorgan

…it is China’s growing presence near The Strait of Malacca that is perhaps most worrisome for the global energy order…

 

and here’s why…

 

The Claims…

 

=======
Martin Zeis
globalcrisis/globalchange NEWS

Putin’s New Gas Strategy Actually Makes Sense – JAN 22, 2015 – Marc Champion

http://www.bloombergview.com/articles/2015-01-22/putin-s-new-gas-strategy-actually-makes-sense

PDF: Report-South-Stream-Cancellation2015Jan

RUSSIA
Putin’s New Gas Strategy Actually Makes Sense
JAN 22, 2015 11:41 AM EST
By Marc Champion

When Russia canceled a planned pipeline to deliver natural gas to Europe across the Black Sea last month and said it would redirect the project to Turkey, some thought it was a bluff, others a sign of financial weakness and still others a rebuke to the West over Ukraine as President Vladimir Putin turned elsewhere to look for new partners.
In reality, the change made good commercial sense and should have happened years ago, according to a new report (1) by some of the most knowledgeable people on Russia’s gas industry.

The shift also means that Gazprom, Russia’s state-controlled gas company, won’t be able to completely cut Ukraine out of the transit business, as the original South Stream pipeline had sought to do, for years to come. And, the authors might have added, the new arrangement is healthier for Europe, too.

The cancellation of South Stream is part of a broader change of strategy for Gazprom that plays to the company’s strengths, say Jonathan Stern, Simon Pirani and Katja Yafimava at the Oxford Institute for Energy Studies.

The previous strategy to acquire distribution networks deep in EU markets. And while the report’s authors are more cautious, this was also in part politically motivated. It was meant to exert Russian political power as much as to make profits for Gazprom, which is one reason the European Union drew up regulations to obstruct it.

South Stream was expensive — conservatively priced at about $20 billion and by some estimates as much as $65 billion. It never made commercial sense, even when EU demand for gas was projected to soar and Gazprom controlled prices by negotiating separate long-term contracts with individual buyers.

Today, Gazprom faces new price competition from spot markets at gas hubs around the EU. Plus, new EU rules — some still being written — would force Gazprom to open up its European pipelines to other suppliers and distributors.

The Ukraine crisis prompted EU officials to move aggressively against South Stream for not complying with the new rules. And collapsing oil prices (to which long-term gas contracts are tied) made the economics of South Stream look even worse. Eventually, Gazprom pulled the plug.

The company then proposed redirecting the pipeline project to Turkey, its second-largest customer in Europe and the only European market projected to grow strongly. The gas Turkey now gets via Ukraine would come direct from Russia. And any additional amounts could be taken to a hub at Turkey’s EU border and sold.

Nevertheless, Gazprom would still need to send substantial amounts of gas to Europe through Ukraine until at the very least 2020, according to the Oxford report.
It’s by now clear that Gazprom’s pivot to Turkey was not a bluff, even if negotiations on price and the pipeline’s route continue. Gazprom has already allocated resources to the Turkish project.

Nor was the South Stream decision based only on cost. That couldn’t explain why Gazprom hired two barges and 200 personnel to start laying pipes on the seabed, Stern and his team said.

Other decisions taken at about the same time suggest a bigger shift at play:

Gazprom abandoned efforts to buy 100 percent of the Opal gas pipeline, which lies entirely within Germany. It also walked away (2) from advanced talks on an asset swap that would have given more extraction assets in Western Siberia to the Wintershall unit of BASF Group, in exchange for Gazprom’s full ownership of the German company’s interest in a domestic storage and trading business in Germany.

Not long before, Gazprom had finally agreed on terms to supply piped gas to China and iced its plans to develop terminals to export liquid natural gas. Putin sold that move as punishment for the EU and proof he could find alternative markets. But in essence, Gazprom is returning to the business it knows better than anyone else and the one it can more easily afford: extracting and delivering natural gas through pipelines.

Russia’s gas giant no longer has ambitions to own the whole extraction-to-European-consumer chain, or to invest in expensive LNG technologies. Instead, it will have a simpler, transactional relationship with the EU in the sale and purchase of gas. And that is exactly as it should be.

To contact the author on this story:
Marc Champion at mchampion7@bloomberg.net

Notes
(1) The Oxford Institute for Energy Studies, January 2015: „Does the cancellation of South Stream signal a fundamental reorientation of Russian gas export policy?“ By Jonathan Stern, Simon Pirami, Katja Yafimava;
URL: http://www.oxfordenergy.org/wpcms/wp-content/uploads/2015/01/Does-cancellation-of-South-Stream-signal-a-fundamental-reorientation-of-Russian-gas-export-policy-GPC-5.pdf — see attachment —
(2) https://www.basf.com/en/company/news-and-media/news-releases/2014/12/p-14-435.html

————
Martin Zeis
globalcrisis/globalchange NEWS
martin.zeis@gmxpro.net