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Who Will Pay for Making America Great Again?

August 18, 2017 05:29AM

Sergey Korol,
European Geopolitical Forum

American politics, in general, and its energy version in particular, resemble a chess game but according to the rules of American football. The US plans to become a leading player in the world energy market do not coincide with the interests of other major players, including OPEC countries and Russia.

The Middle East and Russia

The US plans to become a leading player in the world energy market do not coincide with the interests of other major players, including OPEC countries and Russia. Their concerted actions to limit oil production in 2017 to prevent a further fall in oil prices could remind the Americans of the year 1973, when the Arab countries imposed an embargo on oil supplies to the United States. It seems that in order to exclude the possibility of coordinated actions by Middle Eastern energy producers in the future, the US decided to drive a wedge between them in advance, provoking the conflict of the Persian Gulf countries with Qatar, having previously "caressed" Saudi Arabia with 10-year $110 billion weapons deal and Anti-Iranian rhetoric. This combination has allowed, on the one hand, creating sharp differences between Arab countries, and on the other - to heat up anti-Shiite moods as well as stressing Qatar’s close relations with Iran. In addition, in order to intensify the effect on July 16, 2017 information was leaked through the Washington Post, which reported that the UAE organized hacker penetration in social networks, citing false statements by Qatari officials. Raising a wave of mistrust in this "playing field",  US expects that it will be easy to rally their Middle Eastern allies in another sanctions attack on Iran, just because nuclear deal is declared by Trump not meeting US interests. Under this pretext, the US tries to limit Iran's ability to increase energy exports and, primarily, gas supplies to India, Pakistan and China, which are developing markets for both pipeline and liquefied gas. 

The bill adopted almost unanimously by the US Congress, imply new sanctions to prevent both Iran and Russia from getting modern oil and gas production technologies and financing.  The move is intended to slow down the build-up of the gas export potential of these countries and allow the US to advance own gas to the Asian and European Markets despite LNG’s higher cost. 

However, inside the US, imposing sanctions of this kind has caused concern not only for such leading energy companies as Exxon Mobil and Chevron, but also for banking and industrial stakeholders. It was reported that General Electric was closely following the bill. According to GE, it could take the American companies into disadvantageous position as compared to their competitors in the International Markets.

Europe

The Europeans almost immediately recognized US intention to impose new extended sanctions on Russia as a threat to the "Northern stream - 2" compelling them to buy American LNG not cheaper Russian pipelined gas while large European and American companies are interested in developing Russian oil and gas shelf reserves. High-ranking representatives of Germany and Austria have unequivocally expressed dissatisfaction with these US actions.

As soon as nuclear deal with Iran was struck in 2015 removing part of the sanctions from this country, Europeans started to chase each other to restore or to get some share of the Iranian markets. Several years of negotiations and consultations, along with building financial mechanisms for interaction, led to the signing of specific treaties and agreements.

In May 2017, the largest French company Total has signed a 20-year agreement with National Iranian Oil Co and China National Petroleum Corp to implement the next development phase of the South Pars offshore gas field. The first stage estimated investments volume is about 2 billion dollars.

At the end of May 2017, Germany announced readiness to expand banking cooperation with Iran and to provide funds for financing economic projects. It was stated by German Finance Minister Wolfgang Schäuble at a meeting with Iranian Foreign Minister Mohammad Javad Zarif. A month later, German Foreign Minister Sigmar Gabriel said that a nuclear deal with Iran helped to reduce the risk of a major conflict in the Middle East, and that Germany will do everything possible to ensure that all parties comply with their obligations.

Almost simultaneously with German Foreign Minister, the Swedish ambassador in Tehran stated that Iran plays an important role in the Middle East region, stressing that this country was Sweden's largest economic partner in the Middle East before the US sanctions were imposed.

It seems that the US will have to take into account all this above. It should find convincing reasons for the refusal of European and US oil and gas companies from the obvious profits in Iran and Russia, as well as to force Europe to buy expensive American LNG and thereby weaken the competitiveness of European goods and services.

China

The US treats Chinese markets as one of the most promising. In May 2017, Trump signed a framework agreement for long-term deliveries of American LNG to China, which was hailed by his administration as a strategic success. However, there are no indication of US LNG contracted volumes for China still. American experts were skeptical of the agreement from the very beginning, calling it a "relationship-building" gesture. As for now, China has no reason to buy additional LNG. Until 2023, necessary volumes are already contracted from other countries. Moreover, as reported, three largest Chinese state owned energy companies resell the surplus of the previously bought gas volumes. In the future, of course, the situation on the Chinese market may change, but it is unlikely to expect a significant increase in US LNG deliveries, that could be much higher over the current 6-7% of the total Chinese’s import. 

China is very serious about maintaining energy suppliers balance, seeking to optimize their diversification. The Chinese leadership is well aware of the role of energy dependence in politics and strive to ensure that neither current nor future gas supplies from Iran, Qatar, and Central Asian countries, the United States or Russia could become a significant factor capable of influencing China's policy contrary to its national interests. At the same time, China could take advantage of American pressure on the Russian economy to obtain preferences and favorable terms while negotiating projects with Russia.

It is Just Struggle for Markets

US sanctions targeting Iran and Russia have left no doubt that the US intends to reshape the world markets aggressively even if it will impede relations with allies in Europe. 

Investments restrictions in energy and related sectors are designed to hit Russia and its partners in large-scale economic projects and to promote American goods and services to the European and Asian markets. 

Russia is assigned now the key US adversary on a number of political and economic reasons. The main reason is that US considers Russia’s economic resurrection and International politics success on the Eurasian continent an existential threat to the America as the only great power in the world. Among the developments that push US to the confrontation with Russia are promoting regional and transregional projects such as BRICS and Eurasian Economic Union; spoiling latest American foreign policy plans (Ukraine and Syria); developing gas supplies to the European and Asian markets. 

The new cycle of sanctions is a continuation of the US policy of Russia’s containment with specific stress on the industry sectors vital for further economic sustainment, including energy.  

There is an understanding in Russia that at current playground any rebate to the American pressure will be treated by US as a weakness and could be a beginning of a chain reaction leading to strategic loses in economy and politics, as well as loosing partners providing Russia with support. Therefore, much will depend on a way Russia would chose to counter US pressure and on the Russian society’s social and economic stability in coming presidential election year.

The goal of "Making America Great Again" declared by US President Trump is likely to be achieved by combining the same carrot and stick politics that the US has been using for the last century. While both the stick and the carrot could be presented and described in a different way, the question is if anybody ever tasted US carrot.

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