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Oil moves Russia, Israel closer together
18 February 2004
The odd couple: Israel and Russia challenge
OPEC [Within Palestinian Range] Pipeline becomes vital artery for shipments
to far east markets Moscow seeks to supplant Riyadh as world's top supplier
and 'Tipline' across Jewish state fits into that plan Ed Blanche Special
to The Daily Star 18 February 2004
http://www.dailystar.com.lb/business/18_02_04_g.asp
[IMRA: The loading point of the pipeline is
already within range of the Qassam rockets that the Palestinians have developed.
If and when Prime Minister Sharon's retreat is executed, the Palestinians
will be able to easily import longer range missiles to put the Ashdod port
under the same threat that Israel's other main port, Haifa, faces from the
12,000 missiles in South Lebanon - all formidable threats that will deter
Israel from taking action to prevent an IDF-free Gaza Strip from developing
even greater threats against the Jewish state (and even preventing Israel
from responding to attacks).]
BEIRUT: Israel's vice-premier and trade minister,
Ehud Olmert, was in Moscow last week with a particular message: "We want
more Russian oil."
Moscow is only happy to oblige, because a
250-kilometer pipeline running from Ashkelon on the Mediterranean to Eilat
on the Gulf of Aqaba has become a vital artery for Russian oil exports to
the Far East, the fastest-growing energy market in the world and one Moscow
wants to dominate. By sidestepping the Suez Canal, the Trans-Israel Pipeline,
known as the Tipline, opens up a shorter and cheaper route for Russian oil
exports to Asia and thereby threatens Arab exports from the Gulf.
The first tanker to sail from Israel with a
cargo of Russian crude pumped through the Tipline left Eilat, bound for Asia,
in November. According to British energy analyst Simon Henderson, an expert
on the Gulf, that event "has the potential to greatly impact the international
oil market. Russian oil exports are unconstrained by the quotas of the
Organization of Petroleum Exporting Countries, and a steady stream of expanded
Russian shipments via the Tipline could . lower prices worldwide."
The new route also puts Israel firmly on the
oil industry map, but more importantly it will strengthen Russia's position
in the global energy market, challenging Saudi Arabia's as the pre-eminent
oil producer. These days, Russia and Saudi Arabia are jockeying for the No.
1 spot as a world oil supplier with around 8 million barrels per day (bpd).
A confrontation between Saudi-dominated OPEC and Moscow seems
inevitable.
The new route also puts Israel firmly on the
oil industry map, but more importantly it will strengthen Russia's position
in the global energy market, challenging Saudi Arabia's as the pre-eminent
oil producer. These days, Russia and Saudi Arabia are jockeying for the No.
1 spot as a world oil supplier with around 8 million barrels per day (bpd).
A confrontation between Saudi-dominated OPEC and Moscow seems
inevitable.
With oil hovering around $30 a barrel, the Russians
have little interest in aiding OPEC dampen prices, and it is expected to
push up production this year. According to French energy analyst Francis
Perrin: "Russia has no interest in collaborating with OPEC."
The Americans have long wanted to undermine
OPEC and US control of Iraq's oil, wealth could go far to achieve that. But
the Russians seem to be ones making the running right now, and want to overtake
Saudi production levels within five years. According to Simon Kukes, chief
executive officer of Russia's giant Yukos oil company, Russian output could
reach 11 million bpd by 2009.
The Tipline connection also cements Israel's
relations with Russia, a mortal enemy throughout the Cold War, at a time
when many oil-consuming states are growing nervous about the security of
energy supplies from the Arab world and are seeking ways to reduce their
dependence on countries like Saudi Arabia. The Japanese, for instance, get
85 percent of their oil from the Gulf but want to cut that back to 65
percent.
It is possible that the Russians may at some
point open another export route to the Far East through Iran's Gulf terminal
at Bandar Abbas, which could also reduce Asian demand for Saudi crude. Russia,
Iran and India signed an agreement to develop a north-south transportation
corridor in September 2000 that would also rival the Suez Canal. But that
involves investing of billions of dollars and years of work, and would thus
seem to lie far in the future.
For now, the Tipline is the testbed for Russia's
ability to pump up the volume of oil it ships to energy-thirsty Asia, where
the market is being enlarged by China's growing demand for oil to fuel its
burgeoning economic expansion.
The Tipline was built in 1968 to carry oil shipped
up the Red Sea from Iran, then still ruled by Shah Mohammad Reza Pahlavi,
to Eilat and on to the Mediterranean for transshipment to Europe. At that
time, the Suez Canal was still closed following the 1967 war, with the Israelis
holding the eastern bank and the Egyptians the western bank, so the Tipline
saved tankers having to make the long and costly haul around Africa to reach
markets in Europe and the US.
Israel took what it needed of the Iranian oil
for its own consumption. But the 1979 revolution in Iran changed all that.
The new regime cut off all links to Israel. The surge in Russian oil exports
following the collapse of the Soviet Union in 1991 gave the Tipline a new
lease on life. By reversing the flow, with Eilat instead of Ashkelon as the
loading terminal, the Russians found a new outlet as they drove to develop
new markets.
So now tankers from the Black Sea carry the
oil to Ashkelon. These are of necessity not large supertankers because Turkey
prohibits ships of that size using the Bosphorus Straits. But big tankers
can be used to carry shipments from Eilat. The Tipline has the capacity to
handle 55 million tons of oil a year.
According to the Russian media, Moscow is expected
to pump 20 million-30 million tons through Israel this year, as well as provide
most of Israel's requirement of 240,000 bpd that formerly came for such diverse
sources as Egypt and the North Sea.
"Even if the pipeline route was used to its
full potential," Henderson says, "Russian oil transported to Eilat would
only be enough to fill one Asia-bound oil tanker every two or three days."
But boosting the line's capacity would increase exports. Henderson noted
that Russian oil shipped through Israel is made more attractive to Asian
buyers because it eliminates the so-called "Asian premium," the extra $1
per barrel arbitrarily imposed on Asian consumers by Gulf producers. This
has caused considerable resentment against the Gulf exporters, and provides
another incentive to reduce their dependence on Arab oil.
Crown Prince Abdullah bin Abdel-Aziz of Saudi
Arabia, the country's de facto ruler since King Fahd fell ill six years ago,
made a landmark visit to Moscow in September 2003 hoping to improve relations,
in large part because of the strains in Riyadh's relations with the US since
Sept. 11, 2001. The Saudis signed a five-year oil and gas cooperation agreement,
but the Russians, while cordial enough, were not inclined to curtail their
campaign to boost oil exports that are the main driver of Russia's economic
boom or to see prices cut back.
The Russians have not forgotten how in 1985
the Saudis used their excess production capacity to flood the market and
drive down oil prices to $12 a barrel, which wrecked any hopes that the
then-Soviet Union had of an economic revival and contributed to the collapse
of communism soon after.
Yet the Saudis remain increasingly desperate
for Russia's help, especially as the US agenda becomes more belligerent and
insistent upon speedy political reform that the House of Al-Saud is reluctant
to introduce.
Just how desperate Riyadh is was evident in
January, when the pro-Moscow president of Chechnya, Akhmad Kayrov, said after
visiting the Saudi capital that Riyadh had halted all funding for Islamic
rebels in the war-torn republic and recognized his government. That can only
bolster Al-Qaeda in its campaign inside the kingdom by convincing many Saudis
that their government is collaborating with those who seek to crush fellow
Wahhabis fighting the infidel.
Moscow's improving relations with Israel, despite
some tensions, underline how Russia's policies in the region are changing.
Israeli Prime Minister Ariel Sharon has visited Moscow three times since
his election in early 2002. Commercial relations are flourishing with trade
running at several billion dollars a year. Russia and Israel are collaborating
on programs that have strategic and military implications. Both states are
threatened by Islamic extremists, and the Israelis, busy fighting suicide
bombers, have been uncritical of Moscow's harsh measures against the Chechen
separatists. With Israel as a vital artery
for oil exports, the relationship is bound to consolidate, undoubtedly at
the Arabs' expense.
Ed Blanche, a member of the International
Institute for Strategic Studies in London, is a Beirut-based journalist who
has covered Middle Eastern affairs for three decades. He is a regular contributor
to THE DAILY STAR
Reported by IMRA (Independent Media Review & Analysis)
http://www.imra.org.il
imra@netvision.net.il
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