The West Aims to Rebuild Influence in Middle East Energy Hub with LNG Deals

• U.K.’s Shell and BP, Japan’s Mitsui, and France’s TotalEnergies have each taken a 10 percent stake in the Ruwais LNG project.
• Such deals may offer the U.S. and its key allies a new foundation from which they can begin to rebuild better and more equitable relationships in the Middle East.
• Crucially for the U.S. and its allies in this latter regard, the U.A.E. has long enjoyed a very close relationship with India.

The last few days have seen the U.K.’s Shell and BP, Japan’s Mitsui, and France’s TotalEnergies each take a 10 percent stake in the huge Ruwais LNG (liquefied natural gas) liquefaction plant project run by the U.A.E.’s flagship energy firm, the Abu Dhabi National Oil Company (ADNOC). The 9.6 million metric tons per annum (mtpa) has also seen several offtake and other agreements signed with Western firms (including Shell, Mitsui, and Germany’s Energie Baden-Württemberg and Securing Energy for Europe). Such deals may offer the U.S. and its key allies a new foundation from which they can begin to rebuild a broader and deeper relationship with this key Middle East energy hub.

From well before the U.A.E. became the first of four Arab countries in 2020 to sign a new set of relationship resumption deals with Israel – each brokered by the U.S. – it was seen by Washington as a key potential ally for the next stage of its Middle Eastern geopolitical strategy. Following the effective end of the Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) with Iran in 2018 after the U.S.’s unilateral withdrawal from it, and the intended dialling down of military activity in Tehran’s principal ally, Iraq, attention was to be focused by Washington on rolling out more of these relationship resumption-style deals across the region. Like China’s ‘Belt and Road Initiative’ (BRI), these would feature less military and more commercial levers to regain the influence that Washington had lost to Beijing and Moscow since the game-changing 2014-2016 Oil Price War, analysed in full in my latest book on the new global oil market order.

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Aside from the U.A.E.’s obvious potential to Washington as a possible intelligence conduit for Israel and the U.S., it offered several other advantages. One of these was the plethora of ports and storage facilities spread across its seven constituent emirates of Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain. Fujairah especially was recognised as having an extremely strategically advantageous position to deal with any potential oil supply disruptions that might come from the increasingly aggressive Iran after the U.S. withdrawal from the JCPOA. Located both outside the Persian Gulf and a healthy 160 kilometres from the Strait of Hormuz, Fujairah was also seen as unaligned to any possibly pro-Iranian country, such as Oman, which at that time was considering plans to cooperate with Tehran’s planned build-out of a world-scale LNG sector. The importance for the West of finding alternative transit routes for global oil flows increased again as the finalisation of Iran’s own game-changing crude oil storage, transport and delivery mechanism - the Jask Oil Terminal and the 42-inch Guriyeh-Jask pipeline - drew nearer.

Another advantage for the U.S. and its allies in having the U.A.E. embedded in its relationship normalisation deals’ alliance was that the country had sizeable oil and gas reserves in its own right. These could be utilised to compensate in part for the loss of supplies from countries in the region that were shifting into the China-Russia sphere of influence even before Russia’s invasion of Ukraine in February 2022. At around the same time as the relationship normalisation deal with the UAE was announced, ADNOC announced massive new oil discoveries, and a huge new investment programme, and received the go-ahead to award major oil and gas exploration blocks. These developments looked set to enable the company to reach and then surpass its then-new 5 million barrels per day (bpd) crude oil output target. This, in turn, was central to a new corridor of cooperation being developed from the U.S. (and Israel), through the U.A.E. (and Kuwait, Bahrain, and, in part, Saudi Arabia) to India, as a regional counterbalance to China’s growing sphere of influence, also detailed in my latest book. The 15 June 2020 clash between Chinese and Indian troops in the disputed territory of the Galwan Valley in the Himalayas, had signalled from India what the U.S. thought might be a new ‘push back’ strategy against China’s policy of seeking to increase its economic and military alliances through its BRI multi-generational power-grab project. The U.S. believed that this military push back might also be echoed in India’s economic desire to finally make substantive progress on its ‘Neighbourhood First’ policy as an alternative to China’s BRI programme.

Crucially for the U.S. and its allies in this latter regard, the U.A.E. has long enjoyed a very close relationship with India. Following the awarding of the U.A.E.’s Onshore Block 1 to India’s Bharat Petroleum Corporation in May 2019, the chief executive officer of the Abu Dhabi National Oil Company (ADNOC), Sultan Ahmed Al Jaber, highlighted that he looked forward to exploring partnerships with even more Indian companies across the energy giant’s hydrocarbon value chain. He added that he wanted this to include expanding the commercial scope of India’s vitally-important Strategic Petroleum Reserves (SPR) partnership. This was in line with ADNOC already being the only overseas company allowed at that stage to hold and store the country’s SPR. At that point, India’s government approved a proposal that would allow ADNOC to export oil from the SPR if there was no domestic demand for it. This decision marked a major shift in the policy of India in the handling of these vital energy reserves, with the country having previously banned all oil exports from the SPR storage facilities.

Washington’s initial optimism over its ability to turn the U.A.E. into an ally for all the seasons was severely dented in the run-up to Christmas 2021 when a U.S. intelligence report alleged the U.A.E.’s collusion with China to build a secret military facility around Khalifa port. Washington’s jitteriness surrounding this apparent drift of the U.A.E. to China was compounded by a broader feeling that this shift of allegiances was occurring more widely across the region, as further evidenced at around the same time by news that U.S. intelligence agencies had also found that Saudi Arabia had started to manufacture its own ballistic missiles with the help of China. Work on the port in the U.A.E. was supposedly abandoned shortly afterwards in 2021. However, a new report in April 2023 flagged new concerns from U.S. intelligence sources that construction had resumed at the site. According to that, China’s activities in the U.A.E. are part of the ‘Project 141’ programme to build a global military network that includes at least five overseas bases and 10 logistical support sites by 2030.

That said, Washington’s present view appears to be that a constructive re-energising of the once solid relationship with the U.A.E. might ultimately be the better strategy for the U.S.’s long-term interests in the Middle East. It already has some of its key oil and gas players on the ground in the U.A.E., in the shape of energy giants ExxonMobil and Occidental Petroleum. The former has been a major investor in the U.A.E.’s oil hub of Abu Dhabi and is still working closely with ADNOC on the world’s second-largest offshore oil field, Upper Zakum. The latter has an ongoing 30-year joint venture with ADNOC in Al Hosn Gas, a 35-year concession for onshore Block 3, and another 35-year concession to explore and develop onshore Block 5. It is also a partner with Mubadala and France’s TotalEnergies on Dolphin Energy Limited, which supplies natural gas produced in Qatar to markets in Oman and the U.A.E. and is working on major new renewable energy projects in the Emirate as well. As exclusively told to OilPrice.com by a senior Washington-based energy security source recently, the U.S. believes that its efforts of effect a lasting agreement to end the ongoing Israel-Hamas War might also allow for the beginning of a broader rapprochement with the U.A.E. that may allow it to regain some measure of political influence there. The U.A.E.’s big investment programme in its gas operations - US$13 billion in the next five years - and the huge Ruwais LNG project are also seen by the U.S. as a good way that it can start to rebuild a broader and deeper relationship with its once major Middle Eastern ally.

By Simon Watkins for Oilprice.com

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