https://oilprice.com/-By Simon Watkins
- The creation of a pan-Middle Eastern power grid is a step towards further regional integration.
- The GCC appears to be drifting towards China’s sphere of influence.
- Secret meetings in April 2021 between high-level Saudis and Iranian counterparts may lead to a new phase in relations between the two regional powers.
From almost the very moment that U.S. President Joe Biden took office on 20 January 2021, several major Middle Eastern countries have become more overt in declaring their independence from any notion of a U.S.-led sphere of influence involving them and in implementing policies that draw on the concept of a shared Arab identity. There are numerous examples of this that have been covered by OilPrice.com, but perhaps the most important from several perspectives were the secret meetings in April 2021 in Baghdad between high-level Saudis and their Iranian counterparts. Explaining these, Saudi Crown Prince, Mohammed bin Salman, said that he sought “good” relations with Iran and that: “Iran is a neighbouring country, and all we aspire for is a good and special relationship with Iran,…We do not want Iran’s situation to be difficult. On the contrary, we want Iran to grow … and to push the region and the world towards prosperity.” In practical terms, the most evident sign of what might be termed a new iteration of ‘Pan-Arabism’ can be seen in the plethora of deals between Middle East countries in oil, gas, and electricity, all part of the idea to create a pan-Middle Eastern power grid comprising the major Arab states, but also including the majority Persian Iran. In general terms, the ‘Pan-Arab’ ideology found its most powerful proponents recently in Egypt’s President from 1954 to 1970, Gamal Nasser, and then in arguably his ideological successor – Syria’s President from 1971 to 2000, Hafez al-Assad. Broadly speaking, both espoused the same idea of strength to be found in the political, cultural, and socioeconomic unity of Arabs across the different countries that emerged after the two World Wars and the pattern of decolonization that followed them. Among the most palpable signs of this movement at the time was the formation of the United Arab Republic union formed between Egypt and Syria from 1958 to 1961, the formation of OPEC in 1960, the series of conflicts with neighboring Israel over the period, and then the 1973/74 oil embargo. During this embargo, effectively the first ‘Oil Price War’, as analyzed in depth in my new book on the global oil markets, OPEC members plus Egypt, Syria and Tunisia began to block oil exports to the U.S., the U.K., Japan, Canada and the Netherlands. This was in response to the U.S.’s supplying of arms to Israel in the Yom Kippur War that it was fighting against a coalition of Arab states led by Egypt and Syria. The spiking effect in oil prices was exacerbated by incremental cuts to oil production by OPEC members over the period and by the end of the embargo in March 1974 the price of oil had risen from around US$3 per barrel (bp) to nearly US$11 pb and then it trended higher again. This in turn stoked the fire of a global economic slowdown, especially felt in the West.
Although some have pointed to the fact that the embargo ultimately failed in that it did not lead to Israel giving up all of the ground that it made in the Yom Kippur War, in a broader sense a wider war had been won by Saudi and its OPEC colleagues in that the balance of power had shifted between the big consumers of oil (mainly in the West at that time) and the big producers of oil (mainly in the Middle East at that point). This point was not lost on Saudi Arabia’s then-Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani – widely credited with formulating the embargo strategy – who highlighted that the embargo marked a fundamental shift in the world balance of power between the developing nations that produced oil and the developed industrial nations that consumed it.
This point was also not lost on the U.S. either, and particularly not on Henry Kissinger, who served as U.S. National Security Advisor from January 1969 to November 1975 and as Secretary of State from September 1973 to January 1977. At the time of the 1973/74 Oil Embargo, the U.S. lacked the crude oil production that would emerge with the shale oil boom that began in earnest in the last decade. Therefore, it was necessary for the U.S. to formulate a strategy that would make it very unlikely that the Arab states would ever again band together in such a way as to enable them to control global oil prices and, with that, to significantly undermine the U.S. economy and its political power across the world. Kissinger came up with effectively a variation of the ‘divide and rule’ concept – more palatably called ‘The Kissinger Doctrine’ of ‘constructive ambiguity’ – in which the U.S. (with Israel’s help) would exploit religious sectarian and ethnic faultlines that ran through the fabric of the Arab states. One early notable example of this was the U.S.’s sponsorship of then-Egyptian President Anwar Sadat’s enormously controversial visit to Israel in 1977 and the subsequent signing in 1979 of the Egypt-Israel Peace Treaty. This was guaranteed to cause seismic disturbances across the Arab world, which it did, and these divisions were then kept alive by the subsequent assassination of Sadat in 1981.
Biden’s negative comments about Saudi Arabia during his presidential election campaign appear to have caused a further rupture of the once-solid relationship between the Kingdom and the U.S. based on the agreement they reached in 1945, as also analyzed in depth in my new book on the global oil markets. Saudi Arabia has subsequently not only opened a dialogue channel with Iran and refused to take Biden’s phone calls on the subject of high oil prices but has also pushed for a broadening and deepening in the cooperation of the Arab states. The fact that the formal body for this cooperation – the Gulf Cooperation Council (GCC) – has appeared recently to be drifting toward China’s sphere of influence may be just a way for Saudi Arabia and the other states to signal to the U.S. that their days of being in thrall to Washington are over. Or perhaps it is a genuine move, as highlighted by the recent series of meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, and the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and “deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat,” according to local news reports.
In any event, Pan-Arab cooperation in creating a self-contained power grid are moving ahead apace, with Egypt and Jordan last week announcing that they are increasing cooperation in natural gas delivery projects inside Jordan with Egyptian expertise through specialised petroleum sector companies. Just prior to this, it was announced that Iraq has agreed to re-start the export of crude oil from Kirkuk to the refinery at Zarqa in Jordan. These two deals come after the announcement by Iraq that it had signed new oil deals with Jordan and Lebanon. Electricity supply originating from Iran is also factored into this deal, given that Iran historically has supplied Iraq with 30-40 percent of all its electricity needs, and has just signed the longest-ever single deal between it and Iraq to continue to do the same.
As exclusively highlighted by OilPrice.com at the time, Iraq’s then-Electricity Minister, Majid Mahdi Hantoush, announced that his country working on connecting its grid with Jordan’s electricity networks through a 300-kilometer-line – a project that was to have been finished within two years. He added that plans had been finalized for the completion of Iraq’s electricity connection with Egypt within the next three years. Jordan’s Zawati highlighted that the first phases of the project would enhance the stability and reliability of electricity networks in both countries, as well as adding impetus to the creation of a joint power market in the Arab world. Hawati added that this market should include Saudi Arabia, with which Jordan had just signed a similar agreement to connect the two countries’ electricity power grids.
This network is augmented by the parallel network connections that Iran has consolidated in terms both of direct electricity and gas exchanges, which include Turkmenistan and Turkey. These, said Iran’s then-Energy Minister, Reza Ardakanian in 2019, in the same vein as Jordan’s Hawati, would be part of the overall project to establish a joint Arab electricity market. At around the same time as the most recent deals, Saudi Energy Minister, Prince Abdulaziz, stated that Jordan and Saudi Arabia had launched a power interconnection project. Shortly afterward, Chinese State Councillor and Foreign Minister, Wang Yi, stated that China attaches great importance to the China-Jordan strategic partnership and the unique role that Jordan plays in international and regional affairs, whilst China – through Guangdong Yudean Group – was a key financier (US$1.6 billion) and partner in Jordan’s vital Attarat Power Plant shale oil-fuelled power plant.
By Simon Watkins for Oilprice.com