China is another player that is advancing its relations with the Middle East area. Energy is one important element of Sino-Gulf relations. Indeed, the relationship can appear as a natural fit. China is a fast-growing energy market, while the Middle East countries hold a significant portion of the world's oil and natural gas reserves and they are major producers and exporters. Beijing has become the world's largest oil importer, importing more than 11 million barrels per day in 2018 (BP 2020). The Middle East accounting for more than 40% of China's oil imports, explains the importance of Sino-Gulf relations. China's growing energy market is particularly important for Gulf countries, which struggle to secure energy exports. Saudi Arabia competes with Russia to rank the largest source of oil for China. Other Gulf countries export significant quantities as well. For example, Iran managed to continue exporting hydrocarbons to China, which provided vital financial revenues. China is also becoming a major LNG market, becoming one of the largest importers in the world with Japan and South Korea. That is particularly relevant for Qatar, which aims to gain market share through long-term contracts, as seen in the 22-year contract for LNG signed in 2018.

However, China's influence on the region does not end with energy. Between 2000 and 2017, trade between China and GCC countries has grown from just under \$10 billion to nearly \$150 billion per year (Fulton 2019). Moreover, China's foreign direct investment into GCC countries has increased, with over \$60 billion invested between 2005 and 2017. Chinese companies have won several major infrastructure construction contracts in the Gulf monarchies, such as the lead venue for the 2022 FIFA World Cup in Qatar, Lusail Stadium, or Saudi Arabia's Yanbu Refinery as well as the highspeed rail line that connects Jeddah with Mecca and Medina. Sino-Iranian relations have expanded significantly both politically and financially as well as from the energy perspective. The two countries signed a 25-year partnership agreement that envisages ambitious cooperation targets in the investment, economic, political and security fields.

Thanks to their geographical position, the Gulf countries could also contribute to the success of a major Chinese project: the Belt and Road Initiative (BRI). The Arabian Peninsula as well as Iran hold great geostrategic importance, linking South and Central Asia to the MENA region and further to the Mediterranean. Although the newcomers (Russia and China) have increased their stakes in the area, the US is still the dominant power in the Gulf. Washington guarantees security in the region, ensuring that oil chokepoints such as Hormuz remain open.

#### *5.1.2 GCC Crisis: Political Causes and Energy Implications*

The political and energy interests of the three main countries of the Arabian Peninsula (i.e. Saudi Arabia, the UAE and Qatar) have become increasingly conflicting as a result of growing intra-regional tensions. The major outcome of these tensions has been the crisis within the Gulf Cooperation Council (GCC) which started in 2017 and ended in 2021.

The GCC is a regional organization created by Saudi Arabia, the UAE, Qatar, Oman, Kuwait and Bahrain in 1981. These six countries decided to constitute the GCC motivated by the need for an effective collective security institution. Back then, the region had witnessed some major security developments: in 1979 the Islamic Revolution in Iran and in 1980 the beginning of the Iraq-Iran War. Thus, GCC countries were worried about how these developments could threaten their vital security interests.

Since the 2011 Arab Spring, the entire MENA region experienced an intensification of tensions and competition among its key regional players. As a consequence, in June 2017 Saudi Arabia, the UAE, Bahrain—along with Egypt—decided to cut off diplomatic relations with Qatar and imposed a land, sea, and air blockade on the peninsular Emirate, preventing any economic exchange with it.

The key reason for this dramatic decision was Qatar's alleged support to political Islam and extremism. Moreover, the core competition lies in the substantial differences in foreign and regional policy. For years, Qatar has operated as the main supporter of the Muslim Brotherhood, while Saudi Arabia and the UAE have seen the Muslim Brotherhood as an existential threat to their domestic stability and order. Moreover, the two blocs disagree on their approach towards Iran: Doha is more willing to adopt a cautious approach towards Tehran, whereas other Gulf monarchies look at Iran as a competing regional country and a security threat (*see* Sect. 5.1.3).

Although Qatar and Saudi Arabia had disagreements before, the GCC crisis came as a surprise for Doha. Saudi leadership was quite cordial to Qatar in the years before the blockade. Nevertheless, higher security concerns and increasing divergence on foreign and regional policies were exacerbated by the more assertive and personalized foreign policy of the new young regional elites, such as Saudi Crown Prince Mohammed bin Salman. He has undertaken to operate more actively and decisively on the regional stage, personalizing Saudi foreign policy.

Another source of higher security and political concerns has been the political vacuum left by the US, the traditional security guarantor. Although the US remain the main security player in the region, Washington has started to reconsider its role in the region's security architecture, aimed at avoiding additional conflicts and costs as well as repurposing its attention to other world regions (i.e. Asia). All of these elements led to a deterioration of intra-regional relations.

In January 2021, the GCC embargo was officially lifted at the 41st GCC Summit in al-Ula under the lead of Saudi Arabia which aimed to ensure its good will and standing with the new and more Saudi-skeptic administration in the US. Despite the positive development, the key issues that led to the blockade have not been resolved, meaning that renewed tensions could emerge among the countries in the future. Moreover, the crisis has reduced the relevance of GCC for Qatar. For example, the GCC no longer serves its purpose as security provider for Qatar. Indeed, the key security allies for Qatar are the US and Turkey. With Washington, Doha built a protective relationship when it signed the 1992 Defense Pact. The security relation was enhanced when in 2002 Qatar began hosting US forces et al.-Udeid, home to the largest US military base in the Middle East. Yet, during the first phase of the embargo, the US-Qatari relationship was questioned as President Trump expressed his support to the blockade. This political position shifted only after the intervention by then-Secretary of Defense James Mattis and then-Secretary of State Rex Tillerson (Smyth 2020). Over this period, Qatar and US have re-consolidated political relations with two state visits by Qatar's Emir to the US in 2018 and 2019.

The GCC crisis has pushed Doha toward other countries, making GCC countries less relevant for Qatar's trade and economy. By contrast, China, India, Iran and Japan are more important partners than the three hostile GCC countries (al-Jabar and Coates Ulrichsen 2020). After three years, the blockade has achieved little or nothing. Qatar has strengthened its relations with Turkey, increasing food imports, upscaling security as well as financial and economic ties. Moreover, Doha has begun using Iranian airspace for its flights and Iranian territorial waters aiming to avoid disruption to its energy exports. Moreover, the blockade decided by three GCC countries (Saudi Arabia, the UAE and Bahrain) did not receive the support of the other GCC members, while obtaining Egypt's solidarity, showing the limitations of their political decisions and actions.

Given the important role of the GCC countries in the oil and gas markets, at the time of the crisis outbreak, concerns were expressed about its potential spillovers to the energy sphere. However, these countries have managed to limit damages in the energy markets. Firstly, there are no substantial oil or gas exchanges between Qatar and Saudi Arabia or Bahrain. Thus, the political tensions between these countries have had limited impacts on their energy policies. However, Qatar does export gas to the UAE via the Dolphin pipeline.3

3 The Dolphin pipeline is a 364 km-long pipeline that starts from Qatar's North Field, reaches the Taweelah Power Station in Abu Dhabi, continues to Dubai and to the port of Fujairah Harbor and from there to Oman. It became operational in July 2007.

Despite the deterioration of the political relations between GCC countries, the contending countries preserved a pragmatic approach regarding energy relations. In 2019 Qatar exported 19.5 bcm to the UAE and 2 bcm to Oman. These figures illustrate that the ongoing GCC crisis did not affect existing energy relations. This is also due to the fact that Doha does not want to be seen as an unreliable supplier hence choosing not to shut down its gas flows to the UAE, albeit its great political isolation.

Nonetheless, future gas relations may be hindered by the remaining distrust among countries coupled with a shift in energy strategy. Indeed, the UAE's state-owned energy company, ADNOC, has recently expressed its intention to reach gas selfsufficiency. This strategy could undermine future gas flows through the Dolphin pipeline. Yet, questions over economics may arise as the pipeline provides cheap gas (still below \$2/MMBtu) to the UAE (S&P Global 2019).

Even though Qatar would represent one of the least costly solutions for GCC countries Bahrain, Kuwait and the UAE, thanks to short pipelines or existing LNG facilities, an interconnected gas network in the GCC has been hindered by Saudi concerns over Qatar's influence in the region. That was the case of the Qatar-Kuwait pipeline project. In the early 2000s, Kuwait and Qatar discussed the construction of a gas pipeline, but in 2006 the project was vetoed by Saudi Arabia forcing Kuwait to turn to LNG imports. On the other hand, Saudi Arabia and the UAE are committed to developing and increasing their domestic gas production, for example from the Jafurah shale development in Saudi Arabia or the Jebel Ali gas field in the UAE, even though production from these formations requires significant investments. In conclusion, Qatar represents the least costly solution for GCC gas ambitions, but political tensions and personalized foreign policy often undermine a political solution and an improvement of intra-GCC (gas) relations.

Although energy has not been an issue of the embargo, it is clear that the enormous role of natural gas for Qatar is a crucial element of inter-regional tensions. Natural gas, and the LNG industry, has allowed Qatar to amass vast financial reserves, which have been used to extend its soft power across the region, and pursue a more autonomous foreign policy vis-à-vis its neighbors, such as Iran. Saudi Arabia and Qatar represent two of the most relevant countries in the global energy system, with two opposite energy sources: Saudi Arabia holds a leading position in global oil markets, whereas Qatar in global gas markets.

As Sect. 3.1.2 explained, Qatar has developed its LNG industry since 1996, rapidly becoming the world's largest LNG player. In 2019, it exported 107 bcm of LNG, exporting 72 bcm to Asia and 32.2 bcm to Europe. Benefitting from its geographical position between Europe and Asia, Qatar has the possibility to implement a diversified strategy of energy security of demand and supply two major gas markets. However, its leading role in the global LNG market is threatened by the advent of other major LNG exporters, notably Australia, the US and Russia (Fig. 3.12, see Chap. 3 Sect. 3.1.2). These three countries, along with Qatar, are expected to lead the LNG industry in the upcoming years. All of them are increasingly looking to Asia, Qatar's main gas markets. Higher competition is likely to take place also in the European gas markets as LNG is seen as the main solution to reduce Europe's dependence on Russian gas in the medium term.

However, Qatar has taken courageous decisions during the embargo years despite low energy prices and an oversupplied market. In 2017, Qatar lifted its self-imposed 2005 moratorium on the expansion of North Field, which will expand its LNG export capacity from 77 million tons per annum (Mtpa) in 2017 to 110 Mtpa in 2026. In 2019, Doha announced a second stage that will ultimately increase output to 126 Mtpa in 2027. The expansion strategy aimed to use Qatar's numerous competitive advantages to respond to mounting competition from other LNG exporting countries despite low oil and gas prices. The first new volumes from North Field are expected to be available by late 2025. Moreover, Qatar is further consolidating its LNG position through the Golden Pass LNG project4 in Texas in collaboration with ExxonMobil— Qatar Petroleum's first overseas investment in a liquefaction project. The over 10 billion USD project has a capacity of around 16 Mtpa of LNG and exports are expected to commence in 2024. By 2024/25, Qatar is expected to regain its leading role in the LNG industry. Lastly, in 2018 Qatar decided to integrate its two energy companies (Qatargas and RasGas) in order to improve the efficiency of its energy industry and benefit from its several competitive advantages.

Throughout the years, Qatar has increasingly prioritized its gas industry over oil. This was clear when it withdrew from OPEC in 2018. Qatar was an OPEC member since 1961, and although it is not the first country to leave the organization, it is the first country from the MENA region to take such a decision. For oil markets, the decision has little relevance: in 2017 Doha produced 600 kb/d of crude oil, less than 2% of OPEC's oil output. It is more a political matter. The small emirate's decision was driven partially by its desire to free itself from transnational institutions that are under de facto Saudi leadership. Also, Qatar was able to withdraw from OPEC because it earns far more from natural gas and related liquid products than from crude oil. LNG provided 42% of export earnings for the country from 2013 to 2017 (Tsafos 2018). However, the role of gas is far more important than this as Qatar is a major producer and exporter of condensates and natural gas liquids, which can only be recovered by producing natural gas. On international markets, liquids command a much higher net-back price than gas. Moreover, Qatar is also home to the largest Gas-to-Liquids (GTL) plant—known as 'Pearl GTL plant'—jointly operated by Shell and Qatar Petroleum, which however is only profitable when oil prices are very high.

The leading role in the LNG industry has granted newfound political support since late 2021 when Europe has started to deal with rising energy prices and a growing political crisis, which erupted in 2022 with Russia's invasion of Ukraine. The US and the European countries have been courting Qatar to supply the European gas markets. Qatar expressed its availability to divert some LNG volumes to Europe if Russia decided to cut its gas supplies as geopolitical tensions were surging. This approach granted Qatar newfound status in the US as well. In early 2022, the Emir of Qatar visited the White House and US President Biden announced that the US

4 A joint venture between Qatar Petroleum (70%) and ExxonMobil (30%).

would grant Qatar the title of major non-NATO ally. This was also due to its crucial diplomatic role in key regional issues for the US: Afghanistan and Iran. In short, in just a year (2021–22), Qatar has managed to regain centrality in the political debate after the isolation period (GCC Embargo 2017–21).

The Ukraine war and the European Union's consequent wish to reduce as much as possible and as quickly as possible its gas dependence on Russia, is boosting Qatar's relevance in global LNG markets and helping to consolidate Doha's newfound political and strategic status in the West. Qatar holds extensive competitive advantages in the LNG industry as its LNG projects are generally attractive in economic terms, resulting in a lower effective average cost of LNG production compared to other competitors. This is also due to the production of condensate and natural gas liquids in association with natural gas. Moreover, Qatar is in a favorable geographic position between the two major global LNG markets—Asia and Europe—and thus able to play in both markets.

#### *5.1.3 GCC Versus Iran*

The animosity between most of the Gulf monarchies and the Islamic Republic of Iran has been a feature of the regional political competition since 1979. This can be attributed to the historical division between Sunni and Shiite. However, different Sunni countries do not share the same approach regarding relations with Iran. Precisely the different approach towards Iran is one of the main causes of the GCC crisis described in previous Sect. (5.1.2). Doha has adopted a cautious approach towards Tehran, eager to promote economic and cultural links. The Qatari approach is mainly motivated by the need to avoid collision with the country that controls the other half of the North Field (South Pars in Iran), which is the source of Qatari wealth. By contrast, other Gulf monarchies see Iran as a competing regional country and a security threat.

Since the Islamic Revolution in 1979, Tehran has felt isolated in the region due to constant pressure. Indeed, Tehran has attracted the animosity of the US, Gulf monarchies and Israel. Right after the Islamic Revolution, Tehran had to face the eight-year war against Iraq. As a response to these challenges, Tehran built a coalition of Shiite groups across the region as the foundation of its sphere of influence, and used those factions to shape events in the region (Friedman 2019a, b). The Iranian arc of influence covers Iraq, Syria, Lebanon and Yemen. However, though its influence in the region is large, it is far from absolute; it is indeed vulnerable to other powers' activities.

The US identifies Iran and its sphere of influence as a significant threat to U.S. interests and allies since the foundation of the Islamic Republic of Iran and the overthrowing of the Shah. Washington's main strategic goal in the region is to counterbalance Iran's influence and prevent any single power from dominating the region. This strategic opposition was sharpened by the US 'War on Terror' and the State of the Union speech given by President George W. Bush in 2002 in which he articulated the existence of an 'axis of evil', composed of Iran, Iraq and North Korea.

 Indeed, the US invasion of Iraq in 2003 created space for the empowerment of Shi'a parties supported by Iran, following the dismantlement of the Ba'ath regime of Saddam Hussein. Further pressure and enmity have occurred with the advent of the Trump Administration and its 'maximum pressure' strategy. Between these two phases of hostility, President Barack Obama tried to engage positively with Iran through an international agreement and by reducing the burden of economic sanctions on Iran's economy. With the election of Joe Biden in 2020, the US has recommenced nuclear talks and engagement with Iran with the aim to re-create the international framework on nuclear issues despite the numerous challenges.

Since the 1980s, sanctions have been an essential component of US policy towards Iran. At first, US sanctions were intended to prevent and cease Iran's support to terrorist groups and to limit its strategic power in the Middle East. Since the mid-2000s, the US and its international allies have imposed sanctions targeting Iran's nuclear program with the aim to persuade Tehran to agree to limiting it.

Sanctions have targeted several sectors of the Iranian economy, with a special focus on the energy sector given its great potential. Throughout the years, countries, mainly the US and the EU, and international organizations, such as the UN, have issued a complex set of sanctions that forced international companies to leave Iran, limited the international sale of Iranian oil, prevented American and European investments in the Iranian energy sector, excluded Iran from the SWIFT banking network, and effectively forced major European banks and insurance companies to stop dealing with the country.

International sanctions have strongly affected Iran's gas export potential as they have prevented access to the LNG technology. Indeed, Iran and Qatar, which share the North Field/South Pars field, have experienced opposite results in the LNG, with Qatar becoming the leading player while Iran holding zero LNG capacity. For many years, Iran has considered LNG exports in order to fully exploit its large gas reserves. The Iranian ambition clashed with the reality of international sanctions that stalled LNG projects over the past decades. An example, French's Total and Royal Dutch Shell had two projects, the 10 Mtpa Pars LNG and 16.2 Mtpa Persian LNG, respectively. However, they had to abandon them as sanctions intensified in the 2000s and early 2010s. International sanctions prevented the development of the two LNG projects under the management of the state-owned oil company NIOC due to the re-imposition of sanctions in 2018.

The sanctions enforced by the US and the EU in 2012 had negative repercussions on Iran's economy as well as on its oil and gas production. Iran's oil production declined to 2.7 mb/d in 2013, down from 3.7 mb/d in 2011 and Iranian exports of crude and condensate shrunk from 2.5 to 1.1 mb/d in the same period (Jalilvand 2018a). Iran tried to offset the negative consequences of international sanctions, creating a set of counter policies under the umbrella of the 'resistance economy' strategy. Under this economic strategy, companies affiliated to the Islamic Revolutionary Guard Corps (IRGC) sought to fill the gap left behind. However, neither IRGC nor the National Iranian Oil Company (NIOC) managed to counterbalance the loss of cooperation with Western companies. Indeed, Iran was unable to stop the decline of its energy industry under sanctions (Jalilvand 2017).

The Iranian energy industry experienced a spark of hope with the signing of the Joint Comprehensive Plan of Action (JCPOA), known as the 'Iran nuclear deal'. It was concluded in July 2015 between Iran and the 'E3 + 3', composed of the European countries France, Germany and the UK, along with the EU, and the world powers, the USA, China and Russia. The JCPOA was formally implemented on January 16, 2016. It allowed the lifting of several sanctions against Iran in exchange for limitations on, and greater international inspections of, Iran's nuclear program. Under the deal, European companies were allowed back to Iran, investments in the energy sector were possible again and restrictions on exports were no longer in place. Even though the JCPOA did not completely erase uncertainty and all contentious issues, its implementation attracted the interest of several international oil companies (IOCs) from around the world. Numerous companies began signing several memoranda of understanding (MoUs). Among these companies there were American-Dutch Schlumberger, British-Dutch Shell, Chinese CNPC, French Total, German Wintershall, Italian Saipem, Japanese Inpex, Norwegian DNO, and Russian Gazprom.

In July 2017, Iran reached a first and important milestone by signing a \$4.8 billion contract with Total and CNPC, which formed a consortium to develop the eleventh phase of the giant South Pars. The contract was welcomed enthusiastically at first, but it turned out to be the exception rather than the rule; indeed, it did not produce further deals with Western partners.

Total had a long history with Iran's energy industry, having developed the second and third phases of the South Pars field, and it was the last European company to leave the country in 2010. Additionally, Total affirmed that it could afford the initial investment of \$1 billion from the company's own cash reserves, overcoming a major obstacle to cooperation and investment in the country. Moreover, the decision to cooperate on gas rather than oil was probably motivated by the belief and hope that natural gas projects in Iran might be more acceptable to the US than oil (Jalilvand 2018b). Indeed, natural gas is mostly used for the Iranian domestic market, whereas oil is exported abroad providing hard currency for the Iranian regime. For example, in 2016, the IMF estimated that Iran's oil exports account for between 50 and 60% of total exports and almost 15% of GDP (Ratner 2018). This is the main reason why Washington imposed sanctions on Iranian oil, aiming at preventing revenues that could finance Iran's activities in the Middle East.

In March 2018, Iran signed a second contract with a foreign company, Russia's state-owned Zarubezhneft, marking a potential growth of international cooperation. The Russian company agreed to develop jointly with NIOC and private Iranian company Dana the Aban and West Payedar oil fields, both shared with Iraq. Under the 10-year deal, the Russian company had a stake of 80% (Jalilvand 2018a, b). Moreover, Zarubezhneft would have provided enhanced oil recovery (EOR) technologies that would allow adding 48,000 b/d to Iran's production from the two fields. The advent of a Russian company was a major news for Iran, representing Iran's ambition to diversify its international energy portfolio. Indeed, all previous international energy contracts were concluded either with Asian or (West-) European companies.

Meanwhile, the removal of several international sanctions contributed to the increase of domestic output (back to 4.5 mb/d in 2016) and its comeback into the international oil markets. Iran has increased its oil production to 4.5 mb/d in 2016.

The JCPOA was also a major change for US regional policy. It was at the heart of Obama's vision on the region. Obama decided to engage positively with the moderate and reformist area of the Iranian regime, led by President Hassan Rohani and Foreign Minister Mohammad Javad Zarif. However, the substantial change of the US Middle East policy caused alienation between Washington and its more traditional allies in the region, notably Saudi Arabia, the UAE and Israel. These countries expressed their great anxiety over the risk of the fading US security supervision within the region as well as its engagement with Tehran.

Saudi Arabia is seen as the regional nemesis of Iran. Traditionally, the 1979 Revolution is considered as the watershed moment in the region. This event certainly played a crucial role in shaping the relationship between the two countries. However, in the years before the revolution, both Iran and Saudi Arabia were seen as 'twin pillars' of Gulf security following the UK withdrawal from the region. In this security structure, Iran played a key role as a bulwark against the Soviet threat to the region (Mabon and Wastnidge 2020). Both countries had regional ambitions and roles as major oil producers. Nevertheless, as Riyadh began to assert its position as a key oil producer, it was able to undermine Iran's regional clout thanks to its role in the Arab oil embargo in response to the Yom Kippur War and its rapidly swelling coffers (*Idem*). Thus, in the lead up to the events of 1979, both states ramped up their military spending to reinforce their regional standing and domestic control. Since the 1979 Islamic Revolution, Saudi Arabia and the US has consolidated their security ties more and more.

Obama's decision to engage with Iran has shaken the traditional security and political structure of the region. Moreover, under the Obama Administration, the US foreign policy has begun to focus toward other areas, notably Asia (i.e. "pivot to Asia"). Simultaneously, in those years, the US had increased its oil and gas domestic production, resulting in a decrease of reliance to Middle East hydrocarbon imports. These transformations contributed to increasing uncertainty in the region, with Saudi Arabia and the UAE starting to fear that the US security umbrella would be reduced or worse. That led to a more assertive foreign policy undertaken by these regional players and their leadership. In this scenario, in 2015 Saudi Arabia and the UAE waged the Yemen war, seeking to restore the previous Yemeni government to power. The military operations targeted the Houthis group, backed by Tehran, starting another proxy war between Saudi Arabia and Iran.

However, the election of Donald Trump as President of the US in November 2016 marked the turning point of this region's politics. He has consolidated a strong (personal) relationship with the Saudi and Emirates leadership—particularly with the Saudi Crown Prince Mohammed bin Salman. An odd group of countries has been gathered around Trump's foreign policy toward Iran. Indeed, the strong animosity against Tehran was welcomed by Saudi Arabia, the UAE and Israel. Israel and the Gulf monarchies have begun a coordinated action against Iranian activities in the region, marking a major development in the region's politics. The three countries were particularly worried about Iran's nuclear program, criticizing the signature of the JCPOA. Thus, they found a new ally in Washington with the advent of Donald Trump. Indeed, during the presidential campaign and his presidency, Trump has openly criticized the Iran nuclear deal, condemning Iranian activities in the region against US interests and allies.

In the pursuit of reducing Iran's sphere of influence in the region, the Trump Administration established the so-called 'maximum pressure' strategy, designed by Ambassador John R. Bolton.5 Under this strategy, the US has re-imposed sanctions against Iran weakening the international architecture of the JCPOA. On May 8, 2018, the Trump Administration announced the immediate and full withdrawal from the JCPOA, resuming all nuclear-related US sanctions. To further put pressure on Iran, on November 6, 2018 Washington re-imposed all US secondary sanctions, which are applied also to third countries that have economic ties with Iran. The US has increased its pressure on Iran's energy industry through its unilateral sanctions. The US decided to prevent not only the international sale, but also exports of Iranian oil products and natural gas—unlike before the JCPOA (Jalilvand 2019). At the same time, the US decided to grant temporary sanctions waivers6 to eight importers of Iranian oil: China, Greece, India, Italy, Japan, South Korea, Taiwan, and Turkey. In doing so, these countries could continue importing Iranian oil for a period of 180 days.

Despite these concessions, the US decisions prevented Iran's full return to the international energy landscape. All IOCs left the country in 2018 and Iran's oil exports fell sharply. Crude oil exports collapsed from an average of 2.5 mb/d in 2017 to just around 1 mb/d in April 2019 (Greenley 2019). In the first half of 2020, Iranian crude and condensate exports averaged just 238,000 b/d, worsening Iran's economy. Oil and gas revenues brought in just \$8.9 billion for the last Iranian calendar year2, compared to \$27.8 billion in the year before—the last year before the renewed sanctions took effect.

The unilateral withdrawal from JCPOA reverberated also on transatlantic relations, with a political drift between Washington and its European allies. Indeed, Europeans expressed their commitment to keeping the JCPOA in place, supporting trade and investments with Iran. In August 2018, the EU introduced its Blocking Statute, asking European companies not to follow US sanctions. Yet, all European IOCs left the country and by February 2019 no Iranian oil reached European shores. As a consequence, Iran lost the European market which accounted for 25% of its exports in 2017 (Jalilvand 2019). Asian countries were also affected by US decisions. Most of them are also traditional allies of the US, such as South Korea, Japan and India.

Russia and its energy relations with Iran were affected too. On the one hand, Russia effectively cancelled its investment in Iran made by Zarubezhneft. On the other hand,

5 He served as the US National Security Advisor from 2018 to 2019.

6 The so-called significant reduction exemptions (SREs).

Russia has benefited to some extent from the US sanctions regime against Iran's oil and gas sector. The blockade of Iranian oil has left room for other producing countries, including Russia. As the grades of Russia's oil are similar to Iran's, Moscow has thereby contributed to replacing Iranian oil globally.

One major consequence of the maximum pressure strategy has been the increase of security concerns among US regional partners. Tehran has responded to increasing pressure with some important activities and operations in the region, which led to an intensification of tensions among regional players. Iranian activities and responses targeted both Saudi and international oil facilities as well as energy infrastructures. Additionally, Iran has decreased its compliance with some of the nuclear commitments of the JCPOA since mid-2019.

Since May 2019, Iran has staged operations in the region, increasing tensions on the global oil market. For example, Tehran targeted ships in port, then tankers in transit and finally it captured a British tanker and crew on the high seas. These activities were undertaken in the world's most important chokepoint for oil and gas trade: the Strait of Hormuz (Map 5.1).

Iran has always used the Strait of Hormuz as a strategic element of its security policy. It has never hesitated to use it as a geopolitical instrument for pressuring the change of US policies. For such reasons, every time tensions in the region rise, concerns about the chance of a closure of the Strait by Iran are expressed globally. Therefore, there is a direct correlation between the threat level perceived by Iran and the actions undertaken by the regime in the Strait. Its actions must be read with this lens.

**Map 5.1** Persian Gulf and the Strait of Hormuz. *Note* Location of terminal icons are indicative and not a precise location. *Source* https://fas.org/sgp/crs/mideast/R45281.pdf

The Hormuz Strait is a crucial element of the global oil and gas market. In 2018, the daily oil flow through this narrow passage—just 41 km wide at its narrowest point—averaged 21 mb/d, which accounts for about 21% of global petroleum liquids consumption. The top oil supplier through the Hormuz Strait is Saudi Arabia, followed by Iraq. Given the security risks, alternative routes are often considered by Gulf producers. Until 2021, the only operating bypass pipelines are of Saudi Arabia and the UAE: Riyadh has the East–West pipeline and the UAE controls the Habshan-Fujairah pipeline. However, these existing alternative routes are very limited and face some challenges.

The Saudi East–West pipeline carries crude to the Red Sea Yanbu ports, which have crude storage of around 22.5 mn b/d and can export in excess of 5 mn b/d. The pipeline delivered 1.53 mn b/d to refineries in 2018, which would still leave space for more than 3 mn b/d crude for exports—less than half of typical Saudi exports of 7 mn b/d. Saudi Arabia is boosting its Red Sea capacity by expanding the East– West pipeline to 6.5 mn b/d by 2023 in order to further reduce its vulnerability on Hormuz. Saudi vessels headed to Asian markets would need to pass through the Bab al-Mandeb. The Habshan-Fujairah pipeline links the onshore Habshan with the port of Fujairah located outside the Strait of Hormuz. Abu Dhabi typically exports up to 800,000 b/d from Fujairah, while total Emirati exports are typically around 2.4 mb b/d. Thus, the two alternative routes could accommodate an additional 3.5 million barrels per day. However, to put into context, it corresponds to only 17% of current Hormuz oil exports (Schaus 2019). Furthermore, also these routes have been targeted by some attempted attacks, leaving the security concerns unanswered. Indeed, the Bab al-Mandeb is a perilous stretch of water and there have been episodes of attacks to Saudi tankers in July 2018 when transiting the passage.

In July 2021, Iran itself has built and inaugurated its first oil export terminal on the Indian Ocean. The Bandar-e Jask terminal cost \$2 billion and is located at the end of the 1,100 km-long Goureh pipeline (with a transmission capacity of 1 mb/d) in the Gulf of Oman (Map 3.2 in Chap. 3 Sect. 3.1). Obviously, the construction of the terminal is not motivated by security concerns over blockade, but it can provide new room for future periodic threats from Iran to block Hormuz. Indeed, until the commissioning of the terminal, Iran would have blocked also its own oil export.

It is clear that a potential closure would have important consequences for importing countries depending on the degree of reliance on oil or gas imports from this area. From this perspective, Asian countries are more reliant on the hydrocarbon trade through Hormuz than Western countries (Fig. 5.2). In 2018, 76% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets; with China, India, Japan, South Korea as the largest destinations (accounting for 65% of all Hormuz crude oil and condensate flows in 2018). In terms of volumes, China is the largest importer of oil from the region, but it is not the most reliant country on these flows given the size of its overall oil demand. Japan, South Korea and India are particularly dependent on these exports. The US still imported 1.35 mb/d in 2018 (Schaus 2019).

Thus, Japan, South Korea and India have an immediate vulnerability to any potential disruption at the Strait. However, an extended disruption would have pricing

**Fig. 5.2** Asian Importers rely heavily on Hormuz Export Flows. *Source* CSIS research and analysis using data from EIA, IEA, PPAC, KEEI, and PAJ; John Schaus and Andrew J. Stanley, "Oil Markets, Oil Attacks, and the Strategic Straits," CSIS, CSIS Commentary, July 19, 2019, https://www.csis. org/analysis/oil-markets-oil-attacks-and-strategicstraits. Reprinted with permission

impacts not limited only to these markets but globally. The Asian economies would feel more economic pressure, while the US could have some benefits as exporter. However, also the US economy would be affected to some extent by higher prices, as the entire world's economy.

The Strait of Hormuz is critical also for the global LNG trade. Indeed, the Middle East accounted for 26.3% of global LNG exports in 2018, being one of the main supply sources of LNG in the world. Qatar exported 76.8 Mt (24.5% of global LNG exports), while UAE exported 5.5 Mt (1.8% of global LNG exports). These LNG volumes must pass through the Hormuz Strait. Although the maritime natural gas trade through the Hormuz Strait represents a relatively small proportion of global natural gas trade (8.4%), any disruptions to these flows could have severe energy pricing impacts for LNG dependent importers. Of the top 10 importers of Qatari LNG (the main source from Hormuz), eight are Asian countries and two are European, stressing the shift of destination of Qatari LNG throughout the years (Table 5.1). This could potentially change in the future as Europe seeks to import high LNG volumes to reduce its overdependence on Russia's gas.

However, the world today is very different from the one of 1973. Recent assertive operations along this narrow passage had a smaller impact on oil prices. By contrast, geopolitical risks added a premium to oil prices in the 1970s. Today, climate policies and technological developments are expected to drastically reduce the use of hydrocarbons. Moreover, over the period 2015–2020, both oil and gas markets witnessed an oversupply condition with low prices. Therefore, assertive operations along this narrow passage had less impact than those back in the 1970s. Nevertheless, some **Table 5.1** Top 10 importers

*Source* Authors' elaboration on GIIGNL

countries are concerned about regional tensions in the Hormuz Strait, especially those that rely heavily on oil and gas flowing through the Strait and that could be harmed by potential disruptions. In 2018, 76% of the crude oil and condensate that moved through the Strait of Hormuz went to Asian markets; with China, India, Japan, South Korea as the largest destinations (accounting for 65% of all Hormuz crude oil and condensate flows in 2018). A different scenario would be a closure of the Strait, which currently seems unlikely. A complete blockade of transits through Hormuz would cause major oil and gas price spikes and potential disruptions due to the relevance of exporting countries in this region for the global oil and gas markets.

China has been a major importer of Iranian oil, helping the Iranian regime to collect revenues that are vital for its economy. Following the JCPOA, China's CNPC entered the Iranian upstream sector through the international consortium with Total for the development of the eleventh block of South Pars. Beijing has also been one of the top importers of Iranian oil. In 2018, Iran exported around 650,000 b/d of oil to China (S&P Global 2020a, b). However, Iranian oil exports to China were severely hit by US sanctions. Indeed, in the second half of 2019, Iranian crude and condensate exports declined to around 225,000 b/d down from around 400,000 b/d in the first half of the year (*Idem*). Moreover, CNPC left the consortium for the development of the eleventh block of South Pars, following Total's withdrawal in August 2018, showing the Asian buyers' sensitivity to US sanctions.

Moreover, China must face a broader and increasing political confrontation with Washington. Since Beijing is one of the most relevant importers of Iranian oil, China will want to avoid Iran's crude imports getting caught up in the broader US-China relations—mainly in light of the risk to its large energy traders—even as negotiations with the US have once again reached a dead-end (Meidan 2019).

An example is the US Department of State's announcement on July 22, 2019 concerning its decision to impose sanctions on a Chinese trader, Zhuhai Zhenrong, and its chief executive for knowingly purchasing or acquiring oil from Iran, contrary to US sanctions (*Idem*). The US decision was driven by the need to pursue its maximum pressure strategy. Meidan (2019) explains that the US decision may be seen as a sign of further escalation in the already fraught relations between the US and China, but in reality the choice of Zhuhai Zhenrong allows both the US and China to maintain opposing diplomatic stances on Iran, without further damaging their increasingly tense bilateral relations. Indeed, Zhuhai Zhenrong has limited exposure to the US market, so the designation is effectively meaningless (*Idem*). Despite the effects of these sanctions, Beijing will therefore tread carefully with its Iranian imports.

Regional tensions reached a new level on September 14, 2019, shaking the oil markets. On that day, a drone and missile strike hit Saudi Arabia's Abqaiq and Khurais oil facilities. Iran's direct (or indirect through its proxy) role in the attacks was a critical development in the region's politics and in the global energy system. Indeed, Friedman (2019a, b) explained that Iran aims at generating pressure on the US to ease US pressure on the Iranian economy. Tehran identified Saudi Arabia as both vital to the anti-Iran coalition and yet vulnerable to regional tensions. Additionally, Tehran evaluated that Saudi is most vulnerable in oil revenue. So, it supported the attack in order to demonstrate the vulnerability of the Saudi oil industry, while reducing Saudi oil production and inflicting real pain (*Idem*). Indeed, Abqaiq is the most important oil facility in Saudi Arabia; the plant has a processing capacity of 7 mb/d. Although it was running at 4.5 mb/d at the time of the attack, its capacity accounted for more than 50% of the Kingdom's output (MEES 2019a, b, c). The Saudi Energy Minister affirmed that the attack curtailed Aramco production by 5.7 mb/d to around 4.1 mb/d, implying that the Khurais facility operated at 1.2 mb/d at that time (*Idem*). Despite its profound significance, the action had only a limited effect on the global oil market and on oil prices. Also, the US did not respond as strongly as they would have done in the past. This can be mainly motivated by the impressive growth of US domestic oil production, which has reduced Washington's vulnerability and produced a more assertive foreign policy.

The greater assertiveness of US foreign policy thanks to its oil production was reaffirmed by a remarkable operation. On January 3, 2020, the US killed Iranian Lieutenant General Qassem Soleimani, head of Iran's Islamic Revolution Guards Corps (IRGC) Qods Force, with an air strike at the Baghdad International Airport. It was an unprecedented event, given the relevance of the target. The air strike produced a sense of uncertainty on the GCC countries and US regional allies, which called for a de-escalation of regional tensions. Indeed, the Sunni countries have begun to fear a military escalation between the US and Iran, especially after Iran demonstrated its capability to target both Saudi and Emirati shipping and assets. This risk persuaded leading GCC players to take a more prudent approach, adopting a relatively conciliatory tone.

With the election of Joe Biden, the US has restarted talks with Iran in Vienna aimed at re-establishing the JCPOA. A potentially renewed JCPOA could contribute to bringing Iranian hydrocarbons back to the international energy markets. Yet, the diplomatic effort faces several challenges. Within the US, Republicans have expressed their opposition to the deal, while in the region the US needs to address Gulf countries' concerns. Lastly, Western sanctions imposed on Russia following its invasion of Ukraine have driven Russia to abandon its facilitating role in Iran's nuclear negotiations. Moscow has requested Western governments guarantees that the sanctions related to the Ukraine invasion do not affect and threaten Russia's relationship with Iran. In doing so, Russia has limited the potential comeback of Iranian oil into the world's tight market and halted the negotiations.

#### **5.2 Mashreq**

The East Mediterranean cluster, which in this book comprises Egypt, Iraq, Israel, Jordan, Lebanon, Palestine and Syria, has been characterized by rising geopolitical tensions and energy hopes. Over the past decade, energy and power politics have shaped major developments in the area. A growing number of exploration and production activities in the Eastern Mediterranean Sea have brought several oil and gas discoveries offshore Egypt, Israel and Cyprus. Meanwhile, Iraq and Syria have experienced serious social unrest and military conflicts within their borders, which reverberate throughout the entire region.

Cooperation and competition have developed often around energy as it plays an important role in the area. In this cluster, Iraq, Egypt and Syria are traditional hydrocarbon producing countries, while Israel has become a gas producing country only in the last decade. By contrast, Lebanon and Jordan have not found exploitable reserves so far. Old and new regional competition meddles with new energy discoveries and regional energy potential. This section will analyze first two of the traditional hydrocarbon producers in the area: Iraq and Syria. The other major hydrocarbon producer, Egypt, will be analyzed with special emphasis on the East Mediterranean gas saga, which started around 2010.

#### *5.2.1 Oil and Gas Sector in Conflict Countries: Iraq and Syria*

#### • **Iraq**

Within the East Med cluster, Iraq stands out as a major oil player. Iraq holds a great amount of reserves of oil and gas (145 thousand million barrels and 3.5 trillion cubic metres at the beginning of 2020, respectively). Iraq holds the world's fifth largest proven oil reserves, accounting for around 10% of the global total. Most of its resources are considered as the world's least expensive and easiest oil to extract. Although these reserves are geographically dispersed throughout the country, the majority is located in the south, concentrated in and around the city of Basra, while 17% are found in the north. According to the IEA (2019), Iraq's oil fields in the South contain abundant conventional, low-cost onshore oil resources. This area are also includes the "big 4" oil fields of Rumaila, West Qurna, Zubair and Majnoon. The "big 4" fields combined account for 60% of Iraq's oil production in 2018, and an estimated 70% of the increase in Iraq's production to 2030 (*Idem*).

Rumaila and West Qurna are ranked among the top-15 largest oil fields globally based on remaining reserves. By contrast, just under a fifth of Iraq's production in 2018 came from the North, primarily from the Kirkuk and Bai Hassan fields. The area of Kirkuk is where Iraqi oil was first discovered in 1927, but the area is at the heart of the dispute over land rights and oil revenue sharing between the central government in Baghdad and the Kurdistan Regional Government (KRG) in Erbil, which delayed the development of the region's resources. It has been further frustrated by the battles against ISIS in the 2014–17 period.

However, Iraq's oil production and exports have consistently lagged behind the potential of its resources. For example, Iraq's oil output (1.3 mb/d) did not diverge widely from that of Saudi Arabia (2.2 mb/d) in the mid-1960s; but Iraq had reached only 2 mb/d in 1973 while at the same time Saudi production was close to 8 mb/d (IEA 2012). Additionally, three wars (against Iran from 1980 to 1988 and US-led coalition forces in 1991 and 2003), international sanctions and internal instability have prevented Iraq's oil output expansion. For example, Iraq had some success in the 1970s, bringing oil towards the strategic goal of creating a 5.5 mb/d production capacity by 1983 formulated at that time. However, this goal was never reached because of the Iran-Iraq war. The war reduced Iraq's production to 1 mb/d, with exports collapsing from 3 mb/d to 750,000 b/d. A subsequent plan to raise capacity to 6 mb/d by the mid-1990s was once again not realized, because of the First Gulf War in 1991. The US-led Operation Desert Storm inflicted severe damages on Iraqi oil infrastructure. Lastly, Iraq's oil output suffered another major setback following the US-led invasion in 2003 and the collapse of the former Hussein regime. Indeed, it fell from 2.5 mb/d in the early 2000s to approximately 1.4 mb/d after 2003.

Conflicts and regional politics have also affected Iraqi export growth and potential routes, particularly from the northern region. Indeed, oil produced in the southern regions is exported via sea from the Basra and Khor al-Amaya ports. However, the existing infrastructure does not provide adequate capacity for the potential growth of export volumes. Instead, most of Iraq's major crude oil pipelines are located in the north (Map 5.2).

The Iraq-Iran War altered the Iraqi pipeline map. At the time, Iraqi oil moving eastwards via Syria was blocked due to President Hafez al Assad's support to Iran during the conflict. Therefore, with no viable export route for Iraqi oil through Syria, Baghdad increased its reliance on Turkey via the Iraq–Turkey pipeline (whose capacity was raised from 750,000 b/d to 1.5 mb/d) (Mehdi 2018). Additionally, Baghdad tried to further diversify its export routes striking a deal with Saudi Arabia to have a pipeline from southern Iraq to the Saudi Yanbu port on the Red Sea. It was commissioned in 1990 but closed and expropriated by Riyadh after the Iraqi invasion of Kuwait (IEA 2019).

Iraq's oil exports are mainly shipped to Asia, which accounts for over 60% of its total crude oil exports, while Europe is the destination of 25% of Iraq's crude oil

**Map 5.2** Iraq's oil and natural gas infrastructure. *Source* https://www.eia.gov/international/con tent/analysis/countries\_long/Iraq/iraq\_bkgd.pdf

exports. Asia, China, India and South Korea are the key buyers of Iraq's crude oil, with China and India importing almost 1 mb/d each.

Despite damages due to conflicts and impressive domestic challenges, Iraq has been able to nearly double its oil production over the past decade to 4.7 mb/d, accounting for a fifth of the net increase in global supply. In 2019, Iraq ranked as the fifth-largest source of global oil supply (IEA 2019). The recent growth cemented Iraq's position as OPEC's second largest producer, with federal production capacity just under 5 mb/d as in early 2020. Oil production growth has produced an increase also in the export volumes, with southern exports passing from 1.7 m b/d in 2007 to an average of 3.5 m b/d in 2019.

Oil and gas are core pillars of the country's economy, accounting for almost 60% of the country's GDP, 99% of export earnings and 90% of government revenues, making the Iraqi economy one of the most oil-dependent in the world (IEA 2019). At the same time, this abundance is also Iraq's Achilles' heel due to poor management and its unstable political economy. Following a "pro-cyclical" fiscal policy, the Iraqi economy suffers the volatility of oil prices, especially when oil prices fall under its breakeven fiscal price undermining the government's expenditures and plans to improve the living standards of its own citizens.

Moreover, the Iraqi energy sector must deal with some challenging features. Iraq's oil sector has been undergoing a significant upstream growth, while its midstream and downstream have failed to keep pace. Unlike its upstream regional peers, Iraq is the only major producer heavily reliant on refined product imports, reflecting an underdeveloped refining system and a misalignment between the production yield of Iraq's refining output and its domestics demand (Mehdi 2018).

The hydrocarbon industry is also at the center of a national political debate between the central government in Baghdad and the KRG in Erbil. Baghdad and Erbil have debated strongly over the control of the resources and their revenues. Under the 2005 Iraqi constitution, KRI enjoys considerable administrative autonomy. However, relations between the KRG and the central government are shaken by issues concerning territory, energy and revenue sharing. As already mentioned, Erbil and Baghdad fight over the control of the oil-rich area of Kirkuk. In 2014, the Iraqi military abandoned Kirkuk, as ISIS was emerging and expanding across the area. The Kurdish Peshmerga units fought against ISIS and regained control over the area. From that moment on, the Kirkuk oil has been sold by the KRG rather than the central government. This has inevitably ignited Baghdad's opposition. In 2022, the Federal Supreme Court ruled Iraqi Kurdistan's 2007 oil and gas law unconstitutional. The law regulates the Kurdish oil sector and is the basis for foreign companies' investment in the region.

Oil is essential for the cash flow of both Baghdad and Erbil, but the two entities disagree over oil export revenues. In September 2017, the KRG held a controversial advisory referendum on independence, amplifying political tensions with the national government. As a response, the Iraqi military forces reentered some disputed territories, regaining control of some oil fields in the region. The two entities have extensively discussed revenue sharing and exports of oil and gas produced in the country. In 2018, the central government and the KRG reached an agreement to resume the export of Kirkuk oil to Turkey's Ceyhan port via the KRG pipeline, which can handle up to 1 mb/d of export flows (IEA 2019). Regarding export routes through KRI, Russia has risen as a potential broker of a deal between Baghdad and Erbil.

Moreover, Iraqi ambitions to increase its oil production in the future cannot be translated into reality unless significant quantities of water are available for field injection. Indeed, many of Iraq's oil fields have relatively low recovery factors. Therefore, secondary oil recovery is needed to boost recovery factors and maintain or increase production rates. Being essential for secondary oil recovery, water availability and supply are great concerns for the Iraqi oil industry and IOCs in the country. For example, plans were drafted in 2011 to build the Common Seawater Supply Project (CSSP) that would process seawater from the Gulf and transport 5 mb/d of treated seawater to the largest oil fields in the South to be used for injection. IEA (2019) estimated that in total, by 2030, over 8 mb/d water will be required for Iraq's oil production, up from 5 mb/d used in 2019.

Contrary to its well-developed oil sector, Iraq's gas sector has been ignored for a long time. Its reserves and production are large, but Baghdad has not been able to use it efficiently and sufficiently. The vast majority of its gas reserves is associated gas, with some significant reserves of non-associated gas. Since Iraq does not have adequate infrastructure in place to allow the production of associated gas and provides few incentives to produce and use it efficiently, Iraq flares a large portion of its gas production, ranking as the world's second-largest source country of flared gas in the world behind Russia. However, natural gas would be highly beneficial for Iraq's economy and independence. As of today, Iraq continues to suffer power shortages, which often lead to social unrest like that occurred in Basra in mid-2018.

The great potential of Iraq's oil and gas industry has attracted several foreign companies and actors. Some IOCs have invested in the promising Iraqi oil upstream sector. The IOC operations in Iraq are governed by the Technical Service Contract (TSC) model. Under the TSCs5, IOCs are reimbursed for their production costs on a quarterly basis and receive a taxable remuneration fee on incremental production, meaning production above pre-contract levels. The big 4 fields (Table 5.2) are operated by ExxonMobil (West Qurna-1), BP (Rumaila), Eni (Zubair) and Lukoil (West Qurna-2).

IOCs have contributed to sustaining and developing Iraq's oil sector. Also, the natural gas sector has attracted some major international companies. For example, Shell decided to end its oil activity in Iraq but it is the most active IOC in the gas sector through its gas-capture program in Basra, which is jointly operated with the Iraqi government (the Basrah Gas Company) (IEA 2019).

Furthermore, Baghdad's energy sector is caught up in the competition between Washington and Tehran. Iraq relies heavily on Iran both for electricity and natural

**Table 5.2** Companies in Iraq's "big 4" fields

*Source* Authors' elaboration

gas. As previously mentioned, Iraq flares the vast majority of its gas output and at the same time imports gas from Iran. In 2019, Baghdad received around 7 bcm of gas and 1.57 GW of electricity. Some experts have estimated that Iran, directly and indirectly, met a whooping 28% of Iraq's peak summer power supply (MEES 2020a). The US seeks to create and support a strong Iraq, capable of tackling Iran's expansion activities in the region.

Because of its geographic location in the center of the Levant, Iraq has long been a key state in the Middle East balance of power. Moreover, additional geographical features (proximity to the Mediterranean, an easy access to the Persian Gulf, abundance of proven oil and gas reserves) make Iraq an interesting state for regional stability and competition. Therefore, Iraq has been in the midst of the competition between the US and Iran, being a key part of the Middle East strategies of both countries. Both US and Iran want to prevent Iraq from becoming too powerful as it was between the 1980s and 2000s, but their approach towards Iraq diverges. Iran seeks to project its influence across the region; thus, it wants to keep Iraq fragmented and easily exploitable through the support of Shia militias in the country. Inversely, the US wants to strengthen Iraqi institutions in order to weaken Iranian influence in the country. In doing so Baghdad will be able to stand on its own again, frustrating Iran's plans. This strategic goal will enable the US to achieve its long-term objective to reduce its presence in the region (Rose 2020). With this strategy, the US aims at reducing the use of hard-power projection in the region, choosing to rely on soft-power as its primary tool of influence in the Middle East. Given the great competition between Iran and the US in Iraq, energy ties between Baghdad and Tehran produce concerns in Washington for two reasons: firstly, because Baghdad is considerably dependent on its neighbor, which can try to exploit this advantage; and secondly, because Tehran can collect revenues from its exports to Iraq, undermining the US "maximum pressure" strategy. Nevertheless, Iraq has sought relief from US sanctions on their imports from Iran since 2018. In 2020, following the formation of the new Iraqi government, the US granted Baghdad another sanctions waiver (for 120 days) to continue importing natural gas from Iran. The US keeps granting Iraq waivers as long as they make long term progress toward independence for its energy sector. Iraq is trying to keep its promises, ending imports by 2022 and relying solely on domestically produced gas. Despite the effort, the target seems unreachable in the short term. Baghdad is too dependent on Tehran and the interruption of gas imports would provoke power shortages and social unrest.

For these reasons, the Trump Administration promoted and invited US companies to aid Iraq's power generation capacity and gas sector to help Iraq achieve energy independence. The US companies can provide the expertise and investment that Iraq's oil and gas sectors are desperate to attract. Yet, the Administration's praise has very limited positive results as the US firms still hesitate to invest in risky Iraq. Domestic instability, security concerns and the unfavorable investment environment make IOCs unwilling to enter the country. For example, Exxon Mobil was awarded the Common Seawater Supply Project (CSSP) in 2010, but Iraq suspended the project contract in 2011 after Exxon signed an oil extraction deal with KRG in the north (the Pirmam block). Four years later, Exxon reportedly re-entered the project, but little progress has been made. In 2019, ExxonMobil was given the initial government nod for its involvement in the South Iraq Infrastructure Project (SSIP), which could contribute to the positive development of the Iraqi energy sector. However, the presence and future investments of US companies might suffer setbacks due to security concerns as well as unstable and unfavorable conditions.

A potential supporter of Iraq's energy independence could surprisingly be Iran's bitter rival Saudi Arabia. Indeed, Saudi Arabia and Iraq have halted bilateral relations since 1990. However, there was a rapprochement in 2015. That year, Saudi Arabia returned an ambassador to Iraq after an almost 25-year absence. A Saudi-Iraq rapprochement has always been called by the US, in the belief that it could undermine and curtail Iran's influence in the country. However, the US decided to apply a more pragmatic diplomacy in Iraq, abandoning its assertive foreign policy against Iran, which has produced no remarkable success so far (i.e. Yemen War, Lebanon and GCC crisis against Qatar) (Mansour 2018). Saudi Arabia has some political and economic tools to gain influence in Iraq. Firstly, it can exploit the growing intra-Shia rift in the country. Indeed, numerous protests have taken place in Iraq against the elite, criticized of being too dependent on and influenced by Tehran. Secondly, it can propose strengthened integration, establishing interdependencies with Baghdad and weakening the role of its regional antagonists Turkey and Iran. Iraq would welcome Saudi investments in its oil and gas sector as well as in the reconstruction process, and Saudi Arabia would be pleased to reduce Iran's influence in the country. One sector in which the mutual goals could be easily achieved is power generation. If Saudi Arabia helps Iraq overcome its lasting electricity shortages, it would be a major diplomatic success. In this context, through the GCC Interconnection Authority (GCCIA) Saudi Arabia and its allies have already agreed to help Iraq providing 1 GW via Kuwait to Basra (MEES 2020b). Moreover, a separate agreement could see Saudi Arabia provide additional electricity via its grid at Arar within a year. These projects could result in Saudi Arabia and the GCC supplying 10% of Iraq's electricity demand (*Idem*). This would be an important step toward deepening Saudi-Iraq relations; however, it is unlikely to wean Iraq off Iranian electricity imports in the short-term.

In 2021, Total signed with Baghdad a \$27-billion deal to invest in oil, gas and renewables in the country. This represents a new formula of major deal, addressing both fossil fuels and renewable energy, to help Iraq improve its electricity supply. Under the deal, the French energy major plans to initially invest \$10 billion in infrastructure, which will then allow a second round of investment of \$17 billion. The first investments cover: (i) increasing oil production capacity from the Ratawi oil and gas field in the Basra province from 85,000 b/d to 210,000 b/d of crude oil; (ii) new gas gathering networks and treatment units to supply local power stations and optimization in the oil and gas production; (iii) the construction of a water injection facility for reinjection into oil reservoirs; and (iv) 1GW solar facility for power generation.

Besides the US (and Saudi Arabia) and Iran, other countries are interested in the Iraqi energy sector, albeit the numerous challenges. Russia and China are two of the most relevant countries in Iraq. These two countries began to enter the Iraqi energy sector when Saddam was in power. Indeed, Saddam signed two major Production Sharing Contracts (PSCs) with Russian and Chinese companies in the 1990s. One of these was with Lukoil for West Qurna, while the other with CNPC for Ahdab. The choice of Russian and Chinese companies was due to sanctions. Whilst Lukoil's contract was cancelled in 2002 for failure to perform, the PSC with CNPC was renegotiated as Iraq's first major Technical Service Contract (TSC) in 2008.

Energy is a key pillar of bilateral relations: Russia has invested more than \$10 billion in Iraq's energy sector over the last decade. Moscow has sought to gain influence in the country since 2003, when the new government in Baghdad cancelled many of the Saddam Hussein-era energy contracts. In 2008, Russia agreed to write off most of Iraq's \$12.9 billion debt in exchange for a \$4 billion oil deal that included access of Lukoil to the West Qurna-2 field. Lukoil has managed a 75% stake of the giant oilfield since Equinor left in 2012. Furthermore, Russian companies have gained relevance also in the KRG since 2012. Russian companies have increased their footprint as American and Western energy companies began to decrease their presence due to security concerns—especially after 2015/15 due to ISIS—and recent major discoveries around the world. Lukoil and Gazprom Neft entered the energy market of the KRI in 2012 and have won a number of contracts since (Sassi 2019). Lukoil played an important role also in exploration activities. In 2017 it discovered the largest Iraqi oil field of the last 20 years, Eridu, whose reserves were estimated to be as high as 7–10 billion barrels. The field is operated by Lukoil (60%) and Inpex (40%). Gazprom Neft participates in several oil and gas projects in the region (the Garmian and Shakal blocks), but it faces logistical and security concerns that delay the progress. Gazprom Neft is also developing the Badra oil field in eastern Iraq.

In recent years, the Russian giant oil company, Rosneft, has stepped up as a leading partner for the energy sector of both central government and KRG, signing oil contracts with both entities. However, since 2017, Rosneft has surged as a main investor in Iraqi Kurdistan. Indeed, it has invested a significant amount of money securing a solid position in the area. Between 2017 and 2018, Rosneft has signed multiple deals with the KRG for a total value of about \$3.5 billion. This represented a potential lifeline for KRG energy development. Firstly, it signed a contract for the purchase of Kurdish oil in February 2017. Rosneft lent Kurdistan around \$1.2 billion to cover the region's budget deficit. In October 2017, the KRG allowed Rosneft to carry out exploratory work covering five blocks within its territory under a PSA. The contract was estimated at \$400 million. In October 2017, Rosneft has agreed to take control of Iraqi Kurdistan's main oil pipeline, which connects the Kirkuk oil area to Turkey's Ceyhan port. Rosneft owns 60% of the pipeline while the KAR Group retains 40%. The investment was about \$1.8 billion. The role of Rosneft in the Kurdish oil export lines provides Russia with a degree of leverage with Baghdad, placing Rosneft and Russia at the center of talks between Baghdad and Erbil.

Rosneft has also consolidated its activities in the rest of the country, balancing its support to the Kurdish area and the central government. It discovered new reserves in Block-12, in south-eastern Iraq, which could contribute to the increase of export volumes. In May 2018, Rosneft enhanced its presence in the KRI, signing an agreement for the development of gas reserves in the area. The deal also includes the construction of a gas pipeline (whose capacity would be around 30 bcm) for exports to Turkey. It would run parallel to the existing oil export pipeline, meeting with the Turkish gas pipeline system. Rosneft's involvement in Kurdish natural gas development and export routes sparks competition with its domestic rival, Gazprom (and its subsidiary Gazprom Neft). Russia's role in Iraq's energy sector underscores how Moscow sees energy as a foreign policy tool, gaining influence through its companies and taking advantage of the fading role of the US in the entire region. Through investments in upstream and pipelines, Russia aims at holding a favorable strategic position in the long-term with the KRG, Baghdad and also widely with regional politics. Nonetheless, there are growing questions over the ability of Russian companies to invest in Iraq and actively operate their assets after being hit by the international sanctions following the Ukraine invasion.

China and Iraq have enhanced their bilateral relations throughout the years. Their political and economic relations have improved despite the wars, sanctions and domestic unrest experienced by Iraq. In September 2019, the two countries signed eight wide-ranging MoUs, a framework credit agreement, and announced plans for Iraq to join China's Belt and Road Initiative (BRI) (Calabrese 2019). The two countries have been strengthening their trade ties. Bilateral trade amounted to \$30 billion in 2018. By contrast, the volume of bilateral trade between Russia and Iraq amounts to \$1.7 billion. The lion's share of China-Iraq's bilateral trade consists of Iraq's crude exports. In 2018, it amounted to \$22.5 billion. This figure illustrates the relevant role that energy plays in the bilateral relations. With the PSC in the 1990s to CNPC for Ahdab the involvement of Chinese energy companies began. However, their involvement had been halted between 2003 and 2007, during the domination of US and Western companies after Saddam's fall. In August 2008, CNPC managed to renegotiate a contract with Baghdad to implement the Ahdab oilfield, which was the first major oil deal Iraq made with a foreign company since 2003. This renegotiation marked China's commercial comeback in Iraq. Its growing appetite for energy has led China to enhance its presence in Iraq's energy sector. The energy relations between these two countries have grown and expanded since then. Indeed, in 2009 during the first round of bidding, the Chinese NOC CNPC (partnered with BP) struck a major deal in Iraq, winning a service contract to develop the Rumaila oilfield, the largest oilfield in Iraq (*Idem*).

CNPC further boosted its presence in the country six months later when it won the contract for developing Iraq's Halfaya oilfield, jointly with Total and Petronas (*Idem*). In the same year, China secured a presence in Kurdistan through the acquisition of Addax Petroleum's operation in the region made by Sinopec. Baghdad inevitably expressed its strongest opposition to the acquisition. The central government cancelled Sinopec's participation to bid for oil and gas licenses because of its ties with Erbil. Despite some disagreements on Erbil, Beijing has managed to expand its presence in Iraq through its companies. In 2013, China increased its strategic presence when PetroChina entered the West Qurna-1project, reaching a 32.7% stake in the project. Moreover, Chinese services and engineering companies obtained contracts in important Iraqi oilfields; for example, since April 2011, CPEEC has been the main contractor of the Rumaila oil field, and in 2018 China's Anton Oil was awarded by Basra Oil Company a 3-year contract to ramp up production at the Majnoon field after Shell's departure. Chinese companies are also called in Iraq to foster recovery in several oilfields. For example, in May 2018 Zhenhua Oil finalized an agreement to develop Iraq's huge 8 billion-barrel East Baghdad field. Through the deal, Zhenhua has the chance to become a potentially key player in Iraq's upstream sector. The East Baghdad field has a great potential, which is not properly expressed. Zhenhua was mandated to exploit this great potential, increasing production from the current 10,000 to 40,000 b/d by 2023. However, it is encountering multiple challenges related to investments and the infrastructure required to achieve the target. Despite some delays, Chinese companies have emerged as a major player in the Iraqi oil sector (MEES 2020c). China is importing a growing volume of Iraqi crude and it is committed to securing stable supplies. This is also why the Chinese companies (notably CNPC and CNOOC) are seriously considering buying ExxonMobil's 32.7% stake in the West Qurna 1 license. Currently, the field is producing 465,00 b/d of oil, with a plateau target of 1.6 mb/d by the 2030s.

China is not only a key investor in Iraq, but it is also a key market for Iraq's oil exports. Iraq was China's second largest oil supplier in 2019. Additionally, Chinese dependence on energy imports from Iraq accounted for 8.9% in 2019 (ChinaMed 2020). China is becoming more and more interested in the reconstruction effort of the country. The World Bank estimated Iraqi needs of post-ISIS reconstruction at \$88 billion (World Bank 2018). A potential response came from the visit of Iraqi then-Prime Minister Adel Abdul Mahdi to China in September 2019. During that visit, Iraq and China agreed on an "oil-for-reconstruction" and investment program. Under this agreement, Iraq would sell around 3 million barrels of oil a month to China in exchange of projects that Chinese companies would carry out in the country (Al Monitor 2019). The projects should be related to the construction and modernization of critical infrastructure such as roads, railways, schools, hospitals, residential cities, ports and airports (*Idem*). Such an agreement should last 20 years. Nevertheless, the deal has been heavily criticized domestically because the government did not disclose its details. Although political instability has cooled down the implementation of the deal, China has not reduced its engagement with the country. In 2021, Sinopec won a deal to develop Iraq's Mansuriya gas field near the Iranian border, while Beijing struck \$10.5 billion in new construction deals in Iraq in the same year, cementing its position in the country.

It is noteworthy to underline a trend in the Iraqi energy sector and the involvement of foreign companies and countries. In the aftermath of the fall of Saddam's regime, US and Western countries had a special advantage. Through the IOCs, these countries supported Iraqi oil production growth. However, the role of IOCs, most of which from Western countries, in Iraq's oil production, has gradually decreased. Indeed, today around half of Iraq's oil production is operated by IOCs, down from around 65% in 2012 (IEA 2019). The (Western) IOCs have tended to be replaced by NOCs, notably from Russia and China. A low security environment, an oversupplied oil market, low oil prices, unfavorable economic and social conditions undermine the involvement of IOCs. For example, in 2021/22 ExxonMobil announced its decision to exit Iraq altogether. The IOC decided to quit the Primam block in KRG and announced its intention to sell its share of the West Qurna-1 field.

By contrast, Russian and Chinese NOCs have shown a great propensity to take risks, aiming at increasing their relevance in the Iraqi energy sector with a long-term strategy view. This approach is strongly supported by their political elite at home. Investments and operations of these NOCs are highly motivated by political goals.

In conclusion, Iraq has been the battleground of the wider competition between the US and Iran. Iran has been able to exploit sectarian divisions in the country to gain influence, although it has been recently criticized and its influence is far from solid. Iraq is a major player in the world's oil system; it holds significant reserves and it has a primary role in OPEC production. Nevertheless, its energy industry is facing substantial challenges, notably lack of security guarantees, geological challenges in oil production, low water availability required for recovery techniques, electricity shortages and limited export infrastructure. These challenges undermine Iraq's oil and gas sector which has gained relevance for Russia and China. These two countries, through their NOCs, have enhanced their role in Iraq, providing investments in critical oilfields. Regional competition might undermine Iraq's potential growth.

#### • **Syria**

Over the last decade, Syria has been at the center of a brutal clash between local, regional and international actors. In 2011, social unrest turned into a major civil war that lacerated Syria's precarious socioeconomic structure.

Syria's current borders were set by the League of Nations' French Mandate, following the dismantling of the Ottoman Empire after World War I. Its current borders also represent its main geographical challenges: diverse ethnic groups under one domestic power.  The total population—19 million as of 2020—is composed of Muslims (87%), Christians (10%) and Druze (3%) (CIA 2020). However, Sunni is the largest ethnic group accounting for 74% of the total population, while Alawite (the ruling group) accounts for 7%. The Alawite minority group combined with Shia and Ismailis (non-Sunni groups) represent around 13% of the total population (Bhalla 2011).

The Alawites are often, but erroneously, categorized as Shia. They have many things in common with Christians and are often shunned by Sunni and Shia alike. The Alawites' homeland is the Latakia province, which provides critical access to the Mediterranean coasts. Historically, the Alawites represented the impoverished lot in the countryside while the urban-dwelling Sunnis dominated the country's businesses and political positions. The French mandate encouraged the rise of the Alawites in Syria's political order. Under the French, for the first time the Alawites—along with other minorities—enjoyed subsidies, legal rights and lower taxes than their Sunni counterparts. France implemented the minority manipulation strategy in the Levant, especially in Lebanon and Syria. This strategy helped France reverse the Ottoman designs of the Syrian security apparatus, allowing the Alawites to secure military, police and intelligence posts to suppress Sunni challenges to French rule (*Idem*). Nevertheless, the Sunni focused on maintaining their position in the top ranks of the security apparatus, leaving the lower ranks to the rural Alawites.

This structure and strategy represented the perfect ingredient for sectarian and demographic clashes. With the end of the French mandate in 1946 the urban Sunni elite targeted the Alawites. However, the birth of the Baath party in 1947 in the country provided the ideal platform and political basis to organize and unify around the country, also for minorities like Alawites. Given its campaign in favor of secularism, along with socialism and Arab nationalism, the Baath party met a strong opposition from the Sunni group. In 1963, the Baath party reached power through a military coup led by President Amin al-Hafiz.

Al-Hafiz conducted several purges against the Sunni in the military, opening positions for hundreds of Alawites to fill top military positions between 1963 and 1965. Alawites steadily gained power. In 1970, the Alawite rivalries and Syria's string of coups and counter-coups were put to rest with a bloodless military coup led by then-air force commander and Defense Minister Gen. Hafez al Assad. The al Assads co-opt in the security apparatus loyal clansmen while taking care to build patronage networks with Druze and Christian minorities that facilitated their rise.

Syria's history can be described as a struggle between the Sunnis on the one hand, and a group of minorities on the other, rather than a more traditional and clearer Sunni-Shiite religious-ideological division. Despite the precarious balance and the fact that the Alawite power in the country is relatively young, the al Assads have managed to consolidate their power quite remarkably in about five decades. After Hafez's death in 2000, the presidency was assumed by his younger son, Bashar al Assad. Initially, it was Hafez's eldest son, Bassel, that was groomed for power. However, Bassel's death in a car accident in 1994 thrust Bashar to the fore. Despite a tough security and political control, Syria has developed a precarious political order.

Syria's political weaknesses clearly emerged with the outbreak of social unrest in 2011. When mass protests broke out in the country in February 2011, they were viewed as the next episode of the Arab Spring. At the beginning, numerous commentators affirmed their belief that Bashar al Assad would have had the same destiny of the other regional long-lasting presidents, such as Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak. The regime decided to stamp out the protests, adopting a strong response. By doing so, it sharpened social discontent, triggering much more vigorous protests. Social discontent soon turned into a widespread domestic conflict, which then quickly became the battleground for regional and international powers. Several external actors began to support different parts of the conflict to either defend or increase their own influence in the region. In the midst of the ongoing civil war, the Assad regime once more reaffirmed its resilience against domestic and international challenges.

During the conflict, Bashar al Assad and his regime have received significant support from Russia and Iran, while rebel groups were supported by the Gulf monarchies, Turkey, the US and European countries such as France. Ironically, France supported those factions against the Alawite regime, which France had helped to rise in post-WWII. The dramatic result of these developments has been a more-than-10-year-long civil and proxy war with no sign of a peaceful and stable resolution in the foreseeable future. Syria's conflict has gone through several phases and external powers have been involved with it in different ways throughout the last decade. In early 2012, the role of external forces increased.

Syria represents the US' reluctance to intervene directly in Middle Eastern conflicts, as shown by President Obama's unwillingness to get involved in the conflict in August 2013 following reports about a chemical attack in the eastern part of Damascus, known as Ghouta, even though the use of chemical weapons was considered a "red line". Nonetheless, the US did take part in the conflict, supporting some Syrian opposition groups. In 2013, Congress authorized nonlethal assistance to vetted Syrian opposition groups, and in 2014 the Obama Administration requested authority and funding from Congress to provide lethal support to rebel groups. Furthermore, Washington has formed an international coalition for conducting airstrikes against ISIS' bases and operations as ISIS7 began to operate in Syria.

The US' limited involvement in the Syrian crisis allowed three countries to surge as the most relevant actors in the country: Russia, Iran and Turkey. These three countries have forged a temporary triumvirate to manage the conflict, which, however, represents only a marriage of convenience in the short-run. Indeed, these three countries cooperate only on some short-term issues because they do not share long-term strategic goals in Syria or in broader regional affairs.

Russia and Iran both support Bashar al Assad's regime and at the same time they have some opposing interests in the broader region. Iran's strategic goals in Syria are different from Russia's. As Russia seeks stability in the region by preventing the supremacy of any regional power, Iran seeks to expand its influence in the region. By contrast, Turkey supports anti-governmental forces and operates in the northern region of Syria, mostly aiming at preventing the consolidation of Kurdish forces alongside its borders. To do so, Turkey has cooperated partially with Russia, and later with the US. An example is the agreement between Moscow and Ankara reached on March 5th, 2020, that formalized new lines of control in the Idlib province.

Russia's role in the Syrian conflict represents one of the most important developments of Russia's Middle East policy. It has allowed Moscow to enter heavily into Middle Eastern politics, gaining a role that could become a bargaining chip for relations with other Middle Eastern countries (such as the Gulf monarchies). This important step was taken through Moscow's decision to launch a military campaign in favor of Syria's central government since September 2015. Through this military campaign, Russia has surged as the top supporter of the Assad regime. Moreover, this decision marked a turning point on the battlefield. Indeed, Russia's airstrikes were essential for Assad, who had been suffering losses on the ground until then. Since then, Assad has managed to regain most of the national territory.

The decision was motivated by both domestic and foreign considerations. Back then, Moscow was facing a critical internal and international situation. Domestically, Russia's economy was struggling, so the intervention provided a distraction from the country's internal challenges. Additionally, Russia was dealing with an unfavorable international context. At that time, Moscow was dealing with the Crimean crisis and

7 The Islamic State of Iraq and Syria (ISIS) is a militant Islamist group, which proclaimed itself to be a worldwide caliphate.

its consequences (i.e. the establishment of an international sanction regime against its core industries and companies). Russia seized the opportunity to establish a foothold in the Middle East, increasing its status as a global power. Moreover, it was committed to rescuing a long and good ally in the region. Indeed, Syria was one of the closest partners of Russia in the area. The two countries had established bilateral relations as soon as Syria became independent in 1946. Syria quickly fell in the midst of the Cold War, consolidating its ties with the Soviet sphere. Syria has a strategic relevance for Russia, because it hosts the only Russian naval base in the Mediterranean Sea. Indeed, Syria has hosted the Russian navy in the Tartus base since 1971 (Lovotti and Suˇckov 2020). Thus, Russia's intervention was motivated also by the need to protect its Tartus naval base, which could be at risk if a less friendly regime took power in Damascus. More important, Moscow wanted to prevent potential spillover of the chaos in Syria into the entire region, which could have threatened stability and expanded north into the Caucasus. The Caucasus is considered Russia's soft underbelly, and Moscow couldn't afford the risk of chaotic and threatening conflicts spreading to Russia's doorstep, especially groups like the Islamic State (Snyder 2019).

Iran shares with Russia the tactical goal to preserve and maintain in power the Assad regime even though Syria has a different relevance for Iran. Indeed, Syria is an essential element of Iran's regional strategy and policy. Tehran has pursued the consolidation of a "land bridge" from its border to Lebanon via Iraq and Syria. Therefore, Iran has supported Assad since the beginning of the conflict through its multinational Shiite militias, such as Hezbollah. Through the Shiite land bridge, Iran would gain direct access to the Mediterranean Sea and would substantially challenge its historical opponents in the region. For this reason, its presence in the country is continuously challenged by the US and Israel, which has undertaken several airstrikes against Iranian-linked targets in Syria.

Turkey has supported the rebels against Bashar al Assad, and one of its top priorities is to prevent the consolidation of Kurds along its borders. For such reasons, Ankara has launched some operations in northern Syria. The first operation is the so-called Operation Euphrates Shield that Ankara launched from August 2016 to March 2017. The Operation's scope was to support the activities of the Free Syrian Army as it pushed Islamic State fighters back from the Turkish border. In doing so, Turkey intended to achieve a double goal: (i) pushing ISIS fighters away from its borders and (ii) stopping the Kurdish militias—the so-called "People's Protection Units" (YPG)3—from crossing the Euphrates westward and consolidating their presence alongside its borders.

A second operation occurred in early 2018. In January 2018 Turkey decided to intervene in the Afrin province with the "Olive Branch" Operation, specifically targeting the Syrian Kurds instead of government forces. The main goal was to prevent the connection between the Kurds located in Syria's northeastern region and their forces in the northwestern areas of the country. That operation, agreed upon by both Russia and the US, marked an important development regarding Kurds and international support. Indeed, the US has worked together with the Kurds in Iraq and Syria and has been the Kurds' main security guarantor since 2014. Moreover, the US and its coalition gains against the Islamic State have come largely through the assistance of Syrian Kurdish partner forces. Nonetheless, the increasing presence of Kurdish forces along the Turkish ones poses a security challenge for Ankara as the Kurds seek to establish a Kurdish nation at the expense of Turkey. Yet, the US does not support this project and over the years, Turkey has gained more relevance than the Kurds for the US vis-à-vis Iran's presence in the Middle East (Friedman 2019b). For these reasons, the Trump Administration decided to approve some Turkish operations in the northern part of Syria at the expense of the Kurds. In October 2019, Turkey launched a third operation, the Turkish "Peace Spring" Operation, consisting of a series of airstrikes in the north-east of the country against the Kurds. Through this operation, Turkey's objective is to create a 30-km "safe zone" in northeastern Syria called Rojava by the Kurds—and its border. In doing so, Turkey would accomplish simultaneously two objectives: firstly, to decimate the presence of SDF fighters in the area, which are connected with the Turkish Kurdistan Workers Party (PKK); secondly, to create a space in which Turkey could gradually resettle the around 3.5 million Syrian refugees currently living inside its borders (MEES 2019a).

The US has tried to stay out of Syria's conflict, leaving the regional powers clashing and offsetting among themselves. With the advent of Trump, that became clearer. For example, in December 2018 he announced the US withdrawal from Syria, having stated that ISIS was defeated. However, the decision met the strong opposition from the Administration's members and Congress. For example, then-Defense Secretary James Mattis announced his subsequent decision to resign (Humud and Blanchard 2020). A year later, in conjunction with the Turkish "Peace Spring" Operation, President Trump ordered the withdrawal of some forces from the country and the repositioning of others in areas of eastern Syria, freed by the Islamic State. In doing so, Trump has shifted the US presence in eastern Syria, an oil-rich region, and a good position to tackle Iranian presence (Trombetta 2019).

The Syrian conflict is motivated by this geopolitical competition rather than by its oil and gas resources. It is often, but erroneously, believed that oil and gas are the key driver of the conflict. Although it might be an attractive theory, this assumption is wrong. Indeed, Syria's oil and gas resources have hardly any importance for the world's oil market. Syria's oil production before the civil war began in 2011 was at 385,000 b/d, which was less than 0.5% of the world's supply. In 2019 Syria's proven oil reserves were estimated at 2.5 billion barrels (BP 2020). Syria's crude oil production peaked at 610,000 b/d in 1996, but since then it has declined. Syria also holds 241 bcm of natural gas reserves, and in 2010 it produced 8.4 bcm of natural gas, most of which was used for electricity generation. These figures are very small compared to those of some of its neighboring countries.

Syria's oil and gas resources are too small to be considered a prize and the main driver of the struggle over the country's destiny. Given its geographical location, Syria could have a strong potential as an energy transit hub. Several pipeline connections run through Syria to Egypt, Jordan, Lebanon and Iraq. In 2009 Bashar al Assad attempted to maximize Syria's favorable geographical position by announcing an ambitious policy4 aimed at connecting the Mediterranean Sea, the Black Sea, the Caspian Sea and the Persian Gulf and turning the country into a major energy hub. Some analysts put forth the theory that the proxy war was about two pipelines: the first (allegedly backed by the US) would run from Qatar through Saudi Arabia, Jordan to Syria; the second (allegedly backed by Russia) would go from Iran to Syria via Iraq. The key market for both pipelines would be Europe. Despite some popularity of such theories, it seems odd to think that the main reason of the conflict was the competition over pipelines, which were challenging projects both economically and politically. Even though the Syrian crisis has not been resolved, Syria is expected to become a transit country under the agreement between Egypt and Lebanon announced in late 2021. The agreement aims to address Lebanese power shortages thanks to Egyptian gas. Syria has also agreed to transfer Jordan's electricity to Lebanon. The Biden Administration has expressed support for this regional deal, describing it as a humanitarian effort funded by the World Bank.

Although Syrian oil has small relevance for the world's oil markets, it has always been of prime relevance to the Assad regime. The oil and gas industry was a crucial contributor to Syria's government revenue and foreign exchange earnings. Prior to the civil war, the sector contributed about 35% of export earnings and 20% of government revenue in 2010 (Syria Report 2020).

Syria's oil reserves are located in two principal oil producing regions. The first fields to be developed were those discovered in the 1950s and 1960s around Sweidiyeh in the northeastern Hasakah Province. The second region is located in the Euphrates Valley, running from Deir ez-Zor down to the Iraqi border. Here, oil production began in 1980 following the discoveries made by Pecten, a US branch of Royal Dutch Shell (Butter 2014). The second region accounted for about one-third of Syria's total output on the eve of the 2011 uprising.

Most of the oil sector is dominated by the state-owned Syrian Petroleum Company (SPC). In March 2011, 55% of the total oil production was from SPC-operated oil fields and the rest from the joint ventures between SPC and foreign companies. The tight governmental control on the resources is highlighted by the fact that SPC takes a 50% stake in development work with foreign partners. Before the war, a relatively diverse foreign investor mix was present in Syria; there were both large companies (notably Total and Sinopec) and small companies such as Gulfsands, which were all working alongside SPC in production-sharing agreements (Diwan and Yergin 2019). Nevertheless, Syria was not particularly attractive for foreign oil companies. The government took 85% of the revenues from operations, compounded by heavyhanded administration by the regime (*Idem*). Additionally, the reserves in Syria are small, dispersed and far from export facilities in the Mediterranean.

Nevertheless, the foreign partners were critical elements of the attempt to counter the declining trend in oil production. Of Syria's pre-war output, about 125,000 b/d came from the Deir ez-Zor fields operated by two 50–50% joint ventures: the Shellled Al Furat Petroleum Company (100,000 b/d) and the Total-led Deir Ez-Zour Petroleum Company (25,000 b/d) (MEES 2019b).

The conflict, combined with international sanctions, has posed further challenges to Syria's declining oil industry and economy. As the US and EU implemented sanctions, Western companies were forced to leave the country and Syria saw its oil exports collapsing. Indeed, the EU implemented sanctions against Syria's oil, banning import of Syrian oil. Before the sanctions, Syria's crude oil exports went almost entirely to the European market, in particular Germany (32% of the total), Italy (31%), France (11%), and the Netherlands (9%) (EIA 2011). Before the war, Syria was a net exporter, shipping some 150,000 b/d of crude oil, albeit it imported some oil products (around 40,000 b/d).

As the conflict exacerbated, oil production collapsed. Crude oil production dropped from an average of 385,000 b/d in 2010 prior to the conflict to an average of 164,000 b/d in 2012 and to just 28,000 b/d in 2013 and further down to 9,000 b/d in 2014 (Butter 2014; MEES 2020d). The government declared that Syria produced 43,000 b/d of oil in 2020. According to the government, in 2021 the production increased to 86,000 b/d, although most of it was produced in Kurdish-controlled areas (MEES 2022).

The collapse of production forced Syria to increase its crude oil imports in order to keep its refineries running. The country has also increasingly needed imported products to meet domestic demand for gasoline, liquefied petroleum gas, and diesel. In 2021, only 16,000 b/d of the domestic production went to refineries under the control of the Assad regime (MEES 2022). Syria began to rely on its partners for energy imports, especially Iran, in addition to buying volumes from Kurdish-controlled fields in northeastern Syria. By early 2013, the Central Bank of Syria reached an agreement with Iran for \$3 billion worth of letters of credit to cover oil supplies, as part of an overall line of credit of up to \$7 billion (Butter 2014). Indeed, Iran has emerged to save the regime, supplying Syria's 125,000 b/d (pre-war) capacity Baniyas refinery, and to a lesser extent the 120,000 b/d (pre-war) capacity Homs refinery with enough crude to survive (MEES 2020d). Iranian supplies of oil products were a lifesaver for the battered regime and economy; the lack of oil products led to massive protests across the country in the winter of 2018–2019. The energy trades have been beneficial also for Tehran, tightened by the US sanctions on its oil exports. Indeed, in 2020 Syria has become the top importer of Iranian crude for the first time in history, overtaking China (MEES 2020d).

The establishment of Western sanctions against Syria has inevitably left a vacuum for other non-Western companies. Among these, Iran and Russia are commonly considered to be the potential contributors to Syria's economic survival and reconstruction. Their political and military engagement in the country justifies their contribution, whereas other countries may be more reluctant to invest in the country and in the energy sector due to the current challenging context.

In 2019, two Russian companies were awarded three exploration and production contracts for Block 7, 19 and 23 (MEES 2019c). For example, Russia's Stroytransgaz won a 49-year concession to operate Syria's commercial seaport at Tartous in early 2019 (MEES 2019c). In January 2018, the two countries signed a "road map" agreement for the reconstruction of several assets. Through the agreement, Russia should rehabilitate the damaged infrastructures of the country. Stroytransgaz signed a deal with Baghdad to connect those fields operated respectively by Lukoil and Gazprom in Iraq and in the Kurdistan Region of Iraq, with the Syrian port of Baniyas through the construction of an oil pipeline (Sassi 2019). This reiterates that Moscow has been interested in translating its military gains achieved in the country into broader geopolitical and geo-economic gains, capable of shaping the stability of the region.

China could also emerge as a potential and crucial contributor to economic recovery in Syria—also for the energy sector. Jointly with Russia, China opposes any efforts to sanction Syria in the UN Security Council, contributing to forging positive relations. Additionally, not only China's CNPC produced some oil from Syrian oil fields before the war, but it is also a stakeholder in the two largest Syrian oil companies: SPC and Al Furat Petroleum (*Idem*). Moreover, in early 2015 Ali Suleiman Ghanem (Ministry of Petroleum and Mineral Resources) estimated that the conflict damaged facilities for a value of over \$27 billion (*Idem*). China's significant financial resources, which often come without parallel demands for socio-democratic reforms, might play an important part in the reconstruction phase, further enhancing the partnership between Beijing and Damascus.

As aforementioned, the conflict has affected the Syrian oil industry. Militias and regime have been struggling with the control of key oil fields. However, the regime has lost control over most of the oil fields. By mid-2013, the northeastern oil fields were generally held by the Kurds, with the support of the US forces, while in the eastern region the Islamist groups took over. Thanks to the airstrikes undertaken both by the Russian and the US-led coalition, the Islamic State's presence on the ground was strongly reduced. As the ISIS lost ground, the Kurds have gained territorial control in the east of the Euphrates Valley. The conflict attributes great importance to Syria's oil, although it has small relevance and potential in the world's oil markets. For example, in conjunction with the Turkish "Peace Spring" Operation in 2019, the US announced the repositioning of US forces in northeast Syria "to secure the oil". There are several reasons that motivated the US to maintain a presence in defense of Syria's oil fields despite their relative irrelevance. Firstly, in doing so, the US prevents the oil fields from falling into the hands of ISIS, and consequently benefiting their coffers. Secondly, they can keep oilfields out of reach of Assad (and also Russians or Iranians), maintaining a bargaining chip for the opposition in the post-war scenario. Lastly, they preserve these oil fields as an engine of recovery for a possible post-Assad regime (Diwan and Yergin 2019), something reaffirmed by US Vice President Pence. He stated clearly that U.S. troops in Syria will "secure the oil fields so that they don't fall into the hands of either ISIS or Iran or the Syrian regime" (Humud and Blanchard 2020).

If the oil industry is deeply affected by the conflict, the regime looks with some hope to natural gas. The natural gas situation is more comfortable for the government. Most of the major production facilities are in the government's hands in the region between Raqqa, Palmyra and Homs. ISIS has inflicted severe damages to some facilities, but in 2018 gas production has been brought up to about 16 mcm/d (Butter 2019). Given the reduction of oil production, Syria considers natural gas the only solution to its power generation woes. SPC's gas division the Syrian Gas Company (SGC) aims to nearly double raw gas output from its current 16.5 to 20 mcm/d by 2023 (MEES 2019d). Also, Syrian offshore reserves in the Mediterranean Sea are very promising in terms of natural gas reserves. Some non-Western companies, notably Russian and Chinese, might be interested in investing and exploring the area. E&P activities in Syria's offshore will inevitably further complicate the rush in the East Med gas from a geopolitical point of view.

To increase gas production and boost its economy, Syria needs to find a significant amount of money. As aforementioned, some countries are moving in order to gain potential influence in the post-war phase. However, the US have taken important steps to influence this stage. The US Treasury Department began implementing new sanctions on June 17, 2020. These new sanctions are under the so-called "Caesar Act", which represents a new level in the long history of US sanctions against the Assad regime. Indeed, it is the most wide-ranging US sanctions ever applied against Syria. Indeed, unlike previous sanctions, the Caesar Act brings under its jurisdiction third-country companies and people for economic activities that support Syria, raising the costs of economic engagement with the Assad regime. In expanding sanctions to third parties through the Caesar Act, the US seeks to influence Syria's future reconstruction. Obviously, this effort might be undermined if Trump does not earn the second term in office. The Caesar Act potentially poses Lebanon, Russia and China at risk of sanctions. However, it also throws serious obstacles in the path of some Gulf monarchies (and US allies), notably the UAE. Indeed, the UAE have begun a process aimed at normalizing their relations with the Assad regime, abandoning their initial support to Syria's opposition.

In conclusion, Syria's oil and gas (given their limited sized compared to that of its neighboring countries) are neither the main driver of the conflict nor the main reason for the involvement of external countries. Oil and gas reserves are far more important for the well-being of Syria (and its government) rather than for the world's oil market. Therefore, the US decided to protect oil fields in Syria mainly because it aims to prevent their monetization by the Assad regime (and Russians and Iranians) or by the Islamist militias. While Syria's oil was crucial for the government's coffers, it's still unclear whether the hydrocarbon industry will be an important contributor to the economic recovery and reconstruction. To do so, Syria should make significant investments in energy infrastructure and production. Thus, Syria will encounter obstacles in restarting its oil exports and in regaining its past market share (i.e. in Europe).

#### *5.2.2 East Med Gas: A Potential Gas Export Hub*

Among the East Med riparian countries, Egypt is the only one with a long hydrocarbon production and export history. Egypt's hydrocarbon history began with oil and then started developing its gas resources in 1990 (Chap. 3 Sect. 3.2.2). Thanks to its hydrocarbon industry, and the Suez Canal, Egypt has managed to become a pivotal player in the region. In doing so, Egypt has shifted from being a large oil producing and exporting country to a gas producing and exporting country. This structural shift was made possible in particular thanks to the latest discoveries in the East Mediterranean offshore, which have allowed Egypt to partially overcome its domestic energy constraints.

Over the last decade, the East Mediterranean has become a hotspot of major geopolitical competition and energy interests following numerous gas offshore discoveries (Table 5.3). Such discoveries have increasingly attracted the interests of several international oil companies (IOCs), such as ExxonMobil, Shell, Italy's Eni, France's Total, the US' Noble Energy and Qatar Petroleum, as well as those of other countries.

All started in 2009 with Noble Energy's announcement of the discovery of Israel's Tamar offshore field. Despite its relatively small gross mean resources (280 bcm), the discovery of the Tamar field pushed forward new exploration activities in the area. Noble Energy also announced the discovery of the Leviathan field (in 2010) in offshore Israel and the Aphrodite field (in 2011) in offshore Cyprus. While it is estimated that the gross mean resources of the Aphrodite field are 140 bcm, the estimates for the Leviathan are more relevant—620 bcm (Hafner and Tagliapietra 2016).

The real game-changer for the region occurred in 2015 when Eni announced the discovery of the giant Zohr gas field in offshore Egypt. With its 850 bcm of estimated gross mean resources, the Egyptian offshore field is the largest ever discovered in the Mediterranean Sea. In 2016, Rosneft bought a 30% participating interest in the Shourouk Concession, offshore Egypt, where the supergiant Zohr gas field is located, marking the entry of Russia's Rosneft in the East Mediterranean gas rush.

These discoveries reinforced the promising prospects of the resources in the area, although the region remains one of the world's most under-explored or unexplored areas. Back in 2010, the US Geological Survey (USGS) estimated the presence of nearly 9800 bcm of undiscovered technically recoverable gas and over 3.4 billion barrels of oil resources in the region in two assessments (Hafner and Tagliapietra 2016).

In light of these figures and the recent discoveries, the East Med countries have expressed their ambition to make the area an important natural gas hub. This goal has traditionally faced some relevant infrastructural, economic and geopolitical challenges: viability of the potential export options; natural gas prices required to

**Table 5.3** Main discoveries of gas fields in the East Med

asince July 2020, owned by Chevron

*Source* Authors' elaborations on companies and countries data

**Map 5.3** Main gas fields, pipelines and EEZ in the Eastern Mediterranean. *Source* https://www. ecfr.eu/specials/eastern\_med

make projects economically viable; and lastly, geopolitical competition over the resources and maritime borders. Each of these issues is deeply interlinked to the others (Map 5.3).

Before addressing major energy and geopolitical issues over East Med gas, it is important to consider that geopolitical competition in the area is not only related to energy resources. A growing (geo)political confrontation has gathered pace around the East Mediterranean. The geopolitical confrontation has also affected partners, such as the extraordinary tensions between France, Greece and Turkey in summer 2020 (despite their common NATO membership) due to the collision of a Greek and Turkish frigate.

(Geo)political tensions and confrontation are driven by several issues. The core issues are maritime claims and the demarcation of exclusive economic zones (EEZs). Each issue is linked to the other and is related to several countries. In time, Turkey has emerged as the most assertive actor in the area regarding these two issues.

The first political dispute is about the status of Cyprus. Since 1974, the island is divided into two entities: the Republic of Cyprus in the southern part of the island and the Turkish Republic of Northern Cyprus (TRNC) in the northern part.  Turkey believes that the Republic of Cyprus does not have the sovereignty to explore and exploit offshore resources without an agreement with TRNC. Additionally, Turkey demands that energy profits be equally shared between the two Cyprus entities. The two parts have not yet reached an agreement on the issue, and an understanding does not seem reachable in the foreseeable future. Without an agreement, Ankara considers illegal all the activities pursued by the Republic of Cyprus in Cyprus' waters. This standoff has several repercussions on the right to issue and grant licenses offshore Cyprus. While the Republic of Cyprus has issued licenses offshore its southern coast, the TRNC did not only issue licenses only in waters off its coast, but also in the south, overlapping with licenses issued by the Republic of Cyprus. The legal assumption is that both entities have the right over the whole island. Ankara believes that Turkish Cypriots have an equal right to issue licenses around the island. In order to prevent further exploration (or at least, to gain some leverage in the development), Ankara has aggressively asserted its sovereignty over the waters it claims, implementing the so-called "gunboat diplomacy". In response to Cyprus' ambitions, Turkey has undertaken naval activities that prevent further drilling and exploration activities in some Cyprus offshore blocks. In February 2018, Turkey's navy intercepted a drillship of Italy's Eni that was heading to Block 3 of the Cypriot EEZ, forcing Eni to abandon that effort. Since then, Turkey has conducted naval activities and exercises offshore Cyprus. Nevertheless, Cyprus did not halt its ambitions, approving licenses for Eni and Total to explore Block 7 of its EEZ in July 2019. It did not take too long before the Turkish response arrived. Ankara sent its own drilling ship into Block 7, escorted by a pair of Turkish warships. This prompted harsh criticism from the EU in early 2020 although with limited real economic consequences. Indeed, the EU did not want to alienate a key ally in the containment of mass migration from the Middle East towards Europe, especially from war-torn Syria. Meanwhile, both Eni and Total suspended their activities, affirming that they did not seek a war over gas. Turkish activities reflect the relevance of this issue for the Turkish agenda.

The other major political issue in the area is opposing claims over maritime boundaries and the influence of islands in claiming a continental shelf and in creating an EEZ. On this important issue, Turkey is involved against both Republic of Cyprus and Greece. Turkish's legal base is that islands, under international law, do not have any right to a full EZZ automatically. Turkey declares that its long coastline should entitle it to a sizable EEZ in the region, while describing as "unfair" the recognition of a full EZZ to various islands. Such a legal and political position produces several conflicts. The Turkish position collides with Greece over its island of Kastellorizo, which is the easternmost island of Greece, located near the Turkish mainland. Greece claims that all islands are entitled to a full EZZ, something that Turkey considers a potential threat since it would significantly reduce Turkish EEZ while granting Greece a bigger EEZ (Tsafos 2020).

Turkey pursues a similar position regarding Cyprus and the Republic of Cyprus. Despite the fact that Cyprus is an island state and it is bigger than Kastellorizo, Turkey affirms that its coastline should be more important than Cyprus' EEZ. On this legal basis, Turkey has issued licenses for exploration in areas that are claimed by Cyprus. Lastly, a further confrontation emerged following the signature of a Memorandum of Understanding between Ankara and the Tripoli-based Libyan government in November 2019. The agreement expanded the areas that Turkey claimed as part of its continental shelf. The westernmost point in the delimitation agreement is about 50 nautical miles south of the island of Crete. In doing so, Turkey altered the EEZ demarcation in the area, positioning itself between Greece and the Republic of Cyprus EEZs. Additionally, this MoU represents a potential obstacle to

**Map 5.4** Eastern Mediterranean Maritime Claims. *Source* CSIS research and analysis; Nikos Tsafos, "Getting East Med Energy Right," CSIS, CSIS Commentary, October 26, 2020, https:// www.csis.org/analysis/getting-east-med-energy-right. Reprinted with permission

the development of the EastMed gas pipeline, one of the possible export routes for East Med gas as explained below. With this agreement Turkey aims to play a key role in the regional and energy landscape. The Turkey-Tripoli agreement also highlights the growing connection between the evolution in the Eastern Mediterranean and the Libyan conflict. The two blocs in the Libyan conflict mirror the blocs that are being formed in the East Mediterranean (i.e. Turkey against Egypt). For example, on May 11, 2020, Egypt announced an anti-Turkey alliance, which gathers Greece, Cyprus, the UAE and France, to confront Turkish moves in Libya and the Mediterranean (Al Monitor 2020a, b, c) (Map 5.4).

The primary reason for the soaring geopolitical competition is the fading role of the US as "supervisor" and "external guarantor" in the region. The increasing perception of this political vacuum led to the current geopolitical competition in the region, prompting regional players, with their own interests and strategic goals, to rise and interact directly between each other without an ultimate judge. Furthermore, the entire area has suffered from growing geopolitical competition and ambitions in the aftermath of the 2011 Arab Springs. In this context, Turkey has expanded its presence and role in the area with a more assertive foreign policy, as highlighted in the previous paragraphs. As it seeks to expand its influence in the area, Turkey has been driven by the "Mavi Vatan" (also known as "Blue Homeland"8 ). The slogan refers to the Turkish doctrine in place until 2006 and revived in 2019, i.e. the ambition to turn Turkey into a regional power, which would compel every other power not

8 The 'Blue Homeland' doctrine's goal is to achieve Turkey's control and consolidation across three seas: Eastern Mediterranean, Aegean and Black seas.

only to take its interests into account, but to view it as an essential partner (Haaretz 2020).

The Eastern Mediterranean region has been characterized by conflictual positions and political tensions well before the discovery of offshore natural gas. The existing tensions and competition are only to be considered as a byproduct of energy discoveries. The ongoing tensions did not occur near natural gas discoveries and none of the natural gas fields discovered so far are a matter of dispute, being entirely within the EEZ of Israel, Cyprus and Egypt (with the exception of Aphrodite which is in Cyprus but extends into Israel's EEZ). Natural gas discoveries have essentially reinforced pre-existing tensions or rapprochements. Energy is often seen as a factor for political competition, tension and conflict. Yet, energy can also be a powerful factor for political and economic cooperation. These natural gas resources have been able to shape and form political ties to some extent among some countries (i.e. Egypt, Israel, Greece, Jordan and Cyprus). The cases of gas trade between Egypt and Israel and Israel and Jordan testify the potential for cooperation.

Initially, some regional countries and international commentators hoped that the natural gas discoveries would enhance cooperation among regional countries, in an area traditionally characterized by tensions and animosity. This position was based on the history of the European integration process, launched and built upon coal and steel. This position has special relevance for Israel, which is committed to using these resources in order to improve its relations with its Arab neighboring states. To overcome some of the major political challenges, closer energy cooperation was encouraged on the basis of economic considerations. For example, a joint effort to develop regional natural gas would be particularly convenient for Cyprus and Israel, given the size of their current gas fields. A positive development occurred on January 14th, 2019, when Egypt, Israel, Jordan, the Palestinian National Authority, Cyprus, Greece and Italy launched the East Mediterranean Gas Forum (EMGF), the first regional organization, with the aim to improve energy policy coordination in the region. However, Turkey declared the EMGF and its activities to be unlawful since the agreements reached between Egypt, Israel, Jordan, the Palestinian National Authority, Cyprus, Greece and Italy do not respect Turkish territorial claims.

East Mediterranean Countries have started to consider export options in order to fully develop their offshore resources due to the limitations of their domestic markets. However, export plans ought to deal with the extensive legal and political disputes that have deeply influenced the feasibility of export options. All East Mediterranean countries are willing to find energy markets for their resources in order to exploit and monetize them. A wide range of export options both as pipelines and LNG have been discussed:

Each of the above export options needs to overcome economic and geopolitical issues, which are particularly challenging for some of them. For example, unless new gas is found offshore Cyprus waters, the construction of an LNG plant at Vasilikos, Cyprus, is unrealistic due to the limited size of the available resources in Aphrodite and high costs in building such a scheme. In fact, the project's cost was estimated at about \$10 billion (Tagliapietra 2017).

Other options are limited to the local market, i.e. Israeli attempts to deliver its gas locally through the Israel-Jordan and Israel-Gaza pipelines. In September 2016, Jordan became the first official buyer, signing a 15-year \$10 billion agreement that commits Israel to deliver a total of 45 bcm of gas to Jordan commencing in 2020. The US has pushed through the deal for Jordan, which has a peace treaty with Israel, despite opposition in Jordan (Reuters 2020). After securing the supply to its domestic market, Israel started to look for external markets large enough to cover the cost of full-scale production from Leviathan. However, the Jordan and Palestinian markets are too small, and Israel is evaluating possible options in larger markets, notably Turkey, Egypt or Europe.

Nevertheless, a difficult equilibrium on the development of both resources and export options has to be found among the region's three main poles, namely Israel, Egypt and Turkey. As already mentioned, the resources have produced some degree of cooperation among these countries in the name of economic interests, as illustrated by the EMGF. On the other side, the forum does not include some important countries—i.e. Turkey, Syria and Lebanon—alienating them and inflaming the geopolitical competition. Israel, Egypt and Turkey yearn to take the lead in East Med energy affairs; each of them aims to become a regional gas hub. The three main export options (the Israel-Turkey pipeline, the EastMed pipeline and Egypt's LNG plants) embody economic and geopolitical challenges.

The Israel-Turkey pipeline encounters more geopolitical obstacles than economic ones. The project consists of a 470-km gas pipeline connecting Israel and Turkey, with a capacity of 16 bcm per year. In 2013, Turkey's Turcas Holding submitted a \$2.5 billion offer to Israel for the construction of the pipeline. Initially this project would have also served the Turkish ambition to become an important energy hub between the East and West after the South Gas Corridor9 and TurkStream.10 Nonetheless, the project suffered several setbacks due to the increasingly complicated relations

9 The Southern Gas Corridor project transports natural gas from Azerbaijan to Europe and includes three connecting pipelines with an annual capacity of 16 bcm (roughly half the proposed capacity of TurkStream): the South Caucasus Pipeline (SCP) in Azerbaijan and Georgia; the TransAnatolian Pipeline (TANAP) through Turkey; and the Trans Adriatic Pipeline (TAP), currently under construction from Greece to Italy, via Albania. First delivery through TANAP to Turkey was in June 2018, and TAP began to ship gas end of 2020. Turkey has contracted for 6 bcm from TANAP, while the rest is delivered to Greece, Albania and Italy.

10 The TurkStream project consists of two parallel pipelines with a total capacity of 31.5 bcm per year (15.75 bcm each). TurkStream 1 provides gas to the Turkish market, whereas TurkStream 2 delivers gas only to European markets.

between Israel and Turkey. In 2016, the two countries reached a reconciliation agreement, ending their six-year diplomatic freeze due to the 'Gaza flotilla raid' of 31 May 2010. Following the reconciliation, the project seemed to gain new momentum. However, the US' decision to move its embassy in Israel from Tel Aviv to Jerusalem in May 2018, triggered a diplomatic crisis, and Turkey and Israel haven't had ambassadors in their respective capitals since that date. However, the two countries share some mutual interests in the Syrian conflict and in the fight against Iran's regional policy. These mutual interests could make the two countries converge their actions also in the field of energy, albeit several obstacles. A much greater obstacle to the realization of the pipeline lies in the unresolved hostility between Cyprus and Turkey since a potential Israel-Turkey pipeline would need to pass through the Republic of Cyprus' offshore territory. Thus, an agreement between Nicosia and Ankara on the last-lasting Cyprus issue is the fundamental prerequisite for the positive development of the Israel-Turkey gas pipeline project. Given the presented features, it is reasonable to believe that there is little hope that Turkey will receive Israeli gas through a direct pipeline or, indeed, that Turkey would act as a conduit of Israeli gas to Europe in the foreseeable future. Therefore, Israel is attempting to create alternative export routes for its gas.