The New 'Great Game': state & non-state competition

[Dayuhan]

The biggest (and maybe, least obvious loser) in this whole play could be Iran. Russia could easily steal a substantial portion of Iran's current Chinese market (4-5 days to transport vrs. 2+ weeks), and what are the Iranians going to do? They try & bust Russia's chops, Russia tells the US & Western allies to go ahead and nail Iran's hide to the wall and they'll just kick back and watch (and laugh where nobody can see them). Think the Chinese are going to stand up for the Iranians when they can instead get more oil exported from Russia? Doubt it.

If the Russians start selling more to East Asia and less to Europe, the Iranians can just sell to Europe. Given the supply/demand equation in energy markets these days, anyone with oil and gas to sell is going to find a buyer.

Given the oft-demonstrated Russian inclination to use energy supplies for diplomatic leverage, nobody will want to be dependent on them. They are just trying to diversify their markets, just as many consumers (notably China) try to diversify their suppliers. I don't see it as a game-changer.

The real question with Russia, for me, is whether they will be able to muster sufficient investment, domestic and foreign, to sustain and expand production. Their policies to date have not been notably investor-friendly.

[Watcher In The Middle]

Originally posted by Dayuhan:

Given the supply/demand equation in energy markets these days, anyone with oil and gas to sell is going to find a buyer.

Not sure I'd agree with that. There's quite a number of oil tankers out there being used as floating storage for oil. And a fair amount of it is of Iranian origin. Don't have current numbers, but does not look like it is decreasing. I'm sure it will change at some point, but I'd bet it's going to take longer than most people think.

Originally posted by Dayuhan:

Given the oft-demonstrated Russian inclination to use energy supplies for diplomatic leverage, nobody will want to be dependent on them

Very true - and quite understandable. But from the other side of the ledger, currently China is substantially dependent upon ME oil, and much of that from Iran. Every time Iran creates a stir in the Persian Gulf, the PRC is on the hook as one of the elders, trying to keep the kids under control, and getting them back to playing nice with each other. The reality is, your comment above sums up perfectly the exact situation the China is in right now regarding Iran (substitute "Iranian" for "Russian").

They got to play the role, because it's all about their (China's) economy - but it's got to get old really quick. Got to keep the oil flowing. So, they get out from under the current situation by diversifing their suppliers.

And when the ESPO pipeline project will eventually (Stage 3) get to 1.6 mil Bbl. per day with direct port access to both the Sea of Japan and land access to the Chinese border, well, that means that China, Japan, and South Korea all have substantially diversified their petroleum supply, with the ME being the biggest loser.

Doing this also gives China, and especially Russia, a substantive change in their relationship with Iran. It almost seems like the Iranians seem to enjoy being able to use both China and/or Russia as their foil in their dealings with the West. Now, I'd bet that there's been more than a few times where both the Russians and the Chinese have enjoyed that, but it's "up to a point". The concept of being pushed into being a player in situations created by Mahmoud Ahmadinejad is not likely to be particularly comforting to either the Russian or Chinese governments.

Thoughts?

[Dayuhan]

The geography of Russian oil production is changing rapidly: the West Siberian fields are being depleted, with most new production coming from East Siberia. There's an obvious geographic advantage in piping East Siberian oil to markets in East Asia. Of course more Russian oil going to East Asia means less going to Europe, and I'd expect Europe to make up for any reduction in Asian demand for ME oil. Given declining production in traditional American suppliers Mexico and Venezuela, the US is also likely to be a lasting market for ME oil

It is possible that a severe double-dip recession could drive another oil glut, which would have a major impact on the ME political stability equation, but it doesn't seem likely to me. Might want to take that one up with the "peak oil" enthusiasts, who see quite the opposite of a glut on the horizon!

Oil is an almost infinitely fungible commodity, with transport cost a minimal percentage of final landed cost. If, for example, Nigeria had a revolution tomorrow and stopped producing, Nigeria's customers would simply buy their oil elsewhere, albeit at a higher price. If hypothetical country x currently buys all their oil from Nigeria, they are not "dependent" per se on Nigeria for their oil, since they can just as easily buy elsewhere.

Many, probably most, oil producers, have security issues, and those issues concern all oil consumers, whether or not they buy from any given supplier. The US doesn't buy from Iran, but if Iran stops producing the US will be affected, because the people who do buy from Iran will be out bidding for oil from US suppliers, who like everyone else will sell to the highest bidder.

For me the pipeline is likely to cause some shifts in where different parties buy, but probably not to cause any major changes in the supply/demand equation.