Need to resolve conflict, before it spills over into energy plans and economy
The crisis in the Gulf, driven by Qatar’s ambition to become a major player in Middle East politics and a superpower in the natural gas market, could have an impact on the Cyprus economy, and by extension the island’s future energy plans, if the matter is not resolved quickly and diplomatically, according to commentators who have been monitoring the situation.
Three experts talking on CyBC radio, said that although Cyprus exports to the Gulf nation are a mere EUR 4 mln a year, the Cypriot construction companies based in Doha and the nearly 650 Cypriots who permanently live and work there, could feel the impact, if the embargo continues and raw material prices start to rise.
Already, airlines from Saudi Arabia, the United Arab Emirates and Egypt have halted flights, affecting air cargo, while unilateral land transport and shipping sanctions imposed by these countries could hurt imports of raw materials for the booming construction sector, as these will have to be secured from other suppliers.
However, the standoff is nothing new and Qatar has been warned in recent years from aligning itself with Iran, and in particular supporting the Moslem Brotherhood, that has been accused of undermining the governments of Qatar’s neighbouring Arab states, in particular Egypt.
Petros Zarounas, energy and security advisor, Solon Kasinis, MP and former Director of Energy at the Ministry of Commerce, and Marios Tsiakkis, General Secretary of the Chamber of Commerce KEVE, all agreed that the long-term impact from a fallout in the Gulf could have a ripple effect on Cyprus, in particular because of natural gas exploration and potential exports from the island’s exclusive economic zone.
Furthermore, Turkey has taken advantage of its ties with Qatar to send troops to Doha in order to fend off any prospective military incursion by Saudi Arabia, and is thus seeking a role as ‘peacemaker’, now that it has been given the cold shoulder by the European Union and relations with the U.S. remain on ice.
“Is this a matter that seems to have erupted suddenly?” asked moderator Paris Potamitis, adding that many of these countries involved have a special relationship with Cyprus.
“By default, one way or another, Cyprus is affected. The energy situation in the region has an impact, directly or indirectly, on Cyprus. One of the gasfields in the Cyprus EEZ (Block 10) includes investments by ExxonMobil and Qatar Petroleum in what has been described as one of the most promising prospects,” the CyBC journalist added.
‘Why now?’
The most important question that will help us understand is ‘why now?’ responded Patros Zarounas, and explained:
“A similar crisis erupted in 2014, a similar group of countries had protested against Qatar and recalled their ambassadors over differences regarding Qatar’s relations with Iran and also the Moslem Brotherhood. As well as the activities of the Qatari station Al Jazeera and the objections by kingdoms, sheikhdoms and emirates over the channel’s broadcasts and its tolerance to allow the transmission of different opinions. Then, in 2014, a compromise was reached, there was some mediation, as is the case with Kuwait’s efforts today, and an agreement was signed with Qatar promising to adjust its attitude.
“The new development that has surfaced is the fact that Qatar has not implemented all that it had promised, and second, and most importantly, that the conditions have changed. The earlier ‘tolerated’ relationship between Saudi Arabia and Iran have been terminated. The United States, that tried to find a way to coexist with Iran, together with the ‘P5’ permanent members of the UN Security Council and the European Commission reached an agreement over Iran’s nuclear programme; this policy of the U.S. changed with the new administration in Washington. Mr Trump seems to adopt a more aggressive stance towards Iran, that partly adopts the Israeli point of view that Iran is a threat to the security of the region in general, that is trying to extend its influence in the region through the ‘Shiite axis’, with the government in Baghdad that is controlled by the Shiites, with Assad and Hezbollah, and by supporting the Houtis in Yemen.”
All these issues, added Zarounas, that is that the U.S. has adopted an aggressive policy, the Trump visit and the agreements worth billions in contracts with the US defence industry and the undertaking of the role of the anti-Iran bloc headed by Saudi Arabia and the ‘irregular’ presence (of Qatar) that has to be brought to order, these nations want to be much stricter this time because the last time Qatar did not heed to the calls and we could see harsher sanctions.
“There is also another interpretation that is not autonomous but complimentary. The biggest natural gas reserves are located between Qatar and Iran, partly owned by each country. The two cooperate in order to utilise this gasfield. Qatar has decided to reactivate an earlier decision that froze the utilisation of this gasfield, and this too possibly seems to upset those within the anti-Iran bloc, ie. those around Saudi Arabia. So this has led to a climax that we are witnessing today.”
Iran’s influence
In that case, does this allow Iran to extend its influence, politically and economically in the region? asked Potamitis, adding that “we now also see that Turkey is intervening. Within hours of the crisis erupting, it already had a base in Qatar, now it said it is sending troops, with some reports suggesting it will send aircraft and ships as well. So, it is taking a certain stance and supporting Qatar. What does this mean for Turkey? What is it trying to do and where will this lead to?”
Zarounas elaborated on the geopolitical situation and Turkey’s role.
“Initially, Turkey had said that it would mediate to calm the crisis, but it seems that what it owes to Qatar is quite a lot. These were the investments worth billions in recent years, especially after the terrorist attacks had an impact on Turkey’s tourism and the economy, the sanctions from Russia, and generally, the recession in Europe also affected Turkey, and Qatar’s investments, worth far more than $10 bln, helped sustain the Turkish economy.
“As a result, the Turkish construction giants were awarded contracts for Qatar’s sports infrastructure when it will host the 2020 World Cup. Add to this one more fact, that Qatar and Turkey share the same ideological viewpoint on the issue of the Moslem Brotherhood. So, the support that both of them give to the Brotherhood is a uniting factor. And if Qatar is accused today of doing this, Turkey is afraid that the ruling AK Party could be next and so they are acting defensively, almost protecting in a way Qatar, thinking that this way they are also protecting themselves.”
Zarounas said that in effect Turkey has abandoned the old Kemalist tradition that Turkey does not intervene in the issues of countries of the Middle East.
“These were maintained by Kemal Ataturk’s followers, but first changed during (Turgut) Ozal’s rule with Turkey’s intervention in the first Gulf War and we see it is now involved in many conflicts with troops in Iraq, in Syria, and is now sending troops to Qatar. This was an agreement reached in 2016 and it was taken without needing the approval of the national assembly in Ankara and was clearly designed to act as a deterrent in a potential military invasion by Saudi Arabia, similar to what happened in Bahrain two years ago.”
Tremendous importance
Qatar is a state with tremendous importance in the region and any development that could have an effect on energy matters and could also have an impact on us, directly and indirectly, said Potamitis.
“Indirectly because any investment costs or delays could also have an impact on energy investments in Cyprus, but what poses a greater question for us is what this could mean in relation to one of the most important offshore blocks of Cyprus where there is a co-operation between ExxonMobil and Qatar Petroleum. Could any development affect us one way or another?”
Solon Kasinis, who once headed the government division that initiated talks with potential oil and gas exploration giants, said that “the government’s decision to award the block to the ExxonMobil / Qatar joint venture carried a high risk because we knew from then the relations that Qatar had with Turkey. This fact is a particular concern. This is important because even though ExxonMobil is the operator of Block 10, as it holds the 60% of this privilege, the remaining 40% is held by Qatar Petroleum. This is an important issue as we will see what quantities will be found and how the gasfield will be developed. They have already conducted 3D surveys, and have shown very good positive results so far. This block had initially been awarded to Total in the second licensing round and the venture will proceed with the first exploration drilling in 2018 and possibly a second one as well.”
“It is true that Qatar is a leading supplier in natural gas and liquefied natural gas in the region, and the infrastructure in which they have invested are unimaginable. When I first went there and visited the infrastructure in place it was beyond anything you could imagine, in addition to the investments in brand new ships and brand new port facilities,” Kasinis added.
“I don’t think that the exploration plans in Block 10 can be affected by what is happening now, but on the other hand this could also revive the plan for the liquefaction of natural gas in Cyprus.”
Asked if the sanctions on Qatar could become an obstacle towards its commitments for investments on the scale of what it has planned in Cyprus, Kasinis said that, “I think that Qatar will proceed and will see the development in the area (of the Cyprus EEZ) and then continue.”
Cyprus exports
Coming to the wider economic interest that could change because of this crisis and how it affects Cyprus, KEVE’s Marios Tsiakkis said that, “the fact that there is an anomaly or instability in the region affects Cyprus in the sense that Arab countries and especially those in the Gulf are export markets for Cyprus.
“A large number of Cypriots and Cypriot companies are active in the area, mainly in the construction sector, so there is some economic impact for Cyprus from this development. Starting from Qatar that is at the centre of the current crisis, there are about 15 Cypriot companies that are active there, the biggest being J&P that is actively involved in the contracts for the construction of facilities for the World Cup, as well as a second tier of sub-contractors that are supporting the major contracts.
“There are about 625 Cypriots who permanently live and work in Qatar, and a further 100 who visit for business and work. So, although there seem to be no problems for now, in time and if the situation drags on there could be a reduction in the supply of raw materials and the construction pace, especially as these are supplied from Saudi Arabia and the UAE that have already imposed an embargo. These are not materials that you could normally hold in stock or reserves, these are usually ten days of stocks, because there is a constant supply.”
Tsiakkis added that “some delays could even slow down or suspend the completion of some projects. I don’t believe that this will have consequences or cancellations of contracts, but there will be an impact. I am informed that the Qatari government has written to these companies saying it will not undertake any higher cost created by such a disruption, and the companies themselves now have to find alternative solutions. Iran has opened up its ports to help with the situation, Oman seems to be helping as well, but its ports are not big enough to handle the increased loads of supplies and larger cargo vessels. The sooner this crisis is resolved, the sooner these companies will avoid a crisis of their own.”
As regards exports, Tsiakkis said that Qatar is not one of its leading markets, with an estimate of EUR 4 mln a year, which, however, does not mean that these are not important for Cyprus.
“Every market is important for Cyprus which is achieved with greater effort. Sending goods have not had a problem to date as these are mainly exported by air, mainly being pharmaceuticals and foodstuff. In the case of maritime shipments, the countries imposing the embargo have forbidden ships to stop at Qatar and then their ports, or first at their ports will not be allowed to continue to Doha.”
Moderator Potamitis asked how we can explain the fact that soon after the crisis erupted and the embargo was announced, oil prices went down, and if this will continue.
Qatari LNG
Kasisnis said that “it is a fact that the countries neighbouring Qatar take about 20% of their LNG. We will have to wait and see how this crisis could impact the supply of LNG, including to Egypt. For example, there are two ships already waiting to supply their LNG to Egypt and this does not seem to be changing, but will depend on what happens in the future. On the other hand, the Qataris who are in these countries have been ordered to leave in 15 days and this relationship has to return to some normalcy.”
Zarounas added that “for sure there is a very negative climate and it even smells of a war looming. But there were two more vessels with LNG cargo headed to the UK that were forced to change route when they reached Aden on the way to entering the Suez Canal, as a result of which the price of the LNG cargo had to go up by 4%. We will now see how Egypt will act as regards Qatari-flagged vessels or cargo ships with Qatar cargoes and if they will impose limitation on the use of the Suez.
“But it will also impact international trade, with the Suez Canal, that recently doubled its capacity, a very important part of international trade. The fear is that with the direct land connection, Saudi Arabia could proceed with some military intervention or even in the extreme case a coup detat could take place to force or replace the Emir so that Qatar could conform with the demands of the Saudi block and to terminate the isolation. On the other hand, Europe has a completely different approach, especially Germany, that this matter needs to be resolved taking into consideration the interests of all parties involved, including Turkey and Iran,” Zarounas explained.
The Chamber’s Tsiakkis warned that “the new dynamics will also determine who controls the flow of energy into the markets and Cyprus in particular should rethink its policy and reduce its reliance on crude oil and increase the use of alternative sources of energy to be able to overcome any similar crises in the future. When we discover (and export) our own resources, that will be good for Cyprus, but for now we are highly dependent on these types of fuels.”
Returning to regional geopolitics, Petros Zarounas explained that “we are no longer in an age where the US was the sole world power, especially after the collapse of the Soviet Union, that has allowed nations such as Turkey to become autonomous forces of their own in their respective regions. However, when Turkish forces tried to occupy a Kurdish stronghold west of the Euphrates, the Americans sent a small convoy with ten armoured cars waving their flag, as an indication of not allowing any further advance, and they (Turks) stopped. And in another case, the Turks again tried to seize control of another Kurdish stronghold in Syria and in this case a small battalion of Russian soldiers stopped them. This mans that Turkey knows very well that it has limitations and is constantly testing the limits. And it is moving according to the balance that exists. It is not an autonomous player, it knows that it has some leeway and that these are limited up to a stage.
Turkey a regional player
“So, let’s not assume that Turkey is a player that is out of control. Turkey is an international player, it is not a pirate state. It is our enemy that has occupied half the island of Cyprus, but this does not mean that Turkey does not or at least seems not to play by international rules. It uses the international laws wherever it suits her, it acts that it doesn’t understand where it is not to her interest, such as in the Cyprus EEZ. On the other hand, in the case of its relations with Israel it hit a wall and lost, as also with Russia.”
In conclusion, with reference to terrorism, Zarounas explained that “in the case of Jihadists, all countries have used them. In Syria, it is a proxy war. Iran finances some groups and sent its own troops, Turkey supported such Jihadists groups via its intelligence service MIT with arms and intelligence information, with treatment of jihadists in Turkish hospitals and business with the purchase of crude oil from Jihadists. Saudi Arabia and Kuwait have financed Al Qaeda, and even partly some of the leaders of the Islamic State. All of them are involved. This is a proxy war. Anyone who opposed Assad in Syria was given arms and money. But what is of greater concern now to Qatar’s neighbours is not the assistance to the Jihadist organisations that are active in Syria, but more the support to the Moslem Brotherhood that undermines their own regimes, foremost in Egypt. This is why they are calling Qatar to reconsider its stance, because of this support that it provides (to the Moslem Brotherhood).”
