The Powerful Vultures Circling Libya
General Khalifa Haftar grossly underestimated the extent that external forces would clamor for Libya’s natural resource bounty once he unleashed his offensive on Tripoli. The vultures wasted no time in descending on this lucrative venue, and they include everyone from China and Russia, to Italy, France, Qatar, the UAE and Saudi Arabia, not to mention a few smaller powers helping out their respective allies.
What they each want is what will keep this conflict from seeing any resolution in the near future. So what does everyone want a piece of? It’s a lucrative list that has in mind Libya’s plans to double oil production by 2023. That was the focus on a May visit to Houston by NOC head Mustafa Sanalla – and at stake are $60 billion in procurement contracts.
– El Sharara oilfield: This is Libya’s largest producing oilfield, and right now it’s nominally under the control of Haftar’s forces.
– El Feel oilfield: Another big field in southwestern Libya, also under nominal control of Haftar’s forces.
– Offshore oil resources controlled by the Government of National Accord (GNA)
– The ports of Benghazi and Tobruk, with access to the Mediterranean: Under Haftar’s control
– The refinery at Ras Lanuf: Under Haftar’s control
– The above-mentioned lucrative procurement contracts
There’s quite a lot a stake, and very powerful external forces are pulling in different directions, though China – always politically pragmatic – is courting both the GNA and LNA, hoping to win big either way. Russia, too, is torn in this game. Moscow had lent Haftar a helping hand on numerous occasions, but it is also flirting with the Tripoli-based NOC through a 2016 contract with Russian oil giant Rosneft. But all indications are that Moscow is leaning more towards Haftar, whose offensive on Tripoli it has refused to condemn. Still, Russia is playing it cautiously.
Egypt and France are largely LNA facilitators at this point, and that pits France’s Total SA oil giant directly against Italy’s Eni, with Rome supporting the GNA against Haftar. Turkey and its ally, Qatar, are lining up against Haftar and in line with the GNA. The UAE is clearly supporting Haftar, and this echoes the current Persian Gulf alliance that has seen Qatar under economic blockade by Saudi Arabia, the UAE, and Egypt.
With this kind of geopolitical lineup, it’s virtually impossible for either the GNA or Haftar’s LNA to take one step forward without taking two backward.
Argentina: The Default Hedge
The play to watch for Argentina’s October elections is this: Alberto Fernandez, running with populist Cristina Kirchner as his VP, is trying to use the IMF against incumbent Macri by hijacking the issue ahead of a planned IMF visit to the country at a time when Macri is trying to lessen the impact of a deepening financial crisis. Fernandez is playing the “moderate” card, and a wide swathe of the public that hates Kirchner now seems to be buying this, conveniently ignoring Kirchner’s presence on this ticket.
More specifically, Fernandez is trying to force Macri to renegotiate the IMF loan before the October elections. What he wants is to ensure that Macri takes the hit on this while at the same time leaving more money in the bank for a Fernandez administration.
Fernandez is using every public opportunity to denounce Macri’s failed economic reforms and to state that Argentina has not met its obligations under the IMF deal. His new campaign line is that if elected president, there will be no default. Elections are on 27 October, and Fernandez is now widely expected to win, but we caution against considering this a done deal: a lot can happen in 60 days in Argentina.
Right now, investors are betting that Argentina will default, not because of Macri but because Fernandez is slated to win the presidency. So, the real question becomes: Does Fernandez mean default? There is the potential that he does not. That will depend on whether he succeeds in overpowering Kirchner and her crew who are really gunning for the presidency with this bid. But Fernandez has betrayed Kirchner before, and if left on his own, he won’t necessarily pursue populist policies. The power play to keep an eye on is just as much between Fernandez and Kirchner as it is between Fernandez and Macri at this point.
The Next Yemen? It’s Iraq
The US-Iran drama playing out on the high seas in terms of an oil tanker tit-for-tat is child’s play compared to the Israel-Iran side game currently going on. In a dangerous break with practice, Israel struck a weapons depot in Iraq that it claims was an Iranian hub for smuggling weapons into Syria. Israel operates in Syria with frequent bombing campaigns, but never in Iraq. The attack on the weapons depot was on August 14, and there have been others as well that were likely perpetrated by Israel targeting militia bases that house armed Shi’ite groups receiving support from Iran. Iran has bases in Iraq and Syria where they support the fight against the Islamic State (ISIS). This makes Israel very uncomfortable.
This means that Iraq has officially been drawn into the conflict. It means it’s on the edge of becoming another Yemen (or Syria), as a proxy venue for a war between Israel and Iran. This puts Iraq’s Shi’ite Prime Minister, Adel Abdul Mahdi (a compromise candidate) in a very tough position – hence Baghdad’s odd silence on the Israeli attacks. Further explaining the silence is the fact that Mahdi (while Iraqi Shi’ites generally identify with Iran) was Washington’s choice for Iraqi PM, and Washington will most certainly have given the Israelis the nod for their attacks on Iraqi soil. Iraq will implode if it has to navigate the tricky balance between Iranian support (first and foremost it needs Iranian electricity desperately) and American-Israeli anti-Iran maneuvers.
But while Israel is trying to turn up the heat in the Middle East and drag the US along with it, things are going in an anti-Iran direction in Yemen. Reports have now surfaced that the US is planning to hold secret back-channel talks with the Iranian-backed Houthis in Oman, and they’re trying to get the Saudis to join in as well. What does this mean? It means that the US is also trying to end this conflict (and UAE lobbying will have helped that along), leaving the Saudis hanging out to dry. This comes amid Houthi rebel claims that they attacked a military target in the Saudi capital, Riyadh on Monday, though the Saudis dismissed the report as false.
Global Oil & Gas Playbook
– Destination Unknown. All eyes are still on the Iranian tanker Adrian Darya 1, formerly the Grace 1. Originally held by Gibraltar under suspicion that its light crude oil was headed to Syria (after traversing a really long way around Africa instead of through the Suez Canal), it was later released on Iran’s assurances that it was not. The voyage around Africa took more than two months. Reports surfaced that since its release, the tanker looked to be headed toward Syria, then Turkey, but it has changed course more than once since setting out. Iran has claimed it has already sold some of the oil but wouldn’t say to whom. Iran has stated that it did not yet know where this customer wants the oil delivered. If the oil is going to Syria, despite EU sanctions, Iran could run afoul not just of US sanctions but EU sanctions as well, using up what few chips remain as it tries to get the EU to make good on its end of the nuclear deal by purchasing Iranian crude.
– The trade war between the US and China has reached a new low as China and the United States trade blow for blow in the latest round of public peacocking. China has now come up with a plan to increase domestic consumption of its own goods to make up for the sagging international trade. President Trump’s “order” to US businesses to “immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.” On the oil front, it has been suggested by some that the United States will feel the pinch of the trade war as China backs off its imports of US crude, as China announced it plans to slap a tariff on US crude imports into China. China, however, has already backed off its US oil purchases in recent months since the trade war began. Even still, the US will easily find buyers of its crude oil to make up for what China’s largest refiner, Sinopec, stops buying. South Korea has already increased its purchases of US crude oil, and even more refiners are testing out various grades of US crude oil to see what works. Sinopec is also expected to ask the Chinese government for a waiver from the tariffs.
– Aramco Trading Co. (ATC) sold its first batch of WTL (not to be confused with WTI), to South Korean refiner Hyundai Oilbank. ATC has sold other US crude grades over the last year to a variety of Asian refiners. Aramco has been buying the US oil from its US-based refinery arm, Motiva – the largest oil refinery in the United States. This is Hyundai Oilbank’s first WTL purchase, and could be part of the push to purchase US crude as China’s US crude purchases fall as it becomes uneconomical for their refiners who need to pay more for US crude under the tariffs levied on it. Aramco has not only reached a 20-year deal with Hyundai Oilbank to supply 0.25 million bpd of crude (more than a third of what Hyundai needs), but it has also purchased a $1.6 billion, 17% stake in Hyundai Oilbank earlier this year as Aramco seeks to expand its downstream business which will ensure a healthy market for its crude.
– Angola will auction off upstream exploration licenses in October. This will be the country’s first such auction in nearly a decade. Notably, it will also be the first under the presidency of Joao Lourenco (post-Dos Santos). Areas on offer included blocks in the Namibe, Benguela, and Benguela Basins. Recent oil discoveries by Italian Eni in the country are expected to attract more international oil majors.
– BP has agreed to sell its entire business in Alaska to Hilcorp Energy Corp. Under the terms of the agreement, subject to state and federal approval, Hilcorp will pay BP a total of $5.6 billion. BP’s net oil production from Alaska in 2019 is expected to average almost 74,000 barrels a day. The deal forms a significant part of BP’s plan to divest $10 billion of assets over 2019 and 2020.
– France’s Total signed deals to transfer some of its Kenya, Guyana, and Namibia assets to Qatar Petroleum. Total will give up partial shares in two Namibia blocks, and partial shares of two blocks in Guyana. In Kenya, Total will give up partial shares in three blocks. The move is important to Qatar, who is on a spending spree to expand its international oil exploration presence.
– India appears to still be importing Venezuelan crude in defiance of US sanctions, while at the same time complying with sanctions against Iran. India’s July loadings of Venezuelan crude were more than 250,000 bpd. India is in a tight spot here due to its contract to purchase Venezuelan crude that was forged prior to sanctions.
– Italian oil company Eni announced the discovery of huge gas and condensate find in its Obiafu-Obrikom oil fields onshore Niger Delta region. The company said that the find is about 1 trillion cubic feet of gas and 60 million barrels of associated condensate in the deep-drilled sequences. Nigerian National Petroleum Corporation (NNPC) holds a 60% interest in the block.
– A handful of UK’s politicians are demanding a ban on hydraulic fracturing operations in northern England after a 2.9 magnitude tremor was recorded close to Cuadrilla’s site near Blackpool, the largest to date. MP from the Conservative party Mark Menzies has demanded the “full cessation” of fracking in the area. Labour’s shadow business secretary, Rebecca Long Bailey, has called for fracking to be banned. The tremor was stronger than those that forced Cuadrilla to suspend test fracking back in 2011.
– India’s oil minister is traveling to Moscow to meet with Novak this week. Rosneft, according to sources, wants India to participate in a big project that has not yet been disclosed. This is the third meeting about India and Russia’s tie ups in some areas of oil and gas exploration.