Coming Down: Why Russian Oil and Gas Companies Will Halt Expansion to the Middle East

In the coming years, we should not expect any ambitious oil and gas projects with Russian involvement in the Middle East, Fund for National Energy Security Director Konstantin Simonov believes. A period of expansion has been followed by a comedown and any new projects will advance carefully and incrementally. 

“Russia will soon enter a period of reassessment of its foreign expansionist oil and gas strategy,” Simonov said in an interview with on the sidelines of the Valdai Club’s Middle East Conference. “Russia has been envious for a long time of major Western energy companies, those weathered transnational oil and gas players. We also wanted to be like them. This is why our companies were actively promoting overseas projects in South America, Africa and the Middle East. But now they are experiencing a comedown.” 

At the same time, the Russian companies that have been involved in the Middle East market for quite a while are well aware of its specifics and risks. “These risks are not only political but also politico-economic,” he said. “For example, the problem with Iraq (although this territory is highly specific) is not so much its political stability as the terms of working with people who represent the government.” 

For example, LUKOIL that is developing the West Qurna field in Iraq has acquired valuable experience when it comes to dealing with the local administration. “It was no problem for the company to come to terms with the new authorities thanks to its fairly flexible behavior under the former regime,” Simonov noted, adding that the same was true of Gazpromneft that is developing the Badra field. 

According to the expert, Iraq is the most promising market of all existing in the Middle East. “What I have in mind are absolutely unique projects, plus rich oil reserves and low costs in this place,” he said. “Of course, this attracts, among others, Russian companies that have money, technologies and a track record of working in this area; in short, they have much to offer.” 

Iran is a different matter. After signing the “nuclear deal” in 2015, it looked like a promising market. “I don’t think we’ll have any breakthroughs in Iran, given our highly sensitive attitude to sanctions. With Total on the run, would some Russian company say: ‘We’ll come in, no matter what happens?’ I don’t think this will be the case though,” Simonov said. The corporate reluctance to spoil relations with the US even further, he mused, is not the only reason. Iran is Russia’s “most direct strategic rival” in the gas sector. 

Saudi Arabia is also a direct rival, in terms of oil supplies. “We will not be present in Saudi upstream and I’m really rather doubtful that they will be present in our upstream, either,” he noted. “Although there is much talk about their potential involvement in Arctic LNG-2, I don’t think that they’ll buy anything at all there. […] Hopefully, everyone will manage to keep a sober mind: all parties want to have oil priced at $65 without causing the market to collapse. But partnership in this sector is not in the nature of investment cooperation at this stage.” 

Another important thing is that Russian corporate involvement in overseas oil and gas projects reflects on the global balance, which is of special significance in the context of Russia’s participation in the OPEC+ initiative. “Our overseas production is impacting on the world market as a whole,” he said. “Currently we are observing an interesting situation where Russia together with Saudi Arabia are pondering over how to balance the global market. We are cutting our domestic production while stepping up Russian-paid production in other countries. Here we are faced with a dilemma: on the one hand, there is money to make but, on the other, by this virtue you will unbalance the market. You are cutting production at home, while boosting it elsewhere. This problem seems rather important in the context of Middle East projects.”   

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.