Despite of permanent worldwide intentions to forecast the future of energy supply, where the estimates just a decade ago undeniably foresaw the barrel should gradually give way to gas, sun and wind, nowadays we can discuss the potential of increasingly diversified energy mix, however we are in a difficult position to provide any precise information regarding even the next day energy market situation. Numerous expert analyzes are struggling to cope with the challenges recently imposed not just by the outbreak of the global epidemic. Τhe inevitably arising question deals with the extent of pressure new global challenge exerted on energy chess board and its correlation with old strategies of global actors within the new emerging geopolitical context.
Warfare for energy
The strategic decline of the West not only in terms of security but also in terms of economy was highlighted by the Munich Security Conference, underlying the retreat of Europe to adopt and coordinate a specific common strategy in front of serious security challenges. The related reports highlighted China's growing role in world affairs, focusing on both the Eastern Mediterranean and the Middle East, which are becoming a competitive field for major powers trying to impose their influence in the area. Specifically for the Mediterranean, forecasts were particularly pessimistic as the report estimates that Western efforts to help restore stability and deal with problems such as migration flows, organized crime, and terrorism reached their limits. In addition to the inability to deal with a crisis like Libya's in Europe's neighborhood and the risk of "its transformation into a new Syria", Europe's role has been undermined thus opening the door to third-party interventions such as Turkey. The overwhelming conclusion was that economic power is directly linked to the exercise of security interests1. In fact, after the US introversion the market economy and individual freedoms were assigned to Europe, which could not meet. Moreover, without US assistance Europeans were unable to contribute and promote a solution to the problems and conflicts.
Indeed, when focusing on the Libyan civil war and the German peace initiative within the Berlin Conference, which was expected to be followed by other meetings, a justified fear has prevailed about the failure of the German plan, as it has been considered almost impossible to control and maintain the arms embargo on Libya. Only French President Macron in a slightly diplomatic way, publicly confronted Turkish President Erdogan over arms supplies. Because Turkey has been one of the most important violators of the embargo. Without commenting on France's position if the French interests in the Eastern Mediterranean did not coincide largely with Greek ones in the Aegean, Cyprus, Libyan Sea and Ionian, we should notice that the rhetoric of Paris was the only one in "United Europe", clearly against Turkish aspirations. Italy, as usual, was reserved: by not signing the joint statement of the Cairo Conference of January 8, 2020, in which the Turkish-Libyan demands were pointed out as invalid, it seems to keep its distance from Greece, Cyprus and Egypt, as well as from France. In addition, the ongoing war to secure the exclusive Economic Zones of the Mediterranean is becoming increasingly asymmetrical. Turkish adventurism is opposed to Cypriot dynamism. Tripoli is defending the agreement with Ankara, claiming the right to set its own EEZ. At the same time, Athens, issuing strong warnings seeking EU involvement, has expressed its uncertainty about declaring an EEZ not so much in the Aegean as in the Eastern Mediterranean. Until now, Athens has benefited from Cyprus' determination by challenging Turkey in the East Sea, granting research licenses to areas south of Cyprus, on the borders with Egypt and Israel. The joint front formed by Cyprus with the East Med Gas Forum seems relatively solid, as Greece, Israel and Egypt are involved. That is why Ankara is threatening to start drilling in the Mediterranean southeast of Crete, shared with Libya, but in those surrounding Cyprus. As for the construction of the East Med pipeline - which is opposed by Ankara - Turkey could not legally block the passage. Nevertheless, Brussels has simply threatened to impose sanctions on Turkey. Although it is certain that the EU cannot oppose third countries that make excessive maritime demands, nor can it adopt measures to resolve disputes, it can exert political pressure or facilitate dialogue. But now that "Ankara has crossed the Rubicon of the Eastern Mediterranean", the question arises as to whether the whole initiative was anything but a maneuver of impression or deception.
Cut prices war
The shift in oil prices crushing economic activity and demand due to pandemic along with the collapse of the OPEC+ agreement on production cuts posed the most recent challenge to an already complicated global energy chessboard. When the Saudi Arabia at the beginning of March called for a meeting of the OPEC+ group to discuss on further drastic production cuts to support oil prices, Moscow and Riyadh were "very, very close" to an oil deal, said Russia’s sovereign wealth fund chief adding that "without Saudi and Russia on the same page, there’s no deal to be had at all.”
In a time when cooperation seemed more important than ever due to significant collapse in oil demand, not many had expected this meeting to break up, particularly because of their collaboration as even since 2016 to control output and support oil prices. However the deal made no sense from the standpoint of Russian interests, taking into consideration that by removing cheap Arab and Russian oil from markets, the way for expensive American shale oil was opened. Apart from the Moscow`s intentions to maintain current levels of production for a few months to get a better sense of the economic consequences of the spreading pandemic before deciding on further cuts, an additional reason for maneuvering the American energy sector could be justified by the 2019 sanctions against Nord Stream 2, imposed just at the moment American shale gas was entering European markets. As the Moscow did not predict the Saudi reaction to its refusal to agree to further cuts, the price war had begun. Simultaneously, US President Trump although initially greeting the price collapse as a “big tax cut,” by the end of March, changed his attitude under pressure from the domestic oil sector. He set about trying to persuade the both sides to agree to major production cuts. Although a few days later, Putin announced that Russia was prepared to work with its partners, the United States and Saudi Arabia, to stabilize oil markets, we are still not able to predict the volatility of oil prices in the next few months. It should be noted, indicatively, that Saudi Arabia’s prices to Europe remain basically flat compared to the April pricing, while prices for the United States were raised. As well that the additional hefty discounts to Asia for May suggest that the Saudis are continuing to pay for market share there. Additionally, the low crude oil prices could make a major contribution to the Turkish economy, dependent on imports for almost all of its energy. Turkey’s energy import bill could drop in this way having a positive effect on macroeconomic balances.
New energy security architecture?
Pointing to the intentions of the Turkish government to play a leading role after pandemic, the French sources commented that a large amount of medical aid has recently been distributed by Turkey to more than 30 countries around the world. Although "accused" for using the context of global crisis at geopolitical level, according to the words or Turkish president "Turkey has a chance to be at the forefront of this process". Indeed, it should be noted that meanwhile, according to the German magazine Spiegel, Turkey has directed the incidents on the Greek border, reporting that "Turkish authorities forced the refugees to board buses and took them to the border area….". In addition a Turkish Perry-class (G) frigate is said to have fired at least one surface-to-air missile - RIM-66E-05 – in Libya. Moreover the security and intelligence services have been put on alert once again on the occasion of the suspicious shipping of a cargo ship, which sailed from Mersin in southeastern Turkey with a declared destination in Alexandria, Egypt, suspicioned that he is transporting military equipment to Libya. Finally, after the tweet of the Turkish Ministry of Defense about successfully completed joint training activity carried out by Turkish Air Force in the Mediterranean with Turkish Navy ships, the General Staff of the National Defense in Athens announced that in addition to 10 overflights on Good Friday Turkish fighter jets violated Greek airspace in the Central and Southeastern Aegean but also in the Libyan Sea! Probably, what happened was not just to challenge the scope of the Greek airspace of 10 nautical miles. According to some estimates Ankara's attempt was not unrelated to Erdogan's attempt to seize maritime zones south of Crete that belong to Greek sovereignty, as he already attempted through the illegal Turkish-Libyan memorandum. It should not be overlooked that this area coincides with the maritime area in which the European Union's "Irini" operation would be launched, thus controlling the arms embargo imposed by the United Nations in Libya. In addition, the Libyan President Fayez al-Saraj has sent a message to the United Nations Security Council and the European Union expressing his unequivocal rejection of the European operation. According to the newspaper Il Foglio, the main reason for Saraj's rejection is that this would affect the supply of weapons from Turkey.
Rushing of Turkey to fill the gap created by the temporary suspension of the operations of the companies that were being practiced in the Cypriot EEZ along with the order to send the Turkish oil company to take advantage of the opportunity of the absence of legally active companies in the area leaves room for thinking if there is a tendency of Ankara to take advantage of the crisis. Here it is worth considering that this attitude - which may not be official but usually evolves into such very soon - was transferred to other geostrategic regions of the world, what would be the result at the level of stability?
Necessity of transferring the energy supply?
The economic impact of the Coronavirus is intending to devastate the oil industry in dramatic phases. After it destroyed demand, storage started filling up and traders resorted to ocean-going tankers to store crude in the hope of better prices ahead. Consequently, as a sign of just how distorted the market has become, shipping prices significantly arose, as the industry runs out of tankers. Implementing "the end-game" strategy means the output cuts won’t be limited to the U.S. Everywhere producers are now either reducing output or making plans to do so. Saudi Arabia, Russia and the rest of the OPEC+ alliance will join the output cuts. Αlthough the oil traders say consumption has probably hit a bottom and will start a very gentle recovery, before that happens, the great shutdown will spread through oil refining too. In addition, former oil and gas crises in the 1980s or 2010s have shown that knowledge destruction because of layoffs can significantly slow down a recovery in the sector. On the other side certain estimates claim that "there is no death of oil". According to them the reports of the death of the oil industry are greatly exaggerated. Although the Coronavirus is throwing the industry into its worst crisis ever, and thousands of workers and possibly hundreds of companies could go bankrupt in the coming months and years, our society’s structural foundations that run on oil have not changed, which would become obvious in the long term. The pandemic seems destined to change our world in a number of ways, and some of those ways involve lower oil demand. At the same time, even if all goes back to the normal, the necessity for alternative energy resources is more and more on horizon. With wind energy to be the peak of innovation now, some oil companies have ventured into a new field with massive potential: floating offshore wind. The fact that Equinor is far from alone in its renewables push is indicative enough that the oil and gas industry is following investors in their changing attitudes. Shell, for example, has a small but growing presence in wind power, both offshore and onshore. French Total is also betting big on renewables. As the energy demand of a growing human population will continue to rise, floating wind farms may represent one of the future solutions.
As to the sustainable energy future of Southeast Europe, the foundation of the Regional Energy Center (RSC) which will be created in Thessaloniki through the 5 billion euro program until 2029, is considered of utmost importance. With the participation of the managers of Greece, Romania, Bulgaria and Italy, the RSC was to be established in less than a month and start operating before the summer, thus ensuring the supply of all neighboring countries and representing the culmination of a joint effort to make the best use of electricity networks across Europe. Strengthening Greece as an energy hub is creating added value for all the countries in the wider region, while important similar projects planned for next decade in the wider region of SE Europe, would significantly contribute to the strengthening of the main energy corridors.
Despite the fact is that oil and gas sector has suffered a turbulent start to 2020, due to the numerous factors, "the backstage games" and especially the issues concerning the Southeast Mediterranean during the global crises indicated again that this area of transit and future supply is crucial. Whatever are the answers in front of us, undivided attention of the old and emerging new actors has already pointed out the unprecedented importance of SEE area in any chosen scenario.
1 According to the specialized military website "Global Firepower" the United States, Russia, China, India, Japan, South Korea, France and the United Kingdom are now in the top eight. After Egypt, Brazil is in 10th place and Turkey is in 11th place, followed by Italy and Germany. Greece is in 33rd place.