Ad Hoc Commentary – Russia vs Saudi Arabia pipeline wars

“…Russia can use her gas weapon with impunity when the Chinese start buying in 2018. Today, Russia can only use her gas weapon for short periods before she starve herself of precious foreign exchange…”


In 2014, the Russian gas weapon bark is worse than bite because of: 1. a warm winter; 2. less gas (more coal) used for power generation; and 3. German-led austerity. The Europeans are probably still searching for solutions to Russia’s 30% market share. However, Putin’s men would prefer to keep the status quo and rush the China-Russia gas project. The Russians do not have any other choice. The pipeline infrastructure to China will likely be ready only in 2018 earliest. Since it is a 4+2 years deal, i.e. 4 years to build the infrastructure and an additional 2 years to fix problems, Russia needs the European consumers from now till 2020.


We mentioned before that:

“…The recent Syria standoff was about money – the potential Saudi pipeline competing with Russia…”

Any pipeline that would deprive Russia of hard currency will likely push Russia into war. American shale is not something that the Russians worry about – those cannot compete on price. The Russians are only worried about pipelines. At the risk of oversimplification, it is probably fair to say that Russia is only worried about a Saudi pipeline through Syria:

“…In 2009, Qatar proposed to run a natural gas pipeline through Syria and Turkey to Europe. Instead, [Syria] Assad forged a pact with Iraq and Iran to run a pipeline eastward, allowing those Shia-dominated countries access to the European natural gas market while denying access to Sunni Saudi Arabia and Qatar. The latter states, it appears, are now attempting to remove Assad so they can control Syria and run their own pipeline through Turkey…”


We can ignore the Sunni-Shia divide for now. Effectively, we have ‘Friends of Russia’ promoting the Iran-Iraq-Syria pipeline into Europe; and on the other hand we have ‘Friends of Saudi’ promoting the Qatar-Saudi-Turkey pipeline into Europe. Russia probably do not want any of these pipelines. They only have to lose if Europe diversifies. The only ones really wanting pipelines are probably the ‘Friends of Saudi’ and they are likely calling even louder for it. It is true that the previous hawk, Prince Bandar, was not given any role in the new administration by his own full uncle. But with oil prices at these low levels, isn’t the need for a pipeline from Saudi Arabia to Europe even greater now than before? This leads one to wonder if Prince Bandar was excluded because he was too meek.


What we have seen in the past few months are only escalations. Previously America didn’t even want to get involved, and rightly so because pipeline wars are not really their business. But then, we had the case of the White House security breach, and a week later, Obama decided to go into Syria with airstrikes. The Russians are probably hoping that ISIS is going to be like Al-Qaeda in Afghanistan – a mere tempest in a teapot than one warranting international military intervention. It is probably wiser for the Americans and Russians to stay out of Damascus and use diplomacy instead to help Assad decide on pipeline concessions.


However, this is the Middle East. The Friends of Saudi will probably not stay quiet. A new King would usually need to gain legitimacy among his subjects and it would not be surprising if there we see new-found assertiveness. Perhaps when WTI hits $35 US dollars.


Good luck in the markets.