China gains a foothold in this strategic Middle Eastern oil state
Recent talks between Oman’s Assistant Chief of Staff for Operations and Planning, Brigadier Abdulaziz Abdullah al-Manthri, and Chief of Staff of the Iranian Armed Forces, Major General Mohammad Bagheri, could mark a new phase in the already deep and vast relations between Oman and Iran, and in the drift of the Sultanate in the Iran-China axis. ” The two countries [Iran and Oman] have conducted several joint naval exercises in recent years, with the aim of protecting the waterway from the Persian Gulf to the Gulf of Oman against smuggling and other threats, including terrorism, but these [recent] the discussions aimed to extend this cooperation both in terms of the armed services involved beyond the navy and the scope of their joint activities beyond the fight against smuggling and the fight against terrorist threats â, he added. said an Iranian source who works closely with the Oil Ministry. OilPrice.com Last week.
The main problem of Oman which has accelerated its evolution towards the Iran-China axis of power is that it does not have the scale of natural resources to generate the financing necessary to keep its economy running without any industry other than the industry he’s looking for. diversifying your economy with – petrochemicals – requires a lot of upfront funding before it pays off. Therefore, with only around five billion barrels of estimated proven oil reserves (barely the 22nd largest in the world) and minimal natural gas reserves – Oman has explored many options to close this funding gap, but its problems Fiscal budgets have been significantly worsened by Saudi Arabia’s initiative. The oil price wars of 2014-2016 and 2020. Even before Saudi Arabia’s 2020 attempt to severely deactivate the US shale oil sector using the exact same strategy that failed in 2014-2016 and also had destroyed the budgets of its OPEC brothers, as analyzed in depth in my new book on global oil markets, Oman had faced a budget deficit this year alone of at least 18% of GDP and budget deficits by at least 15% per year on average over the next five years.
In order to give it time to develop its response to many of its financial problems – the deployment of the still delayed but potentially revolutionary Duqm refinery project, and its corollary plans for a product export terminal in the port of Duqm and Crude Dedicated to Duqm Refinery Storage Tanks in Ras Markaz – Oman has tried several options for raising funds. Oman was so determined to keep its budget deficit within manageable proportions that it not only implemented measures (including lower spending on salaries and benefits, subsidies, defense and capital investment by government ministries). civilians) who reduced spending (in 2016 by around 8% of GDP) but also decided to curb hydrocarbon-related spending. In this context, the Financial Affairs and Energy Resources Council of the Sultanate has set up a specialized working group to study public spending and ways to reduce it. At the same time, it was made clear that the Omani government would only apply zero-based budgeting in the Ninth Five-Year Plan of Approval of Allocations for Development Projects until after all the feasibility studies and analysis were completed. actual costs of each of them have been completed. The Council also stressed that it aimed to avoid having additional requests for funding from developers after a project has started.
However, Oman’s problems with the Duqm refinery project worsened in 2016 when the United Arab Emirates‘ International Petroleum Investment Company (IPIC) said the Duqm project no longer matched its overall investment strategy. , in light of the impending merger at the time of IPIC with the Mubadala Development Company, and withdrew from the project. Although this was followed in November by the signing of a memorandum of understanding between the Oman Oil Company (OOC) and the Kuwait Petroleum Corporation (KPC) for cooperation on the construction of the refinery, OilPrice.com understands that it was not even half the cost then estimated at $ 6 billion. Given the negative outlook for international credit ratings and downgrades in previous years, Oman’s options for raising funds through conventional bond offerings have remained limited, as has the appetite of investors. international investors to buy into any partial privatization of one of Oman’s state-owned companies. , even the highly regarded Oman Oil Refineries and Petroleum Industries Company (ORPIC).
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It was then that China saw its chance to expand its presence in Oman, which is a key land and sea hub in Beijing’s multigenerational power outlet project, “One Belt, One Road. “(OBOR). Specifically, around the same time that IPIC withdrew from the project, the operator of the refinery – the Duqm Refinery & Petrochemical Industries Company (DRPIC) – in tandem with the OOC, appointed a number global banks, led by the regional heavyweight CrÃ©dit Agricole, to advise on the optimal methods to obtain project financing. The openings have been particularly favorable to China, which, as part of a widespread investment in Oman, has pledged the funding needed to cover the completion of the Duqm refinery. However, he came with the usual Chinese warnings that he is allowed to build massive and large-scale infrastructure projects.
Already accounting for around 90% of Oman’s oil exports and the vast majority of its petrochemical exports, China was quick to capitalize on this by immediately committing to invest US $ 10 billion in the refinery of oil annex of the Duqm refinery project – just after the implementation of the nuclear power plant with Iran in early 2016. At this point, Oman announced that the budget for the Duqm refinery project had fallen from the long figure. date from $ 6 billion to a total of $ 18 billion for all elements of the project. This, the government of Oman said, would allow downstream production to increase from its current 15 million tonnes to 24 million tonnes by 2030, while commodity sales volumes would almost double from its current 15 million tonnes. from 21 million tonnes to 40 million tonnes on the same date.
Although other investments from China have been directed towards the completion of the Duqm refinery – including the export terminal at Duqm port and the crude storage tanks at the Ras Markaz oil farm – Chinese money was also funneled into building and constructing an 11.72 square kilometer industrial site. park in Duqm in three areas – heavy industry, light industry and mixed use. This has enabled China to secure deeply strategic areas of land in the geopolitically vital Sultanate of Oman, which has long coastlines along the Gulf of Oman and along the Arabian Sea away from the Strait of Hormuz extremely politically sensitive. It also offers largely unlimited access to markets in South Asia, West Asia and Africa, as well as those of its neighbors in the Middle East. Following the usual Chinese investment model, it has also given China the ability to populate these areas with its own people, from project managers to security personnel.
In line with these developments, the addition of Oman to its territorial acquisitions in the Middle East means that Beijing can speed up transport routes between Iran and Oman. A long-standing addition to China’s direct plans in this context has been Iran’s use of Oman’s spare liquefied natural gas (LNG) capacity. The plan, which has long been talked about between Tehran and Muscat, is part of Iran’s plans to become an LNG superpower based on its huge unassociated South Pars and North Pars gas fields. Oman, for its part, would allow Iran to use 25% of the Sultanate’s total 1.5 million tonnes per year LNG production capacity at the Qalhat plant. This could be done as part of a larger plan to build a 192-kilometer section of 36-inch pipeline along the Arabian Sea bed to depths of up to 1,340 meters from Mount Mobarak in the from the province of Ormuzgan in southern Iran to the port of Sohar in Oman. for gas exports. This, in turn, would reopen the possibilities of other pipeline routes stretching from Iran to Oman, then Pakistan and then China, and back again, all under China’s security protection, regardless of any plan that states have. United might have power in the region in the southern part of the Shiite crescent, as has also been analyzed in depth in my new book.
By Simon Watkins for Oil Octobers
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