Oman’s importance in the Middle East, and therefore in the world, is far greater than its estimated 5.4 billion barrels of proven oil reserves (22n/a largest in the world) implies. Its real importance to the United States and China is its critical geographic position, which makes it perhaps the most important oil and gas hub in the world. Specifically, the Sultanate has long coastlines along the Gulf of Oman and the Arabian Sea providing unhindered access to eastern and western markets alike. Thus, Oman and its major ports and storage facilities offer the only real alternative in the Middle East to the Iranian-controlled Strait of Hormuz, through which at least a third of the world’s crude oil supplies pass. Therefore, any major development in Oman is scrutinized by Washington and Beijing. And a lot has happened recently in the Sultanate that is of interest to both sides. The key to all these developments is that the Western alliance finally seems to have noticed that it was losing in Oman to China, as has happened in so many other Middle Eastern countries in recent years, especially after the Union’s unilateral withdrawal from the Joint Comprehensive Plan of Action (“nuclear agreement”) with Iran in May 2018. As repeatedly pointed out OilPrice.com during this period, China used its standard checkbook diplomacy to expand its presence in Oman. Already accounting for around 90% of Oman’s oil exports and most of its petrochemical exports, China was quick to immediately pledge an additional $10 billion to invest in Oman’s flagship Duqm refinery project. Although other investments from China were theoretically directed towards the completion of the Duqm refinery, Chinese money was also channeled into the construction and construction of an 11.72 square kilometer industrial park in Duqm in three areas – heavy industry, light industry and mixed use. This allowed China to plant a flag in fundamentally strategic areas of the Sultanate.
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What China really seems to want from Oman is to control all the major choke points in the crude oil transport routes from the Middle East to Europe and the West that bypass the Cape of Goodwill route. Hope more expensive and more nautically difficult around South Africa and the more politically-sensitive route of the Strait of Hormuz. This is fully aligned with Beijing’s broad strategic goal encapsulated in the multi-generational “One Belt, One Road” power grab project. China already has effective control over the Strait of Hormuz through its comprehensive policy 25-year deal with Iran, in a worldwide exclusive by me published September 3, 2019. The same deal also gives China a grip on the Bab al-Mandab Strait, through which crude oil is routed up through the Red Sea to the Suez Canal before heading towards the Mediterranean and then west. This was achieved as it sits between Yemen (which is disrupted by the Iran-backed Houthis, as China wants) and Djibouti (which China has established a stranglehold on, as China wants) . highlighted by OilPrice.com).
Given the money China had already spent in the Sultanate, Beijing was ready to move on to the next phase of its standard colonization plan – as seen recently in the Middle East and elsewhere, but especially can -being in Iran, Iraq, Sri Lanka, and Djibouti – which is to shift Oman to longer-term “Hotel California” deals (“You can leave anytime / But you can never leave”). The next phase involves Beijing just waiting for the time when the host country can no longer afford the dramatic increase in principal and interest payments at the end of the contract period, after which China deploys its standard methods of debt collection. loan shark type and seized strategic land that had been pledged by the host country as security for transactions.
Cue – the West, which may seem to China a collection of soft-skinned accountant types, but it could not build the two greatest empires since Rome’s – that of Britain and that of the USA – without knowing a thing or two Good to know. A key development in this context was the signing of an Exploration and Production Sharing Agreement (EPSA) between the Oman Ministry of Energy and Minerals and Shell Integrated Gas Oman BV, a subsidiary of the company British Shell, along with its partners, Oman’s OQ and French TotalEnergies will explore, evaluate and develop the natural gas and condensate resources in Block 11. The main geopolitical advantage of these types of deals in particular is that they require a significant presence on the ground of foreign nationals, including security personnel and other support personnel, as part of the agreement.
This deal is no different, establishing Shell as the operator of Block 11, holding a working 67.5% stake, with OQ and TotalEnergies holding 10% and 22.5% respectively, according to information released by the companies. EPSA’s exploration activities will see the seismic acquisition of 1,400 square kilometers at the end of 2022, with several exploration wells planned to follow. As Oman’s Minister of Energy and Minerals, Eng Salim bin Nasser al Aufi, pointed out: “This agreement strengthens strategic relationships with industry partners such as Shell, TotalEnergies, OQ and others to ensure Oman’s energy security and attract more foreign investment, adding the highest value for the local supply chain.
Following this, according to legal sources consulted exclusively in Oman by OilPrice.com last week, new investments could arrive from Western companies, even in the Duqm case and thanks to the work carried out with the Oman Investment Authority (OIA). Duqm, for starters, is the landmark petrochemical-centric project for Oman whose completion was delayed for several years as the Sultanate struggled with budget constraints due to low oil prices. As pointed out in several OilPrice.com articles over the years, the US$8 billion plus Duqm Refinery Project occupies 900 hectares of the Duqm Special Economic Zone and is a 50-50 joint venture between OQ Group and Kuwait Petroleum International (KPI). Apart from the main Duqm refinery site, the refinery project also includes the construction of storage and export facilities for liquid and bulk petroleum products at Duqm Port, crude oil storage facilities at Ras Markaz and an 80 kilometer crude oil reservoir. pipeline from Ras Markaz to the refinery. When operational, the Duqm refinery is expected to refine 230,000 barrels per day of crude oil products. According to a very recent comment from Shafi al Ajmi, the Managing Director of KPI, Duqm will start commercial operation in 2023.
The OIA, meanwhile, is seeking potential international investors in a series of planned IPOs of several of Oman’s top assets. Founded in 2020 as a result of the merger of the State General Reserve Fund of Oman and the Oman Investment Fund, the OIA is considered the the key to ‘Oman 2040’ development plan which aims to reduce the contribution of hydrocarbons to GDP to less than 10% by that year. The OIA controls the assets of its National Development Portfolio and Fund for Future Generations, with the former holding stakes in approximately 160 domestic assets and companies, while the latter holds mostly foreign assets and includes investments in public and private markets.
Among the many high-value public assets under the OIA’s control are the state-owned oil and gas producer OQ, the Muscat Stock Exchange and Oman LNG. OQ itself comprises the previously separate assets of Oman Oil Company, Oman Oil Refineries & Petroleum Industries Company and Oman Gas Company. In 2019, Oman sold 49% of its Electricity Holding Co to the State Grid Corporation of China for around $1 billion. However, given renewed awareness in the west of Oman’s critical strategic importance to Middle Eastern oil and gas flows, it seems unlikely that he will allow China to rule freely. to buy everything else in the future.
By Simon Watkins for Oilprice.com
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