Syrian oil draws Asian help

With Asian economic powerhouses such as China and India aggressively hunting for new sources of energy to fuel their expanding economies, opportunities beckon for sanctions-hit Syria.

Syria's petroleum wealth, although limited by Mideast standards, is attracting the growing interest of oil-hungry Asian nations, even as some American oil majors pull out to minimize their investment risks.

"The majority of Western companies are not interested in investing in Syria because any country that is under sanctions or could face sanctions is going to be regarded as a higher risk," says Samir Saifan, a Syrian economist. "Naturally, Syria will look for other sources, and they are China, India, Malaysia, and other Asian countries."

Not only Syria is looking. Even the largest Mideast oil and gas producers, such as Saudi Arabia and Kuwait, are eyeing the booming markets of the East, a shift that threatens to weaken Western influence in the region.

"We are in a very fluid transitional period, not just in terms of energy factors but geopolitical factors," says John Calabrese, an energy specialist with Washington's Middle East Institute. "Every country is recalibrating its relations in order to try and, at least in the short term, achieve a better balance."

Oil production is a vital component of the Syrian economy, generating almost 70 percent of its export revenues. But output has been in decline for a decade, dropping from around 600,000 barrels per day to 460,000 barrels per day. At the current rate, Syria could be a net oil importer within a decade, a reality that has galvanized the Syrian government to intensify oil exploration and production.

Two years ago, the Bush administration slapped limited sanctions on Damascus, banning the export of all US goods to Syria except for humanitarian supplies. Earlier this month, the sanctions were renewed by President Bush for another year. The sanctions and political pressure have encouraged some American oil companies to pull out or reduce their presence: US oil giant ConocoPhilips withdrew from Syria in 2004 and Devon Energy of Oklahoma City, Okla., exited last year.

"Definitely there is a lot of pressure being put on anyone doing business there," says Said Ghusayni, vice president of Mitsui Bussan Commodities in London. "It's very difficult for any US majors to do any business in Syria."

Marathon Oil Company of Houston was locked into a long-running dispute with the Syrian government after discovering two oil-and-gas fields in central Syria in the 1980s. Last week, Marathon signed a $127 million deal with the state-owned Syrian Petroleum Company, ending a freeze in the company's activities in Syria. Rather than a trend-bucking move by an American oil major to invest in Syria, however, the agreement allows the firm to sell its interests to a third party, giving it a door to exit Syria if it so wishes. "That's definitely one option," says Scott Scheffler, a spokesman for Marathon Oil.

With American companies departing, Russian and Asian firms are filling the gap. Devon Energy sold its interests in Syria to Gulfsands, its partner in a joint exploration contract. Gulfsands then sold 50 percent of the project to SoyuzNefteGas, a Russian oil and gas company. A Russian company was contracted by the Syrian government in December to build a $2.7 billion oil processing plant in central Syria.

In January, an Indian oil and gas major and a Chinese rival won a joint 37 percent stake in a Syrian oil and gas field in a $573 million deal with Petro-Canada. Petro-Canada said it was selling its 37 percent share to reduce its political risk profile in Syria.

Other than economic benefits, Syria stands to gain politically by having the sympathetic ear of Russia and China, two of the five permanent members of the United Nations Security Council.

The Security Council is presently assessing a draft resolution submitted by France demanding Syria establish formal diplomatic relations with neighboring Lebanon and demarcate the border between the two countries. Syria has decried the proposed resolution, arguing that its bilateral relations with Lebanon is not the affair of the UN, a stance that has won Russian support.

"We do not feel any need for big moves now," Vitaly Churkin, Russia's UN ambassador told reporters last week. "As far as we are concerned, everything is working fine now" between Lebanon and Syria.

Although Russian objections are unlikely to stop the adoption of the French-drafted resolution, it appears to have thwarted a more strongly worded version proposed by the US.

Iran, too, gains political spin-offs from the lure of its enormous energy resources, with both Russia and China checking Washington's determination to slap a UN resolution on Tehran over the latter's nuclear ambitions.

China is the world's second-largest consumer of petroleum products after the US and is the source of about 40 percent of world oil demand growth over the past four years, according to the US government's Energy Information Administration.

"Asia is the natural market for Middle East oil and gas," says Hossein Ebneyousef, a consultant with the Washington-based International Petroleum Enterprises. Middle East oil fueled South Korea's economic boom, but "what is relatively new is the phenomenal demand of other parts of Asia, China, and India in particular.... Obviously, the Persian Gulf region with its huge reserve space offers excellent opportunities for them," he says.

And excellent reciprocal opportunities may exist for Mideast oil producers - such as Saudi Arabia and Kuwait - looking to diversify away from a reliance on the West and to win powerful political friends.

"Here's where it gets interesting because they run the risk - Syria, Iran, and Sudan - of seeing the East as being not just their economic salvation but also their political salvation and I'm not totally sure about that," says Mr. Calabrese of the Middle East Institute. "At the end of the day, the relationship with the US, particularly as far as China is concerned, means far more than the relationship with Iran."