Armenia after 25 years of Independence: Maintaining Stability in an Unpredictable Neighborhood

Photo:Flickr / Nina Stössinger CC BY-SA 2.0 Monument to the Armenian Alphabet, erectedin 2005 just outside of the village of Artashavan

Like all other post-Soviet countries in the Commonwealth of Independent States, Armenia celebrated its 25th anniversary of independence in 2016, which is a fitting occasion to draw lessons from the first quarter of a century’s experience, and to look to the future — after lengthy Caucasian toasts have all been raised and drained.

This essay will attempt to outline a future, based on monitoring and a critical understanding of the current trends and track record of the past few years in and around Armenia. As it commonly happens, the course of development in the next few years will depend on a number of internal and external factors, and none of those are constant variables, neither can they be assessed and predicted with mathematical accuracy.

Thomas Jefferson advocated for a fundamental reconsideration of prevailing institutions once in every generation [1]. Along these lines, the next two to three years in Armenia will be marked by transforming the domestic political landscape — for two major reasons, formal and informal. First, the generation of those who earned independence and brought victory in the 1992-94 war will not be around forever. Already in 2013 Armenia’s first President Levon Ter-Petrosyan, now 71, cited age and health issues for not running in the presidential race. No doubt, the influence of the founding fathers on decision-making will continue to have a major impact, yet pending institutional changes will inevitably tailor new circles of influence across the political spectrum.

Secondly, Armenia is scheduled to transform into a parliamentary republic following Constitutional Amendments adopted following a 2015 nationwide referendum, and therefore the forthcoming parliamentary elections of April 2017 (more importantly, the campaign) will mark a tipping point for Armenian political elites to adjust to new rules of the game. Beyond holding these elections in a free, fair, and transparent manner, crucial for ensuring continued support and uninterrupted cooperation with Brussels, Washington and international financial organisations, the future of the Armenian political system will be determined by the alliances and blocs formed in the run-up to the elections, and their endurance in the new parliament. The new Electoral Code — adopted in a rare consensus among the ruling and main opposition parties in Fall of 2016 (even branded as “historic”) — created

an environment where mainstream political groupings spoke favorably of the pre-electoral environment.

Minor league political parties are already speaking in favor of forming pre-election coalitions, including some mulling over mergers. It is highly possible to observe the consolidation of parties across the political landscape, and, given the design offered in the new Electoral Code, the emergence of a two-and-a-half strong party system before the 2022 parliamentary elections. The lessons of the failures in some post-Communist parliamentary republics suggest that the sustainability of the system of governance correlates with that of the party system.

The amended Constitution will fully enter into force following the Presidential elections in February 2018. At first sight, nothing more but the transition of executive power from the President to the Prime Minister will take place; but in fact the transition will bring crucial changes as a result of a new institutional design with a more decentralized system of governance, populated by many political parties and interest groups, and a reformed and more robust National Security Council with, possibly, decision-making powers.

Photolure / fmgnews.info 

The Iskanders in Armenia: Restoration ofa Balance or a New Round of the Arms Race?

Armenia has a dynamic and highly emotional society with a high internet penetration rate, uncensored internet content (‘Free’ status in Freedom of the Net index by Freedom House, 2015), still climbing numbers of social media users and activism, who can boast of a number of successful viral campaigns in the recent past (public transportation tariffs in 2014, #ElectricYerevan in 2015, etc) and serious mobilisation potential against external challenges (e.g. the slaughter of an Armenian family in Gyumri, 2015; Four Day War, 2016, etc). Therefore, in order for both domestic political parties and the government to earn followers, and for foreign powers to maintain their positive agenda, “winning hearts and minds” through various soft power tools will remain the one and only sustainable course of action.

On foreign policy, it will be safe to argue that the “foreign policy begins at home” maxim, refreshed by the brilliant political scientist and President of the American Council on Foreign Relations Richard Haas in his book with the same title (Basic Books, 2013), will continue to apply to Armenia in its relations with not only Azerbaijan and Turkey, but also its major ally — Russia, and indispensable security partner — the Republic of Nagorno Karabakh.

The prevailing mood in Armenian society on any new deals with Azerbaijan or initiating (rather than responding to) a new rapprochement with Turkey have become highly unpopular — following the Four Day War in April, 2016 and the increasingly anti-Armenian rhetoric of Turkish President Erdogan, who will for some time keep busy looking inward to the growing Kurdish insurgency. In the case of Azerbaijan the situation is unlikely to change, given the present state-driven propaganda environment.

However, there is a possibility for the resumption of a track-two, or even track one-and-a-half Armenian-Turkish behind-the-doors process, especially if Hillary Clinton makes it to 1600 Pennsylvania Avenue.

Interestingly, absent political openings for a resolution of Nagorno Karabakh, especially after the unprecedented escalation and armed aggression by Azerbaijan in April 2016 [2], followed by its unilateral abandonment of the commitments shouldered in the Vienna and Saint Petersburg summits in May and June (2016), new frameworks for addressing the humanitarian aspects of the post-conflict reconstruction may be launched within the scope of the European Court of Human Rights Grand Chamber’s twin judgments of “Chiragov and others v Armenia”, and “Sargsyan v Azerbaijan”, delivered back in June 2015.

This unparalleled legal process will most likely have an impact on similar cases involving Turkey, Greece, and Cyprus, and most importantly — result in strengthened and more institutionalized relations between Armenia and Nagorno Karabakh, taking these relations to a new level, free from excessive emotions.

Continual strengthening of the strategic alliance with Russia, regardless of the dynamics in the CSTO or Eurasian Economic Union, will continue to be a priority for any government in Yerevan. Yet it is important to open up new channels of interaction between Moscow and Yerevan and to remove Soviet-era mentalities on both sides, otherwise miscommunication will deepen over time, as seen with other post-Soviet countries. Just to bring one vivid example: in “The Strongman” (2013) Angus Roxburgh interviewed many experts and high-level politicians in Russia — and none of them could predict the events that would happen in Ukraine; moreover, the scenario of a worsening of bilateral relations with Ukraine was mostly ridiculed by the interviewees.

Intensive exchanges of students, academic visits by university researchers, and enhanced humanitarian cooperation and public diplomacy will eventually replace the “common past” narrative, which is mostly irrelevant for the post-independence generation. Of course, the mass media in both countries has a big role to play, gradually embracing proper expertise instead of ”know-it-all” commentators.

The present situation sometimes sends false signals of consensus within the Russian elite that Armenia is and will remain Russia’s key and unparalleled ally in the region. The 17% drop in public perception of Russia’s “friendliness” in Armenia, observed in a Eurasian Development Bank survey in October 2016, should be an alarm bell for both sides [3]. Neither side should be blinded by pride and arrogance.

As a country that continuously strives to find opportunities only in areas where the interests of great powers overlap ,and not to play on their contradictions, the Armenian foreign and security policies will greatly correlate with the ability of Moscow, Brussels and Washington to bridge their differences instead of escalating tensions and nurturing distrust. Therefore, relations with the EU and U.S. (where the Armenian diaspora in key European states and the U.S. play a major role), to put it bluntly, will be influenced by the success or failure of the Normandy Quartet on Ukraine.

MilitaryArms.ru:An Echo of the Little War in Nagorno-Karabakh

Meanwhile, the relations with Brussels and Washington will depend not only on Ukraine, and the pace of domestic reforms or democratic processes [4], but on the willingness of the EU and the U.S. to seek alternative grounds for cooperation with the Kremlin (and the Eurasian Union, speaking in economic terms) both with the help of Armenia, as well as on its territory. Clearly, Yerevan understands this opportunity and is interested in facilitating a smooth institutionalization of tariffs and trade rules within the EAU, aspiring to bridge East and West — a role that has brought both devastation and trade opportunities for Armenia for centuries.

Establishing anti-corruption frameworks and improving legislation, encouraging investments and cooperation in peacekeeping missions are on the top of U.S.-Armenia agenda, and will likely remain so — regardless of who enters the White House next January.

With regards to the European Union, Armenia will finally conclude and sign the new framework document to replace the Partnership and Cooperation Agreement of 1999 [5]. Most likely this will take place after parliamentary elections in Armenia, not before, which may result in another tactical mistake of the bureaucratic machine in Brussels. On a positive note, the good news is that in the next few years Brussels itself will be in search of adequate mechanisms of cooperation with countries that have not signed AA/DCFTA agreements with it. Brussels bid farewell to the European Neighborhood Policy project in the EU’s New Global Strategy, so there is enough room on both sides to be creative in terms of the future.

Relations with Georgia will continue to be crucial for Armenia’s stability, as the lion’s share of trade turnover flowsthrough Georgian ports and mountains.

The “black swan” capable of altering future scenarios for Armenia — both domestically, regionally, and internationally — is Iran. Provided that all relevant parties remain satisfied with the implementation of JCPOA, signed in 2015, Iran will eventually and formally enter great power politics in the next five years. Even though Tehran has been a staunch partner and ally ever since Armenian independence, Iran’s opening to the world will bring both challenges and opportunities for Yerevan — depending on how well Armenia will manage to cooperate in economic and security spheres in a more competitive environment. The two indicators for these relations will be the railway construction project and transit of Iranian gas through Armenia.

Azerbaijan will continue to remain the major threat for the Republic of Nagorno Karabakh and Armenia. Gas exports will not be able to compensate for Azerbaijan’s dwindling oil production, even after the completion of the second stage of the Shah Deniz field — state budget revenues will never be the same as in 2012-2015. Therefore, in order to keep power in a situation of thinning social spending capacities, the ruling family in Azerbaijan will need to continuously escalate the situation along the Line of Contact, and along the international border with Armenia — keeping both Yerevan and Stepanakert under pressure and sizeable military spending, as well as keeping and its own population in check. However, bellicose rhetoric coupled with ongoing violations of the ceasefire

regime and military drills (Azerbaijan announced to hold 60.000-men strong exercises in mid-November, 2016) may lead to an “accidental war”, as many experts have been predicting for quite some time. With global oil prices at $40-45 per barrel, Ilham Aliyev’s Cold War-style “brinkmanship” policy will be harder to pursue. But he will continue on this course unless global players stop regarding official Baku as a “spoiled troublemaker” that will eventually stop. He will not.

Yet, the major question is about the “red line” — in fact, something alien to popular narratives in the Caucasus — that is, for how long will Azerbaijani society tolerate the ruling family’s flagrant corruption, systematic human rights abuses, and strict control over socio-political life in the country? The perception that the new Constitution in Azerbaijan, adopted in September 2016, will give robust guarantees for smoother power transition within the ruling family may at any moment prove to be wrong. Thereby, the growing instability and unpredictability of Azerbaijan will continue to channel a sizeable portion of Armenia’s budget to military expenditures, which will now be used to achieve social and industrial progress within the “Nation-Army” concept. The concept was proposed by the new Armenian Defense Minister in the largely elite-professional government, which is so far enjoying broad public support.

Internationally, Armenia will continue to have an impact on the ups and downs of the Nagorno Karabakh peace process, but will also aspire to enter into more robust foreign policy endeavors to cater to public expectations of an increasingly dynamic civil society.

To conclude, Armenia has yet to meet the challenges and seize the opportunities that lie ahead. The only factor ensuring success (not failing), as simple as it may sound, is to have strong and effective institutions as a result of ambitious reforms currently underway in Armenia, which will lead to internal transformations within the framework of the amended Constitution.

Pathways to Cooperation. A Menu of Potential U.S.-Russian Cooperative Projects in the Nuclear Sphere

The U.S.-based Nuclear Threat Initiative (NTI) and the Moscow-based Center for Energy and Security Studies (CENESS) launched a new joint report on the future of U.S.-Russian nuclear cooperation. 

The report includes 51 recommendations for mutually beneficial cooperation across five thematic areas: nuclear science, nuclear energy, nuclear safety, nuclear security, and nuclear environmental remediation. If implemented, these projects could result in safer nuclear reactors, stronger defenses against nuclear and radiological terrorism, and cleaner approaches to nuclear environmental

remediation.

Foreword by Sam Nunn and Igor Ivanov

The United States and Russiatoday face no shortage of disagreements. From Syria to Ukraine, the differences are serious and stark, but they should not obscure another important truth—that the United States and Russia have mutual, converging interests on some of the most consequential issues of today. Among them is the shared responsibility to manage the destructive forces of the atom while directing those same forces toward positive applications, such as combating climate change.

Today’s world is one in which nation–states no longer have a monopoly on the means for mass destruction. Terrorist organizations, such as Daesh (also known as ISIS or ISIL) and al Qaeda, have openly declared their intention to acquire nuclear and radiological weapons. The know-how for developing such weapons is more than 70 years old, and the materials needed to produce them are still stored in too many places and are accessible to too many people. Today, the danger of nuclear terrorism is real, serious, and growing.

These dangers compel collaboration between the United States and Russia, cooperation that unfortunately has almost come to a standstill. Communication between scientists and technical experts in U.S. and Russian nuclear complexes—which dates back to the 1980s—has been frozen. Bilateral forums, such as the U.S.-Russian Nuclear Energy and Nuclear Security Working Group, have been suspended. Differences, including those over Ukraine and the Middle East, have overshadowed nuclear cooperation, putting citizens of both of these nations at greater risk.

This report—developed jointly by the U.S.-based Nuclear Threat Initiative (NTI) and the Russia based Center for Energy and Security Studies (CENESS)—offers an alternative to the acrimony that has recently characterized these nations’ bilateral relations. Building on the success of bilateral cooperation to destroy Syria’s chemical weapons stockpile and cooperation to negotiate and begin implementation of the Iran nuclear agreement, this report offers policymakers a menu of dozens of projects on nuclear security and safety issues that could be implemented in the near term and as political relations improve.

The benefits of cooperation can be significant for the United States and Russia and for the world. Together, the United States and Russia could drive critical advancements: (a) developing the next generation of safe and reliable nuclear reactors, (b) investigating novel solutions to common nuclear waste challenges, (c) creating proliferation-resistant nuclear fuels, (d) bolstering the capabilities of essential radiation detectors, (e) improving the safety of commercial nuclear power plants, and (f) interdicting illicit nuclear trafficking in dangerous parts of the world.

Moving forward with projects such as those proposed in this report would also allow the United States and Russia to begin to rebuild the trust critical to putting bilateral relations back on track. If they do not change direction and the acrimony continues to build, these two nations will continue down an increasingly dangerous path and will have missed a crucial opportunity to cooperate on a wide range of urgent nuclear issues.

Tackling the Libyan Crisis

Photo:lestimes.com Ambassador Elisabeth Barbier

The protracted conflict in Libya that has almost disappeared from the political agenda may deteriorate further and result in a full-scale war. What is the role of France in resolving the crisis in Libya? Russian International Affairs Council asked Ambassador Elisabeth Barbier, Special Envoy of France to Libya, to comment on a political solution for a problem.

At this stage, there is no national French initiative. What we see is that there are many other initiatives, and what we would like is for these initiatives to succeed. When I started with my new job, I first went to Algeria, Tunisia, Egypt, and then to Qatar and Turkey. So, the idea with Libya is to encourage and push the country in the right direction, which it cannot do on its own. This problem cannot be solved through military means. But it’s up to the Libyans to find first of all the heart of a solution, in the framework of the Skhirat Agreement. I think everybody agrees on that.

Among other European Union countries France is among the most interested in what’s happening in Libya. Recently the Foreign Affairs Council of the EU adopted a declaration on Libya, and it had been a long time that Europe had not talked about Libya, almost a year. The declaration speaks about the necessity of finding a political solution for the problem.

Not only did it look at Libya through the lens of the immigration problem, but it talked about the need to find a solution. It also covered the efforts that have been made by the neighbor countries who have met. The African Union also had a meeting and is trying to put the actors in the same direction. We think that the UN has an important role to play, and we hope the new Secretary General will insist on Libya remaining an important subject, as he seems to be giving the issue quite a lot of attention.

In your opinion, what is Khalifa Haftar’s role in this conflict, and does he have the capabilities to consolidate the country?

We think that he has a role to play, clearly, and that the Libyans have to agree on a place for Haftar. However, we do not believe that he can conquer Libya. Sometimes he says “I’ll go to Tripoli, I’ll get all these Islamists out”, etc. We don’t think that is feasible, it will lead to a bloodbath, to chaos. This chaos will then be used again by Daesh, for instance, to consolidate positions in Libya. So if Haftar is going to act as a leader of a united national army, it has to be under civilian control.

Lack of reforms for education and migration in

the EU member statesIn different areas the EU member states need reforms - especially in the fields of education and migration. That shows our Europe-wide

survey under national experts.

Embarking poverty, offering good education for everybody, fighting discrimination and strengthening social cohesion, making the health system and the job market more fair: Above all in these five areas the EU member states have to do something. But some countries fail to launch the reforms, that are needed. Especially in the fields of education and migration they don't do enough. That shows our reform barometer for whom we asked 1,000 European scientists.

In the field of education there is light and shadow in EuropeIn the opinion of the scientists consulted, there is currently a considerable need for reform in all five of the named areas. The largest gaps are seen as being in education. The lowest levels of action on education policy reform were found in Greece, Lithuania and Spain. By contrast, while the United Kingdom has displayed an above-average level of activity, in some cases this has led to negative social consequences. Experts cite increases to student fees, which have been drastic in some cases, as an example. Malta has performed best on education policy reform. They gave positive evaluations for a program for school students who drop out, free childcare and the launch of evening and online courses for students who need flexibility, among other things.

Lifelong learning is neglected in some EU member states

A gap year, apprenticeship, studies, further education beside the job: Everybody can benefit from lifelong learning. But some EU member states don't support it in the appropriate way. In ten countries experts found no reforms of any kind taking place to try to improve financial or human resources for lifelong learning.

In some European countries the social background is still too important for educational attainment. But the experts stated that at the moment six countries are not taking action at all on this issue: Croatia, Finland, Greece, Hungary, Slovakia and Spain.

"The lack of educational reforms in many countries provides a real cause for concern. The EU member states should do everything in their power to promote the permeability of the education systems and lifelong learning. Otherwise, the next generation will be born into the poverty trap and social inequalities will be reinforced."Aart De Geus, Chairman and CEO of the Bertelsmann Stiftung

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Europe-wide failures in the field of integrationAgainst the background of the refugee situation integrating people successfully is crucial everywhere in Europe. But here the scientists have given the EU member states poor marks. The most pressing problem is the fight against poverty. The experts reported that in 15 states there are no significant measures in place to combat poverty among foreigners.

In the refugee situation there is need for action for all EU member states: Refugees have to be registered, asylum procedures have to be conducted orderly and the people need support for learning the

new language and for the job search. But in most of the European countries there was either very little action for appropriate reforms or they had negative effects. For example, the Danish government has halved social support for asylum seekers. By contrast, Italy received a positive evaluation from the experts – for the integration of foreigners in general and refugees in particular. According to the scientists, legislators have improved the registration process for asylum seekers there. In addition to this, refugees are granted a residence permit for six months and are allowed to work after just two months.

Please find the complete study here and detailed data for all EU member states in our online tool (please select reform barometer under "instrument)

Strengthening and Connecting Europe CONTACT PERSON

Dr. Thorsten HellmannProject Manager

Telephone: +49(5241)81-81236e-mail: Write message Profile WEBLINKS

To the press release (with charts for download) To the online tool

FURTHER INFORMATION

Our Reform Barometer has been developed in cooperation with Bernd Marin from the European Bureau for Policy Consulting and Social Research in Vienna and Christian Keuschnigg from the University of St. Gallen. It is part of our project "Social Inclusion Monitor (SIM) Europe", which regularly carries out research into and evaluations of opportunities for social participation and reform policies in the 28 EU member states. As many as 1,058 social scientists from all over Europe took part in the survey. The online survey took place in the spring of 2016 and covered the period from July 2014 to January 2016. The results enable reform policy to be compared both across topic areas and countries.

PUBLICATIONS

The Phoenix: Prospects of Egypt’s Oil and Gas Sector

Photo:Eni The supergiant gas field Zohr

In less than two years, the hydrocarbon sector of Egypt passed two symbolic milestones. In 2014, the used-to-be-gas-exporter first became a net importer of natural gas. At that time, there was little prospect for Egypt’s oil & gas exporting potential. However, the discovery of the supergiant gas field Zohr in August 2015 and the events that followed reversed the situation, reviving hope for Egypt to win back its role of gas exporter. Who will take part in developing the Egyptian hydrocarbon sector, and will this country return to exporting its natural gas?

Decreased Production and Increased Consumption

In recent years, Egypt has been a net-importer of oil and gas. The North African country began importing crude oil and oil products in 2009. Five years later, Egyptian had to embark on importing natural gas. For eight years, oil production in Egypt stood at 700 thousand barrels per day. The production of natural gas has been decreasing gradually, having fallen 27% since 2009 reaching 45,6 billion cubic meters per year in 2015.

Yet it was not the declining production but the rising consumption – of both oil and natural gas – that constituted a bigger challenge. Over the recent ten years, the demand on natural gas has soared 31%, and the consumption of oil skyrocketed by 34% [1].

Reuters

The situation that Egypt found itself in (with the demand outpacing the production of petroleum resources), sets a compelling example for the other countries of the Middle East. The increase of domestic energy consumption affects even the biggest oil and gas exporters in that region, such as Saudi Arabia, Iraq, Qatar, Kuwait, and Iran, liming the amount of their crudes available for exports. The scale of the problem only aggravates for the states with lower production rates (e.g. Egypt and Algeria).

Energy demand growth in these states is driven by a number of factors. First, the population is increasing rapidly. According to the World Bank, the population of Egypt has increased by almost 20% in the past ten years, adding another 15 million to the number of people living there. The situation is similar in Saudi Arabia, Iran, Kuwait, Qatar, and many others. Second, the economies of these countries are far from being energy efficient: final energy use per unit of GDP is considerably higher there than, for example, in the developed states. Third, and probably the most important point, Middle Eastern states allocate colossal amount of money on fuel subsidies. Not only does this policy imply great budget expenditures, but also it incentivizes the population to use more energy, as its cost is relatively cheap.

With the oil prices having fallen, many of the countries of the Middle East have embarked on subsidy reforms. The government of Egypt also announced plans to decrease subsidies. When the oil prices were reaching $90-$100 per barrel, reforms of this sector boded greater implications for the local governments, as they would have had to deal with higher increases in domestic fuel prices, and consequently with the public disapproval. Cheap oil helped Egypt decrease the amount of money allocated to fuel subsidies. However, further action is needed. In fact, the IMF has reiterated that the states of the region should abandon fuel subsidies altogether. The tentative attempts of reforms taken in Egypt a few years ago failed miserably. The public dissatisfaction with the incessant electricity shortage was one of the factors behind the fall of the governments of H. Mubarak and of the “Muslim Brotherhood”. The decline in oil prices and budget revenue contraction pushed the countries to take action.

REUTERS/Amir CohenIs the Eastern Mediterranean a New Competitorfor Russia on the European Gas Markets?

Subsidy reforms have commenced, yet this does not mean that in the foreseeable future energy demand will slow down in Egypt or in the region in general. The population will continue to grow, and energy efficiency is unlikely to change for the better. In spring 2015, probably accounting for these assumptions, the government of Egypt contracted two floating regasification terminals to import LNG. Since then, LNG has become an important item of import on the national balance sheet.

It is worth noting that Egypt got appreciable help from its allies – the GCC countries with Saudi Arabia taking the lead. Until recently, the Saudi kingdom not only provided financial aid for Egypt, but also supplied it with petroleum and petroleum products.

Dependence on foreign energy resources, however, proved to be an onerous burden for the Egyptian economy. Foregone earnings from gas imports, a large energy bill, and the reliance on occasionally unpredictable partners did nothing but exacerbat the difficult economic situation in the country. This led Egypt to running up a bigger external debt and plunging it into a financial crisis.

As for the unpredictable partners, the recent decision of Saudi Arabia to discontinue supplies of petroleum products to Egypt should not be left unnoticed. The Saudis halted exports in October 2016 providing no notice or explanation, with the supplies being not mere grant aid, but part of a contract signed in April 2016 Saudi Aramco agreed to supply Egypt with 700 thousand tons of petroleum products monthly for five years). Under the consequent circumstances, Egypt had to buy additional amount of products on the spot market and rush into signing new supply contracts with other exporters (e.g. Iraq).

A Pleasant Surprise

The supergiant gas field Zohr was found by Italian Eni in August 2015, only a few months after Egypt acquired its first LNG importing facilities. Situated 120 km off the coast of Egypt, the field contains an estimated 850 billion cubic meters of natural gas. The production on Zohr is to start by the end of 2017, and the production is to reach as much as 54 million cubic meters of gas per day by 2019.

EPA/ABIR SULTAN/East News

Cooperation between the Russian Federationand the Arab Republic of Egypt: Opportunitiesand Constraints

Noteworthy is that the good news kept coming, as the Zohr discovery was followed by many other findings. Over the past year, several gas fields were found including significant gas reserves. For instance, the fields discovered on the North Alexandria block could produce up to 35 million cubic meters per day by 2019. There were other, smaller findings as well.

Oil and gas exploration is not stopping; if anything, Egypt is attracting more international companies to exploration projects. Such energy giants as BP, Eni, and Total were recently awarded new exploration licenses.

Moreover, the success of Egypt has triggered other processes. The companies mentioned above entered licensing the round for exploration blocks in Cyprus. The third bidding round would not be possible if not for the right conjuncture in the form of the discovery of Zohr – a fact acknowledged by Cypriot officials the field is located close to the Cypriote licensing blocks). In addition, Zohr gave impetus to the Eastern Mediterranean states with newly explored hydrocarbon reserves – Egypt, Israel, and Cyprus – to strengthen their cooperation.

By 2019, the government of Egypt is planning to increase natural gas production by approximately 70 million cubic meters per day. This figure is sure to rise after taking into account the reserves discovered in the last quarter of 2016. In fact, many experts believe that there is a great amount of both onshore and offshore hydrocarbon reserves yet to be discovered there. This makes Egypt drift away from the image of being a state doomed to be a net energy importer, to that of a country with exporting potential.

Where is Russian Business?

Russian business is not staying on the sidelines. In December 2016, Rosneft announced an unexpected deal of buying a 30% share in the Shorouk block, which includes Zohr field.

Before that, only Lukoil expressed interest in investing in upstream projects in Egypt, where it had already had some investment in oil and gas production. Lukoil reportedly negotiated with Eni about buying a 20% stake in the Zohr field. There was no information about any other Russian companies’ interest in Egyptian projects. It is worth noting that the deal with Rosneft allowed the Italian firm to get close to its goal of reducing their share in the Zohr project to 50% [2]. Russian reluctance to enter

exploration projects in Egypt is a logical choice on the one hand, yet indefensible on the other.

On one hand, this is because unlike European companies, Russian oil and gas business has little experience of exploration in Egypt. Traditionally, the European BP, Eni, and Total have the strongest positions in North Africa. These companies have more information about the geology of Egypt. Besides, Russian companies are generally not active abroad. Foreign projects are not and have never been a priority for Rosneft, Gazprom, or the previously independent Bashneft. The decision of Rosneft to enter Zohr project is not an exception, as the company is investing in the project on the production (not exploration) stage. With the decline in revenues and the necessity for companies to optimize their business, foreign investment is losing its momentum. This is true even for Lukoil, which is the most experienced and successful Russian corporation in terms of foreign upstream projects. Finally, doing business in Egypt entails certain financial risks. The economy is in poor shape: the debt to foreign companies has not decreased and has been 3,5 billion dollars for more than a year. Egypt is indebted to both exploring and producing companies, and to LNG suppliers. In summer 2016, traders reportedly reversed the direction of tankers heading to Egypt, instead directing them to other buyers because of the failure of Egypt to pay them.

On the other hand, recent events have proved that Egyptian mineral wealth are underexplored, and the country has considerable potential. Moreover, Egypt is distinguished by relatively simple geology, simplicity of production, high development of industrial and exporting infrastructure, and consequently, cheap resource production costs. It is possible that Russian companies would have expressed more interest in Egyptian projects, had the oil and gas prices been higher and the profits been greater.

However, Russian companies have begun supplying oil and gas to Egypt. Rosneft and Gazprom signed contracts to supply LNG there. Rosneft’s LNG cargos of are delivered in accordance with a two-year contract, as well as bought on the spot market. It is worth noting that despite new gas discoveries, exporting natural gas to Egypt is still relevant. It is, however, telling that in December 2016, the government of Egypt decided not to hold a tender for rental of its third floating regasification unit (for LNG imports). The reason provided by the officials is the lack of need for such facility. This signals to Egyptians that the government counts on an increase in national gas production. It also comes as an indication of how fickle the situation in the oil and gas sector of Eastern Mediterranean is, with the Egyptian government having been planning to rent the new LNG importing facility no longer than two months earlier, in October 2016 and for the contract to be signed in late 2016 - early 2017.

***

In general, the oil and gas sector of Egypt is still full of ambiguities. In 2016, the production continued to fall, but this trend will change in a year or two, as the chances are high that new major upstream-projects will not face difficulties. However, local demand growth will keep negatively affecting Egypt’s export capacity. If subsidy reform will result in slower growth in energy demand, there is hope that Egypt will return to exporting its natural gas in the next seven years. International business seems to be positive about the future of the Egyptian energy sector. The proof is that the biggest European companies were awarded new exploration licenses. Russia, however, stands in the sidelines, expressing little interest in entering exploration projects. The main reason for such reluctance is the traditional focus on local upstream-projects and the need to cut investment, especially in relatively risk high projects.

The Post-Soviet Space in 2017

Photo:REUTERS/Marko Djurica

In 2017, we are likely to see more skirmishes in Nagorno-Karabakh, since neither party learned the lessons from the escalation that took place last spring: information on the truce being periodically breached keeps coming in. Most likely, the conflict will not be resolved, but its escalation into a full-fledged war is unlikely either. As for the Collective Security Treaty Organization (CSTO), there is little chance of it changing its stance with regard to the situation, meaning that it will not intervene in the Nagorno-Karabakh conflict. Its participation will boil down to making declarations on the necessity to hold political negotiations and adhere to the ceasefire conditions. The CSTO will continue to conduct regular military exercises in Central Asia and will also develop its crisis response mechanisms.

In October 2017, the CSTO adopted the Collective Security Strategy 2025, which includes an expanded list of challenges to be addressed. Now the organization is able to respond to a wide range of threats, even domestic political threats, should the heads of state make a decision. Nonetheless, if the threat of a revolution should arise, the CSTO is unlikely to intervene, unless organized groups of fighters cross interstate borders with the intent of destabilizing the situation in Central Asia.

MilitaryArms.ruAn Echo of the Little War in Nagorno Karabakh

Speaking about the future of Central Asia and taking into account the peaceful transfer of power in Uzbekistan and the recent elections, we can predict that Tashkent will not intensify its ties with its neighbours and will attempt to implement peaceful policies towards them, as well as to Russia, which is, among other things, its largest security partner.

Tensions between Central Asian states will likely decrease. They will want to resolve international conflicts by peaceful means, because the threat of fighters leaving to join Islamic State or extremist groups in Afghanistan remains. Yet Central Asian countries will handle this threat on their own; each state having developed its own methods of fighting returning extremists. It is possible that the secret services of these countries will cooperate in terms of exchanging information in order to handle returning fighters. However, we should not expect a large international operation to be conducted in order to resolve this problem; most likely, things will remain local and will be limited to individual instances of cooperation.

In previous decades, Central Asian countries were at the greatest risk from the threat coming from Afghanistan. Today, the threat has not exactly subsided, but it is at least a stably predicable danger.

REUTERS/Gleb Garanich

Ukraine: 25 Years of Missed Opportunities

Russia’s foreign policy in the post-Soviet space will be mostly aimed at looking for possible ways to tie various regional projects together, specifically the Eurasian Economic Union and China’s “One Belt, One Road” initiative. Russia will also consider the possibilities of tying together the EAEU, the Shanghai Cooperation Organisation (SCO), the Association of Southeast Asian Nations (ASEAN), etc. This will mostly involve the economy, but it is possible that at some point, the security issue will be discussed as well, in particular, ensuring automobile and railway transportation security.

Thus far, Russia’s foreign policy is mostly oriented towards stabilizing relations with the West and resolving the Syrian crisis. Therefore, the post-Soviet space will occupy a relatively smaller place in its foreign policy priorities than could have been expected if it were not for the Syrian crisis.

In this connection, the Ukrainian crisis should be mentioned as well, since for Russia, it is primarily linked to the relations with the West. With Donald Trump becoming President, the confrontation between Russia and the United States – and the West as a whole – might somewhat de-escalate. In such a context, the Ukrainian government will have fewer opportunities to use this confrontation to promote its interests and will have to rely on its own capacities to a greater extent. We can hardly expect any breakthroughs in terms of resolving the situation in Donbass; while it will remain half-frozen, it will nevertheless be too early to say that the conflict has transitioned into a “frozen” state similar to the situations in Transnistria and Nagorno-Karabakh. There will still be grounds for a political resolution, and all the parties need to make use of this opportunity.

Could Iran Seek Rapprochement with Trump?

Despite the escalating tensions between the United States and Iran since Donald Trump’s

inauguration on January 20, 2017, Iran may attempt to pursue a back channel diplomacy

approach in order to seek rapprochement with the new US administration. These channels

are bound by factors that regulate the extent to which Tehran is able to tackle the pressures

imposed by successive US administrations since the Iranian revolution in 1979. Iran is also

constantly striving -- despite its own claims -- to adapt and customize its ideology to serve

its protective interests in case of approaching threats.

The possibility of rapprochement remains merely an inkling in the midst of lack of indicators

highlighting Iranian efforts to utilize such channels. In other words, Iranian intention to realize this

idea cannot ultimately be guaranteed, in the light of difficulty of foreseeing the Trump

administration’s reactions towards them. The Iranian government still appears to be in a phase of

evaluating available alternatives on both domestic and external fronts, before eventually

implementing any announced policies.

Levels of Escalation

In this regard, one can argue that Iran’s possible intention to seek mutual points of agreement with

the Trump administration does not deny the fact that it will maintain its adopted escelated positions

against decisions made by the administration either through its officials, or its allies of armed

militias in areas of conflict.

A statement made on February 11, 2017 by Aws al-Khafaji Al-Khafagi, Secretary General of the

Abu al-Fadl al-Abbas Forces -- one of the most prominent Iraqi armed militias in alliance with Iran --

threatened to, “strike US brigades on Yemeni coasts” in retaliation for Trump’s decision to ban

nationals of seven countries, including Iran and Iraq from entering the United States. The threat is

correlated to the ongoing escalation between the US and Iran. Furthermore, this statement can also

be linked to hints made by US officials regarding the possible designation of the Iranian

Revolutionary Guards as a terrorist organisation.

The escalation anticipated by Iran will primarily depend on the US administration’s adopted

alternatives, more specifically the utmost levels of threat that the US may reach. For example,

Trump’s administration has hinted at the possibility of resorting to a military intervention for dealing

with Iran. However, that might trigger Iran to adopt a catastrophic alternative in response. Iran will

attempt to avoid the fallout, utilizing several tools in addition to escalation, while simultaneously

working to reach an agreement through establishing back channels to diffuse the situation and

settle gridlocked disputes. The ultimate goal is to avoid entering a full-on war with the US.

Primary Variables

There are several variables motivating Iran to adopt a non-confrontational approach in the coming

phase. These variables include:

1-    Historical Experience: The Iranian Supreme Leader, Ali Khamenei, has been keen to

emphasize the difficulty of having a full rapprochement with the US, and having doubts concerning

the reliability of the nuclear deal in achieving its goals. Yet, at various historical points, Iran has in

fact attempted to reach agreements with successive US administrations.

Iran has benefited from the dynamics upon which the Islamic Republic system was formed,

enabling it to deal as various entities, or specifically, employ manoeuvre tactics using external

parties. During Ruhollah Khomeini’s rule (1979-1989), Iran held both public and secret negotiations

with the United States, such as the meeting held in Algeria in November 1979 between the Iranian

former Prime Minister Mehdi Bazargan and the National Security Advisor of the United States

Zbigniew Brzezinski, during the Jimmy Carter administration.

Even in the darkest stages of conflict, when tensions peaked between both parties during the

invasion of the U.S. Embassy in Tehran (November 4, 1979 - January 20, 1981), Iranian officials

held secret talks with the Republican candidate’s team at the time, Ronald Reagan, in several

European cities, in addition to the formal talks conducted with Jimmy Carter’s administration.

However, several sources pointed out that the release of the hostages on January 20, 1981 --

Reagan’s first day in office -- was not coincidental. Some anticipate that it was part of the

agreement with Reagan’s team, while other argue that Iran was intending to prove its good

intentions for the US administration then.

These understandings persevered even while the conservative right was in power both in

Washington and Tehran, especially in the first decade of this century. Even though tensions

escalated between the former US President George W. Bush and the former Iranian President

Mahmoud Ahmadinejad, due to the latter’s insistence on developing the Iranian nuclear program,

both parties did not stop participating in political talks concerning several regional issues, primarily

the issue of Iraq.

2-    Proxy War: Iran is keen to adopt an escalatory policy in facing U.S. pressures and threats to

ensure its readiness to oppose any alternatives Washington may resort to, including a military

option. However, this does not deny Iran’s desire to avoid direct military confrontation, especially

with one of the world’s superpowers. Thus, Iran prefers to engage in proxy wars through forming

and supporting allied armed militias in different areas of the region, seeking to achieve goals that

serve its aspirations and regional role, and pressure its rivals. 

Despite al-Khafagi’s assertion on correlating his threats as a response to Trump’s decision to ban

nationals from seven countries from entering the US, one can interpret that the significance of his

threats’ timing can’t be detached from the escalating tensions between Iran and Trump’s

administration. Additionally, this threat could be followed by others made by Iranian allied militias

towards the United States in light of the ongoing escalation between both parties.

3-    Employing Ideology: Iran always claims that it adheres to its ideological constants when

interacting with regional and international developments. However, this does not deny the fact that

in several cases, Iran has ensured that these constants are utilized to serve defined interests within

its vision for interactions with regional and international parties, especially the United States.

Supreme Leader, Ali Khamenei, used these constants as a justification for Iran’s participation in

direct negotiations with the United States to reach the nuclear deal in July 2015. On January 9,

2014, he said, “We have stated previously that if we felt that the general interest prevails a certain

issue, then we will negotiate with the devil to avoid evil.”

Several indicators confirm that Iran has adopted policies contradicting the ideological constants it

claims to adhere to in order to serve certain interests, including positions it has taken on dealing

with various regional developments in the area.

Finally, despite what was mentioned previously, one can say that escalation will remain the

most likely scenario for interactions between Iran and the United States in the upcoming

phase, especially in light of the latter stressing how disputes with Tehran are not confined to

the nuclear agreement, but also extend to Iran’s support for terrorism. However, this does

not rule out the possibility that Iran will consider more flexible and pragmatic alternatives to

cope with the American threat looming at its borders.