In Geopolitics This Week
Eastern Mediterranean Gas Discoveries Reshape the Region, Germany Secures $3.5B Deal for Israeli Arrow 3 Missile Defence, Russia's Fuel Export Ban Highlights Mounting Costs of War, and other stories.
Eastern Mediterranean Gas Discoveries Reshape the Region
Several key natural gas discoveries in the Eastern Mediterranean are reshaping regional energy networks. Egypt has awarded exploration rights for 23 offshore blocks to major international energy firms as it seeks to expand production and become a regional gas hub. Israel approved increased gas exports to Egypt, but debate continues domestically about optimizing use of its reserves. Meanwhile, exploratory drilling began in a contested part of the Lebanon-Israel maritime border.
Egypt awarded exploration rights in the Mediterranean and Nile Delta to Eni, BP, QatarEnergy and Russia's Zarubezhneft in its latest bid to boost domestic oil and gas production. It comes after Egypt announced a bid for 23 new blocks as it aims to become a regional energy hub. With recent major discoveries like the giant Zohr gas field, Egypt is attracting considerable foreign investment. As a core supplier, Egypt stands to see its regional power enhanced, yet faces risks from potential market instability if Europe's gas demands decline. Cairo's push to attract foreign investment demonstrates its strategic priority to leverage gas resources for energy self-sufficiency and export revenues.
For Israel, expanded gas exports provide economic gains and diplomatic leverage with key partners like Egypt and Jordan. Israel aims to transform gas exports into closer ties with Egypt in particular. But leaning heavily on volatile gas revenue risks energy security if reserves drain and decarbonization accelerates. Israel therefore must strategize its optimal gas export policy amid both economic opportunities and domestic debates over resource sovereignty. Regional energy cooperation does appear to be overcoming historical hostilities, as the Lebanon drilling precedent shows. With Europe seeking to diversify away from Russian gas, new Eastern Mediterranean suppliers could gain greater leverage as alternative sources.
The Eastern Mediterranean gas rush reveals how energy interdependence can foster compromise between rivals. But gas interests could also spark new tensions as states compete over reserves, export infrastructure, and European market share. While fostering engagement today, fossil fuel ties could strain relations tomorrow if decarbonization upends gas demand. As new gas suppliers come online, security of maritime supply lines in the Mediterranean will become increasingly paramount. Naval power projection by regional and global players could intensify. Managing these uncertainties will challenge regional leaders and companies alike.
Germany Secures $3.5B Deal for Israeli Arrow 3 Missile Defence
Israel and Germany have signed a landmark $3.5 billion deal for Israel to provide its advanced Arrow 3 air defence system to Germany. The agreement, the largest defence export in Israel's history, will see deliveries begin in 2025. It comes as Germany urgently bolsters military spending and capabilities. The United States approved the sale of the Arrow 3 system in August.
The deal is a part of deepening strategic ties between Israel and Germany. It provides Israel substantial economic gains and influence as a defence exporter. For Germany, acquiring Israeli missile defence technology signals its commitment to rapidly enhance NATO deterrence posture against Russia. But the agreement also risks straining Germany's relations with key partners like France and Poland that have held off joining Germany's European Sky Shield Initiative for joint air defence procurement.
The Arrow 3 agreement reveals shifting power dynamics between Israel and Germany. Israel draws prestige and moral validation as Berlin entrusts it with protecting German skies. Meanwhile, Germany gains improved security capabilities from Israeli military innovation, while also deepening its defence dependence on the state. Historically fraught ties now revolve around arms transfers and security cooperation, underscoring how shared geopolitical realities can override prior disinterest.
The deal exemplifies realignments driven by the Russo-Ukrainian War. As tensions between the US and Russia rise to levels not seen since the Cold War, even states traditionally ambivalent about closer NATO integration like Germany are now massively investing in collective defence capabilities. Israel is deftly leveraging this new rivalry to position itself as an indispensable strategic and technology asset for European nations suddenly feeling vulnerable.
Russia's Fuel Export Ban Highlights Mounting Costs of War
Russia has banned petrol and diesel exports outside a group of ex-Soviet states, aiming to ease domestic shortages as military fuel needs rise. Diesel deliveries to border regions with Ukraine have surged over 50% this year, reflecting intensified Russian military operations. But meeting these escalating military fuel requirements is in turn squeezing Russia's broader fuel market, prompting worrying shortfalls and price spikes nationally just before winter.
With refinery issues and a weaker ruble also constraining supply, Moscow has moved to retain more fuel at home through the export ban. This highlights the deepening economic strains on Russia as the costs of war continue to mount. Securing adequate fuel for military vehicles and operations risks seriously disrupting agriculture, industry, and average consumers, as the Kremlin diverts diesel from civilians to the frontlines. As military demands compete with basic economic needs, tough trade-offs are arising for the Russian leadership.
The export ban immediately drove global diesel prices higher, further tightening an already badly squeezed global market just before peak winter heating demand begins in the Northern Hemisphere. But since Russia lacks sufficient storage capacity and desperately wants to avoid forced refinery shutdowns or closures, only a short-term ban is expected. So while seeking to avoid domestic political fallout from acute shortages, Moscow seems willing to build on its natural gas supply cuts to Europe with this latest ban.
Russia's fuel export ban is a glimpse into the balancing act Moscow faces between achieving its military objectives in Ukraine and maintaining economic stability at home. As costs continue to mount, Russia appears willing to impose major economic disruption abroad in hopes of advancing its strategic aims in Ukraine, even if it comes directly at the expense of Russian consumers and industries. Managing these rising domestic pressures amid punishing sanctions will only grow more challenging for the Russian government as more energy infrastructure within Russia is targetted by Ukrainian forces.