The Eastern Mediterranean: To go or not to go
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The instability of the Eastern region of the Mare Nostrum could discourage Beijing from supporting energy development projects in the area, despite relations already established with Israel and Egypt

The Mediterranean Sea, which enjoys an important role in transportation and strategy, is the main channel among Europe, Asia and Africa. More than 2000 vessels sail on the Mediterranean Sea every day. 85% of imported oil enters Western Europe through the sea. The Chinese and Russian Navies launched a small scale joint drill on the Mediterranean Sea for the first time on January 25, 2014. The next year, on May 17, a second drill was held. The 2 drills have promoted the existence of a Chinese military force in the Mediterranean Sea, and will provide security for the economic cooperation and maritime transportation between China and countries in the area.

Beijing's new frontier in the Eastern Mediterranean

One third of maritime container transport vessels sail through the Mediterranean Sea. Some carry products made in China and Southeastern countries to Europe and the East coast of America. Morocco’s government has invested €3.5 billion (about $4 billion) in constructing Tanger Med, the new port in the Mediterranean Sea. Other countries in the area desire the new ports as well, expecting commercial investment to arrive following the completion of the construction. The economy of the 10 countries in the area (MEDA Ten) mainly depends on energy transportation and entrepôt trade, with annual per capita income of $6200 and an unemployment rate of 20%. The energy pipeline projects have become the key channel for Middle East and Caspian Sea countries to export oil and gas to Europe. Therefore, the development of the MEDA Ten relies heavily on the European market. European people have always treated the area of the Mediterranean Sea more as a threat than opportunity because of the large amounts of immigrants from the Middle East. Refugees from Syria and Turkey, among them some terrorists, enter Europe illegally. The political instability of the area also increases the impression of threat. Long years of war and conflicts have seriously hindered the development of the area, including the Syrian chaos, and the conflicts between Turkey and Greece, and Israel and Palestine.

 

European investments stimulate growth

Large amounts of investment from 1995 to 2013, coming from Europe reached €23.6 billion. Turkey, Israel and Egypt are the main recipients of foreign direct investment (FDI). The political and economic cooperation launched by the EU has aided the development of the area. At the same time, the oil and gas revenue has provided momentum for local growth. After the discovery of tremendous amounts of gas in the area, the EU expects to increase the energy investment in the area so as to achieve the strategy of energy import diversification. Political chaos several years ago forced the interruption of gas exports, bringing losses of hundreds of millions to the US. Currently the Egyptian government is working hard to win back the trust of Western investors so as to release the local gas and oil to the largest extent. At the same time, countries of the eastern Mediterranean Sea are trying to form an energy alliance. On August 8, 2014, Cyprus, Greece and Israel signed an energy accord to attract more private investment, especially with regard to the electricity grid. However, the European economic crisis oil and price slump have had a negative impact on investment, travel, foreign currency transfer and energy cooperation in Mediterranean countries. The lack of economic momentum will remain for at least 2 more years. Influenced by terrorism and extremism, the energy cooperation between Turkey, Iraq and the Kurdish government has been hindered, with the frequent damage to the oil and gas pipe from Iraq to Turkey by militants. The fiscal squeeze of Greece may push governments in Mediterranean countries to make use of new international investment to build infrastructure and energy reserve base. Therefore, the urgent strategy of the countries in the area is to choose a better investor. China may become the main partner for the area, at least in the near future.

 

Cooperation with the countries of the area

Energy cooperation is of great significance to China and countries along the Mediterranean coast, especially countries along the Eastern coast, including Greece, Turkey, Cyprus, Syria, Lebanon, Palestine, Israel and Egypt. In 2015, the trade volume between China and the above 8 countries has reached $53,734,487,469, among which the largest trade partners are Turkey, Egypt, Israel and Greece. China has gone from oil importer to exporter since 1993, with the import volume growing every year. Since 1996, China has moved to net oil importer and depended heavily on overseas oil supply and transportation. With the growth of national power, the overseas merger and acquisition of Chinese companies have expanded to the energy sector. Up to the end of 2014, the overseas direct investment of Chinese oil companies has risen to $180 billion. In January 2016, China attained 82 overseas acquisitions with a total volume of $73 billion, with many in the energy sector. Following the discovery of large scale gas plays in Israel and Lebanon, the countries of the Eastern Mediterranean Sea expected to transfer from energy importers to exporters. According to an estimate by the US Geological Survey, the recoverable gas reserves of Levant Basin across the seabed of Israel, Cyprus and Lebanon can reach 3450 billion sq me, while the recoverable oil reserves are about 1.7 billion barrels. Currently China is taking advantage of the opportunities provided by the “One Belt, One Road‘ initiative to diversify its cooperation with these countries. Examples can be seen in large projects like the Sino-Egypt New Suez Canal Project, the New Capital Project, the Electricity Finance and Insurance Agreement signed by Sinasure and Egypt, and the Piraeus Port Project in Greece invested by COSCO. At the same time, China expects to operate through multifaceted systems like the Asia Infrastructure Investment Bank to facilitate overseas projects and local development.

 

The Dragon focuses on technological innovations

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