Oman has an importance to China and Iran that goes way beyond its relatively small oil and gas reserves (only around five billion barrels of oil reserves and about 24 trillion cubic feet of gas). Crucial to both countries is Oman’s geographically-strategic position, with long coastlines along the Gulf of Oman and the Arabian Sea offering unfettered equal access to the markets of the West and the East. According to a senior source who works closely with Iran’s Petroleum Ministry spoken to by OilPrice.com, China’s long-held objective is to secure control over Oman to have mastery over all the key crude oil shipping route chokepoints from the Middle East into Europe that avoid the Cape of Good Hope route (more expensive and more nautically challenging) and the Strait of Hormuz route (more politically sensitive). This is fully aligned with Beijing’s broad strategic goal encapsulated in its ‘One Belt, One Road’ multi-generational power-grab project.
China already has effective control over the Strait of Hormuz through the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, as first revealed anywhere in the world in my 3 September 2019 article on the subject and as analysed in full in my new book on the new global oil market order. The same deal also gives China a hold over the Bab al-Mandab Strait, through which crude oil is shipped upwards through the Red Sea towards the Suez Canal before moving into the Mediterranean and then westwards. This has been achieved as it lies between Yemen (the Houthis having been long supported by Iran) and Djibouti (over which China has also established a stranglehold).
China has another use for Oman, which is to enable its core Middle Eastern partner, Iran, to finally build out its liquefied natural gas (LNG) business into a world-scale operation. The plan is for Iran to utilise at least 25 percent of Oman’s total 1.5 million tons per year LNG production capacity at the Qalhat plant. Such an idea was originally part of the broader co-operation deal made between Oman and Iran in 2013, extended in scope in 2014, and fully ratified in August 2015 that was centred on Oman’s importing at least 10 billion cubic metres of natural gas per year (bcm/y) from Iran for 25 years through an underwater pipeline. That deal was to have begun in 2017, at which time it was worth around US$60 billion. The target was then changed to 43 bcm/y to be imported for 15 years, and then finally altered to at least 28 bcm/y, also for a minimum period of 15 years. The land pipeline of the project that would move gas from Iran’s supergiant South Pars and North Pars fields in the first instance would comprise around 200 kilometres of 56-inch pipeline to run from Rudan to Mobarak Mount in the southern Hormozgan province. The sea section would include a 192-kilometre section of 36-inch pipeline along the bed of the Oman Sea at depths of up to 1,340 metres, from Iran to Sohar Port in Oman.
This deal was intended to allow for the completely free movement of Iranian gas (and later oil) via Oman, running out through the Gulf of Oman and then into the world hydrocarbons markets. The route was designed to allow Iran the same sanctions-free flows that it was operating via Iraq, as also analysed in my latest book on the global oil markets. Given the potentially sanctions-busting nature of the project, though, the U.S. included the prevention of this Iran-Oman LNG project in its efforts to stop Iran from expanding its hydrocarbons export routes into the booming market of Asia. Before the Saudi Arabia-led blockade of Qatar erupted in 2017, the U.S. offered an alternative for Oman, which was that it increased its uptake of gas from Qatar. This would come via the Dolphin Pipeline running from Qatar to Oman through the UAE, or in LNG form, but Oman refused. Oman’s desire to re-energise the plans for the Iran-Oman gas pipeline was also fanned at that time by the UAE’s demands for an increasingly large fee for allowing the transit of gas from Iran through its waters, again part of the U.S. strategy to persuade Oman to take its gas from Qatar.
Following the recent China-brokered resumption of relationship deal between Iran and Saudi Arabia, as also analysed in my latest book, the UAE’s willingness to be utilised by the U.S. in its fight against this planned new network of pipelines appears to have evaporated. As highlighted by OilPrice.com in May, a major new gas pipeline being planned will run along a 2,000-kilometre corridor via Oman – and the UAE – through the Arabian Sea and into India. This will allow gas to be gathered in from Oman and the UAE themselves, and from Iran, Saudi Arabia, Qatar, and Turkmenistan. These countries together have, by very conservative estimates, just under 2,895 trillion cubic feet (tcf) of gas reserves – Iran 1200 tcf, Qatar 858 tcf, Saudi Arabia 333 tcf, Turkmenistan 265 tcf, UAE 215 tcf, and Oman 24 tcf. Critically as well, although there will be one major pipeline running from the Middle East to India in the first instance, several other extensions of this pipeline plan are readily available. As also analysed in full in my new book, finished plans for an Iran-India pipeline and an Iran-Pakistan pipeline – both of which could be extended to China – have long been in place.
This said, it was the US$8.5 billion 230,000-bpd Duqm refinery project – and ancillary projects (another US$10 billion or so) – in which China first saw the best route to win favour in Oman, and thereby seek to establish control over key regional oil transport routes. The problem Oman encountered in the mammoth Duqm undertaking was that building up a petrochemicals presence, as the project is intended to do, requires a lot of upfront spending ahead of being able to generate returns further down the line, and this left a massive gap in its finances. Already accounting for around 90 percent of Oman’s oil exports and most of its petrochemicals exports to that point, China was quick to leverage this to sign a US$10 billion investment in the Duqm refinery project – just after the implementation of the nuclear deal with Iran at the beginning of 2016, in fact. The focus of this Chinese money initially was on completing the Duqm refinery, but it was also expanded to include financing for a product export terminal in Duqm Port and the Duqm refinery-dedicated crude storage tanks of the Ras Markaz Oil Storage Park. More Chinese money was also funnelled towards the construction and building out of an 11.72 square kilometre industrial park in Duqm in three areas – heavy industrial, light industrial, and mixed-use.
According to the plans, all of which will be ready within the next five or so years, in the light industrial zone there will be 12 projects, including the production of 1 gigawatt (GW) of solar power units, and of oil and gas tools, pipelines and drilling equipment. The mixed-use sector will focus on projects designed for the tourist trade, including the construction of a US$150 million hotel on a 10-hectare area, US$100 million to build a hospital, and US$15 million towards a school. The heavy industry sector will also see 12 projects, dealing with the production of commercial concrete, building materials and related industries, production of glazed glass, methanol and other chemicals. In addition, the site will cater for steel smelting, aluminium production, production of vehicle tires, building materials for protection against water and corrosion, extracting magnesium from seawater, and various chemical-aromatic projects.
As it now stands, the Duqm refinery will soon function alongside the US$4.6 billion Liwa Plastics Project (LPP) industrial complex, also near the Oman Oil Refineries and Petroleum Industries Company’s Sohar refinery in the Special Economic Zone at Duqm. The final part of Oman’s vision of building an Omani integrated refining and petrochemical business, is the 290-kilometer-long Muscat Sohar Product Pipeline for transporting refined products. The US$336 million pipeline connects the refineries of Mina Al Fahal and Sohar to an intermediate distribution and storage facility at Al Jifnain. Split into three sections – 45 kilometres between the Mina Al Fahal and Al Jifnain Terminal, 220 kilometres between the Sohar and Jifnain Terminal, and 25 kilometres between the Al Jifnain Terminal and Muscat International Airport – the project is integral to the delivery of more than 50 percent of Oman’s fuel via the state-of-the-art storage facility in Al Jifnain. For China and Iran, all these facilities will be extremely useful in their day-to-day business. But incalculably more useful in multiple ways will be the fact that they have secured control over this vital global strategic hub of Oman.