By Timothy Gardner
WASHINGTON (Reuters) - Signs of hope are scarce in the Middle East, a region awash in violence, civilians fleeing crumbling states, and economies built largely on oil squeezed by a dive in global prices.
But Amos Hochstein, the U.S. energy envoy, sees some long-term potential for natural gas development to help provide economic security from Iraq to the eastern Mediterranean.
Low crude prices have hit particularly hard in Iraq, where the central government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG) are locked in a spat over oil revenues. The row threatens to reduce Iraq's ability to organise the fight against Islamic State militants.
But Hochstein, in an interview at the State Department, was optimistic on the long-term energy prospects of natural gas.
"There's a lot of potential for gas in the KRG. Why shouldn't we see Kurdistan as delivering significant amounts of gas via Turkey into Europe?" Hochstein, the State Department's special envoy for international energy affairs, said late last week.
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The European Union is looking to diversify its natural gas sources. The EU now depends on Russia for one third of its gas, about half of it shipped through Ukraine where Russia is seen to be stoking a civil conflict.
Iraq also needs reliable and affordable sources of power, though it first needs to build more power plants.
Meanwhile the United States is trying to work with both Baghdad and KRG on sharing oil revenues, he said.
"It's limping along," he said about the relationship between the two.
Hochstein said last month's mammoth find in Egyptian waters of the Zohr offshore natural gas field by Italy's Eni , the largest in the Mediterranean, was good news for the region. Some analysts contend the Egyptian find poses a challenge to plans by Israel and Cyprus to export their own natural gas from recently discovered fields..
Hochstein disagreed, saying the find shows that under the right conditions, countries such as Lebanon, Israel and Cyprus can uncover greater energy reserves.
"What this confirms is that recent discoveries ... are not accidental, but that this is an under explored basin that could yield many more fields," he said. "All that needs to happen is to put in place the right regulatory environment and investment climate."
Hochstein wants the Israeli government to approve a framework that would encourage companies to drill there, though he had no prescriptions for how to do that.
U.S. WILL NEVER BE ENERGY INDEPENDENT
Despite the domestic drilling boom that has made the United States one of the world's top oil producers, the country will remain engaged in the Middle East, Hochstein said.
Even if the United States was able to produce enough oil to reduce its imports to zero, domestic oil prices will always fluctuate with the global crude price.
"The fact that we are living through revolutionary times in U.S. energy does not mean we can ever be energy independent," Hochstein said. Oil is still an international commodity, and global supplies influence domestic prices, he said.
In previous years, Hochstein worked with countries to accept sanctions on Iran's oil exports, measures that many say helped push Tehran to agree to this year's nuclear deal.
U.S. companies are banned from investing in Iran as sanctions have not been lifted. But Hochstein was confident they will return down the road. "Will contacts be signed at some point? Yes. I fully expect there will be activity in the energy sector."
(Reporting by Timothy Gardner, editing by Bruce Wallace and David Gregorio)