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Wednesday, Apr 20, 2005

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Opinion - Leader Page Articles

The great game for Caspian oil

M.K. Bhadrakumar

The entry of China and India into the race for the oil and gas in the Caspian region has upset the U.S. calculus.

Following the historic Yalta summit meeting with Joseph Stalin and Winston Churchill regarding the contours of post-World War II Europe, President Franklin D. Roosevelt quietly headed south-eastward for a secret meeting aboard the USS Quincy lying anchored near the Suez Canal. His caller was King Ibn Saud of Saudi Arabia.

A few years later, George Keenan, one of the greatest American diplomats of the 20th century, theorised that unless the U.S. went about securing the Gulf region's oil reserves as "our resources" (rather than "theirs" — Arabs'), its dominance as a world power would not be sustainable.

The dramatic episode in 1945 underscored the centrality of oil in the geopolitics of the 20th century. Equally so, the current rivalries in the Caucasus and Central Asia, known as the "great game," have at their core the U.S.' struggle for controlling the region's oil and gas reserves.

Russia's influence

The rivalries in the Caspian have three broad directions: (i) replacing Russia's traditional influence over the principal sources of energy in the Caspian region, Kazakhstan, Azerbaijan and Turkmenistan; (ii) establishing political domination of the nearby regions — Georgia, Ukraine, Afghanistan — through which the oil and gas can be taken bypassing Russia (and Iran), to the international market (principally Western Europe and the U.S.); and, (iii) safeguarding the the pipelines (by direct military presence, through NATO's eastward expansion or through sponsoring a regional security alliance such as GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova), which is led by Ukraine and Georgia at the moment.

Several factors are adding to the piquancy of the great game. There have been new "entrants" into the Caspian — especially China and India and the European countries. Though the U.S. investments in the Central Asian and Caspian region in the hydrocarbon sector stand at $30 billion, the political objective of establishing absolute dominance becomes elusive. To compound the difficulty, Russia, China and India are at varying levels of cooperation (or coordination) in the Caspian energy sector. The European countries that heavily rely on Russian energy supplies are also striving to develop their own access to Caspian oil independent of Russia (and the U.S.). However, the European endeavours in this direction have been somewhat upstaged by the American control over Georgia and Ukraine, thanks to the well-timed "velvet revolutions."

From the American perspective, China and India have appeared in the Caspian at a particularly awkward moment. If these two countries persist in their present vigour in securing Caspian supplies for their long-term energy security — and they are rapidly growing economies — a lot of the Caspian oil may end up flowing through "Asian routes" without any benefit to the U.S.

China ahead

China is ahead of India in the race for Caspian energy. As part of its "go west" policy for developing its western regions, it completed a 4,200-km pipeline from Shanghai to the Tarim Basin in August 2004. This is to be linked to Kazakhstan (and potentially to Turkmenistan and Iran). In 1996, China signed an agreement with Kazakhstan on a 3,000-km, $9 billion pipeline linking the Caspian basin to Xinjiang; and work is proceeding briskly.

India, apart from its expanding cooperation with Russian oil fields, is poised to enter the region by investing in the joint Russian-Kazakh Kurmangazy oil fields. During President Vladimir Putin's visit to India last December, a memorandum of understanding was signed for the two countries to expand their cooperation into joint exploration and distribution of natural gas from the Caspian basin.

The entry of China and India into the Caspian oil and gas race upsets U.S. interests in several ways. First, the Baku-Ceyhan (BC) oil pipeline that the U.S. promoted since 1998 is to be completed this fall. The $4 billion 1,600-km pipeline from Baku to the Turkish eastern Mediterranean port of Ceyhan has been conceived as a trunk route for the Western market. It bypasses Russian territory and opens up for the first time a route for Caspian oil other than through the existing Russian pipelines. Thanks to the "rose revolution", the U.S. has gained "control" over Georgia, the transit route for the BC pipeline.

But, the pipeline's economic viability is predicated on the assumption that Kazakhstan too can be "persuaded" to feed it with its Caspian oil. Enter Russia, China and India, putting a premium on Kazakh oil! Competition from Russia (to route Kazakh oil through Russian pipelines) was expected but the entry by China and India as consumers of Kazakh oil becomes an unkind cut at this juncture.

Secondly, by the time the Kazakhstan-China pipeline is completed at the end of this decade, if India also joins up (as seems probable) and, furthermore, if a branch line is developed from China to India(which is entirely conceivable within the climate of developing Sino-Indian relations), the ultimate horror in the U.S.' energy calculus for the Caspian will take shape — an authentically Asian "grid" for Caspian oil.

Thirdly, the Iran-Pakistan-India gas pipeline. While discourses on the project have understandably focussed on Iran's gas supplies, we may note that both Turkmenistan (which has a pipeline connecting Iran) and Azerbaijan (which has initiated cooperation with Iran and Russia for a North-South transportation route giving Russia direct access to the Gulf region) gain an opportunity to route their gas to South Asia via Iran.

Indeed, there is some loud thinking that an Iranian pipeline is eventually extendable through Indian territory to China's Yunan province. Yet another "Asian gas grid" tapping Caspian energy!

Now, as per U.S. strategy, Caspian gas is primarily intended for the Western market (not South Asia).

As far back as 1996, a consortium of Bechtel, General Electric and Shell began negotiating with Turkmenistan and Azerbaijan on a Trans-Caspian gas pipeline heading to the European market that would substantially reduce Europe's dependence on Russian supplies. But due to Turkmen and Azeri "intransigence", the project lies on the backburner. If regime changes can be effected in Azerbaijan and/or Turkmenistan either through a "velvet revolution" or a good old-fashioned coup, the Trans-Caspian project can be swiftly revived. (The struggle is on.)

The Indian discourses about the American demarche over the Iran pipeline, therefore, cannot narrowly focus on the U.S.-Iran nuclear standoff as the basis of Washington's concerns. It is ludicrous that with oil prices soaring above $50 a barrel (and estimated to touch $100 in the coming months), Iran will find it hard to spare resources to finance its nuclear programme unless it initiates a gas pipeline to India. As for U.S. sanctions against third countries investing in Iran's energy sector, Washington has never once invoked the 1996 Iran Sanctions Act — it is meant to bully countries that easily take fright. Actually, since 1995, Washington repeatedly waived the sanctions whenever involvement by Russian, Japanese, Malaysian or European companies in Iran's energy sector came to light. In fact, American companies themselves are present in Iran's energy sector at the moment, including Halliburton, which U.S. Vice-President Dick Cheney headed!

Demarche to India

Thus what lies behind the U.S. demarche to India over the Iran pipeline is a very fundamental question: why should India aspire to take initiatives for an Asian grid if the U.S. could promise to look after its energy needs?

A prominent member of the U.S. strategic community, Stephen Blank of the U.S. War College, wrote recently (on the eve of the visit by the U.S. Secretary of State to Delhi) that while India is "highlighting its capabilities and ambitions" apropos energy security, given "its vulnerabilities and the inherent dilemmas of the economic dimension of its ties with the U.S., India must balance its dependence upon Iranian and Russian energy with its need for U.S. support. ... India's close ties with Iran could cause trouble with the U.S."

Mr. Blank detailed the U.S. concerns: "Beyond India's ties with Iran [lie] Turkmenistan and its [India's] growing energy investments in Russia proper. India is also active in Kazakhstan. It has formally bid for immediate participation in the Tengiz and Kashagan oil fields and the Kurmangazy and Darkhan exploration blocks. India is also interested in 9 other exploration blocks in and around the Caspian Sea ... They [India and China] also see it [Central Asia] as a place where they can expand and what they believe is their growing power in world affairs. Both states believe that the future is theirs, that they already are or should be regarded as world powers and that the future or the ideal state of world politics is one of multipolarity or polycentrism where they are each one of those centres or poles."

Mr. Blank counsels India to eschew its "ambivalence about relying on market mechanisms". He would like Delhi to place trust in the "effectiveness and viability" of market mechanisms to take care of India's energy security rather than embark on adventures hoping to "lock in" oil and gas supplies over the long term.

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