EU's Regional Security Concerns

 October 27, 2010

Slowly but surely, EU leaders are waking up to the fact that they should take regional security into their own hands and promote a neighbourhood diplomacy which would eventually have to exclude NATO or the United States, but would be inclusive of Russia and Turkey.

This is the new geostrategic context in which the Sarkozy-Merkel-Medvedev meeting has taken place last week in Deauville. As the leaders of the two most powerful EU countries, Sarkozy and Merkel could no longer overlook the adverse consequences for the Union of the US’ involvement in promoting the Orange revolutions in Ukraine, Georgia and Romania. The two previous winters beset by gas supply interruptions, as well as the Georgian war were alarming enough events for France and Germany to take action. Now that a pro-Russian president is again in power in Kiev, and that the Georgian conflict is largely frozen even if not solved, Merkel and Sarkozy can concentrate on the future relationship with Russia and, to a lesser extent, with Turkey.

Since 2008, president Medvedev has advanced a common Russia-EU security architecture project, which until recently has received the cold shoulder from Paris or Berlin. Far from trying to divide the NATO alliance, as American pundits claim, the Russians feel that regional security would be better served if Russia and the EU adapted to the new geopolitical landscape and built a regional security organisation. Indeed, as the EU is one of Russia’s largest customers for oil and gas, it makes sense for both supplier and end-user to join forces in ensuring the security of supply routes and – it goes without saying – in preventing the US from interfering again in each other’s “spheres of influence”. The pay-off, especially during these tight economic times, could be huge, as this way both EU and Russia would save tens of billions of euros earmarked for the construction of undersea pipelines, originally planned to bypass problem-countries like the Ukraine.

Further afield, the European Union has to compete for Central Asian oil & gas with a turbo-charged China and with a burgeoning India. By comparison, Russia’s cooperation with China is functioning smoothly : oil & gas pipelines have been built, from Turkmenistan and Kazakhstan to China, and more are planned and paid for. To date, the Europeans haven’t been successful in completing more than one such project with Russia, namely the North Stream pipeline. That brings it into the same leagues with India, which experiences similar difficulties in securing its energy supplies. In both cases, the negative outcome is the direct result of the US’ involvement in regional security matters and trade options, from Eastern Europe to the Persian Gulf.

Russia’s frustration with US-supported revolutions in Ukraine and Georgia, and the disruptions of gas supplies that affected Gazprom’s earnings, have determined Moscow to shift its geopolitical agenda towards China, taking its Central Asian allies along with her. Thus since 2001, Russia and China have established the Shanghai Cooperation Organisation (SCO), designed to deal with security threats affecting Russia, China and Central Asia. The SCO is the first working example of a regional security organisation which will become the hallmark of the security arrangements of the evolving multipolar world. Similarly, the ASEAN countries have this year started working on their own collective security architecture, and across the Atlantic, a group of Latin American countries have established Unasur as of 2008.

As a consequence, the European Union, will have to compete for the natural resources it needs and for political influence with a player like China. The latter was quicker off the mark and better at developing a brisk raw materials and energy trade with Russia, Central Asia and Latin America, as well as in reaching cooperative security arrangements with Russia.

Coming just weeks before the Lisbon NATO summit, the Deauville summit has given a clear indication of where the immediate security interests of the European Union lie. These, to be sure, are not global, but regional in scope and would have to involve Russia and Turkey. As for NATO, the outdated organisation is still in search of an elusive enemy, which will probably have to be found in outer space, in partnership with NASA. (sources: EurActiv, Presseurop, SME.sk, BBC)

India's Energy Diplomacy

 October 15, 2010

If compared to China, India’s energy strategy is far less successful to date. Although it closely matches China’s (investing in oil assets worldwide, developing oil & gas fields in Iran, joining transnational pipeline projects, signing bilateral supply contracts or developing special relationships with countries such as Saudi Arabia), India’s efforts to diversify its energy supplies away from coal run into strong opposition from the United States and major logistical problems.

India’s energy needs

According to the researchers of the Council on Foreign Relations and India’s Planning Commission, the country faces formidable hurdles in meeting its current and future energy needs, if it wants to maintain its current 8 percent per year economic growth rate.

Over the next 25 years, the Indian government’s priority is the eradication of poverty. To get there, however, India will need to keep growing by 8 percent a year for the full quarter-century. Indian officials, however, fear that this noble goal is going to generate huge energy shortages, as Indiahas been less suceessful in securing energy supplies from its neighbours or from Central Asia than China has been.

The troubles of the energy sector in India are compounded by state control over the import, production and distribution of oil and gas products, which are coordinated by 4 different ministries. More than half of India’s electricity is generated by burning poor-quality domestic coal, which is expected to run out in about 40 years. Furthermore, a third of India’s oil is imported from countries the US is at odds with, such as Sudan, Syria or Iran, whilst the gas is imported mainly from Iran, Bangladesh or Burma. India’s dependence on imported oil, which currently stands at 60 percent, is expected to grow to 90 percent by 2030. That lifts energy diplomacy to the top of India’s agenda, when it comes to dealing with countries from Central Asia, Middle East, Africa or Latin America.

India’s pipeline projects

To date, India has tried to emulate China and build gas pipelines that are needed by its electricity generation sector in order to diversify away from coal. Its two projects are the IPI (Iran-Pakistan-India) pipeline, also dubbed “the peace pipeline”, and the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline.

First discussions concerning the IPI project started during the Clinton administration in 1993, when the so-called moderates where apparently coming to power in Iran. It involved the construction of a 2,700-km pipeline from the South Pars field in Iran, through Pakistan to India’s border, at an estimated cost of some 8 billion dollars. Beside international sanctions and US opposition which affected the project, the Iranian and Indian officials could not lock in the price for the gas to be transported, and could not agree at which border the gas supplies were going to be paid for.

Whilst the Indians insisted they were only going to pay for the gas when it reached the India-Pakistan border, the Iranians asked to be paid when the gas reached the Iran-Pakistan border. As the projected pipeline was due to pass through Beluchistan (Pakistan), home to some of the most radical Islamic tribes, India wanted to make the Pakistani government responsible for the gas’s transit through its territory, in exchange for the $1.2 per mmBtu in transit fees. Thus, practical difficulties and US opposition to the project determined India to recently abandon IPI, of which only the Iran-Pakistan stretch, or about 1,100 km, is going ahead with construction.

The failure of the IPI project has recently determined India to enter fresh negotiations with the Teheran regime for the construction of an undersea gas pipeline, which could cost 9 billion dollars. This would have the advantage of bypassing Pakistan and doing away with transit fees. Again, the project’s chances of success are slight, given the US’ opposition to investments in developing Iran’s energy sector.

In 2008, India initiated the TAPI project to bring gas from Dauletabad (Turkmenistan) to the India-Pakistan border, with a construction price tag of 3.5 billion dollars. This project is favoured by the US, but is quietly opposed by Russia, which needs the Turkmen gas for its European customers.

India, the 5th largest consumer of energy in the world, desperately needs to exponentially increase its imports of oil and gas. Consequently, it has taken an option to develop, at an estimated cost of 8 billion dollars, the Farzad-B area of the Pars gas field at the Persian Gulf, again running into some opposition from the US. Already, the Iran Sanctions Act (ISA) which slaps fines on foreign companies that invest in Iran’s energy sector, has been invoked by American officials against Indian companies. As Indian companies are the biggest foreign subcontractors of IT services to US corporations, India stands to lose vital data processing business, as well as foreign currency earnings. Meanwhile, much better capitalised Chinese state oil and gas companies are aggressively investing some 20 billion dollars in the development of the South Pars gas block.

For the time being, India is being encouraged by the US to convert its gas in LNG form and transport it by tanker. It is also currently being advised by the US to develop oil and gas fields recently found on its own territory and to invest in shale deposits in the US. With so many logistical restrictions and the threat of US sanctions looming, India’s energy diplomacy agenda is becoming ever more complex. (sources: Times of India, FNA, Iran Daily, Heritage Foundation Brief, Council on Foreign Relations Backgrounder, Hindustan Times, Financial Express, Asia Sentinel)

China's Investment Strategy in Central Asia

 

October 5, 2010

Over the past few years, China has become a major player in Central Asia’s oil & gas and in Afghanistan’s mining sector. Its investments in the region are an important part of its worldwide FDI strategy.

To date, China’s biggest purchases of gas come from Turkmenistan. In 2009 the Chinese president inaugurated a gas pipeline that stretches for 4,000 miles from Turkmenistan via Kazakhstan and Uzbekistan to China. 30 billion cubic metres per year will be supplied by Turkmenistan, while 10 billion cubic metres will come from Kazakhstan’s gas fields. The vast amount of gas will supply some 50 percent of China’s gas needs, estimated at over 80 billion cubic metres per annum. The Chinese will pay USD 195/1,000 cubic metres over 30 years, thus bringing their country into competition with Russia, as well as the EU with its Nabucco pipeline project. To get to the Turkmen gas the Chinese paid around 3 billion USD necessary for the construction of the pipeline and the development of the fields.

In Kazakhstan, China National Petrol Corporation together with Kazmunay Gas inaugurated in 2006 a 2,200 km oil pipeline between Atyrau (Kazakhstan) and Xinjiang in China – the first such pipeline to connect China to the Central Asian oil & gas fields. In 2009 CNPC took a 50 percent stake in Kazakhstan’s largest oil & gas company, in exchange for a USD 5 billion loan to Kazakhstan.

This year Uzbekistan’s state company UzbekNeftegaz officially announced that it entered discussions with CNPC to supply China with 10 billion cubic metres of gas per annum, on top of the 40 billion cubic metres supplied jointly by Kazakhstan and Turkmenistan.

In Afghanistan, MCC of CHina has signed a 3,5 billion USD deal with the Afghan government to exploit Aynak’s estimated 240 million-ton copper deposits. To seal the deal, China has offered to build a railroad and provide the infrastructure needed, the project being the biggest FDI to date in Afghanistan. Chinese negotiators outfoxed their American and Indian competitors and worked – as they did elsewhere in Central Asia – closely with their Russian counterparts in order to finalise the deal. The Afghan government will also receive hundreds of millions of dollars every year in royalty fees after the mine becomes operational.

According to American, Australian and Canadian geologists, Afghanistan is the “Saudi Arabia of lithium” and also has significant deposits of gold, copper, cobalt and iron, which could not be exploited until now because of 50 years of continuous warfare that had ripped through the country. In the quest for Afghanistan’s mineral deposits, China is favoured to develop most of them, as it did not intervene militarily there and has Pakistan on its side. The latter in turn could help the Chinese to be shielded from attacks by the Taliban and even, if the political environment changes, to win their favour.

By contrast, the US – which spent a reported 940 billion USD over the past 8 years in Afghanistan – and their Indian ally are not likely to capitalise on the development of Afghanistan’s mining sector. (sources: Asian Times, Reuters, Xinhua, The Guardian, Far Eastern Economic Review, WSJ, Daily Finance, NYT)