The Hindu Business Line : Energy security: The Chinese surge

In seeking energy security, India has been out-manoeuvred by China, which has moved single-mindedly to exploit geopolitical developments, after the collapse of the Soviet Union, to invest heavily, near and far, in energy sources. The most spectacular example of its boldness is its attempt to acquire the American international oil company Unocal with an investment of $18.5 billion, says G. Parthasarathy.

I RECENTLY asked a businessman from South-East Asia who has extensive business interests in China why China attracted $50 billion in foreign direct investments (FDI) annually while India could barely attract a tenth of this amount. His answer was: "China's Communist leaders base their economic policies on realism and not populism."

Smilingly he added: "What you should perhaps do is sign a free trade agreement with China. You could, thereafter import Communist leaders Hu Jintao and Wen Jiabao from China and export some of your Communist Party leaders to China. Your economic growth will then go up to 10 per cent and China's will come down to 4 per cent."

It is not only on issues of FDI that China is leaving us far behind. China became a net importer of energy in 1993. It has since moved single-mindedly to exploit geopolitical developments following the collapse of the Soviet Union to invest heavily in energy resources in as much in its immediate neighbourhood such as in Kazakhstan and Russia to as far a field as Iran, Canada, Latin America and Australia.

The most spectacular example of its boldness in this sphere is its attempt to acquire the American international oil company Unocal with an investment of $18.5 billion. Control of Unocal would establish Chinese influence over large sections of the oil and gas sectors in neighbouring Myanmar, Indonesia, Vietnam and the Philippines.

A classic example of China's geopolitical skills is the manner in which it has dealt with Iran and Saudi Arabia. Supplementing its missile sales to these two countries, China is all set to invest billions of dollars in the development of oil and natural gas in Iran. In March 2004 China signed an agreement with Iran to import 110 million tonnes of Liquefied Natural Gas (LNG). This was followed by an agreement in October 2004 valued at over $100 billion to import 250 million tonnes of LNG from Iran's Yadarvan oil fields.

This agreement also provides China access to 150,000 barrels of oil per day for a quarter of a century. China is, thus, set to invest $100 billion in developing Iran's gas resources. What we will be obtaining through the proposed Iran-Pakistan-India gas pipeline pales into insignificance when compared to how China is proceeding to deal with Iran. Apprehensions about American sanctions alone should, therefore, not deter us from proceeding with energy cooperation with Iran.

China has signed a $3.5-billion agreement with Kazakhstan in September 2004 for an oil pipeline. Apart from emerging the largest market for Russian arms, China has signed an agreement for importing electricity from Russia earlier this year. In October 2004, Chinese and Russian companies signed agreements for the supply of oil and natural gas to China.

During the G-8 Summit at Gleneagles, the Russian President, Mr Vladimir Putin, announced that Russia will set up a new oil terminal in the border town of Skovordov to supply China 20 millions tonnes of oil annually. Another terminal is also to be set up near the Pacific port of Nakhodka for a further supply of 10 million tonnes to China.

China has out-manoeuvred rival Japan in securing access to Siberian oil. Chinese banks are reported to have invested around $6 billion in the Russian oil industry. Given the historic mistrust of the Russians about China, their energy relationship could, however, well be an uneasy one.

The major feature that characterises the geopolitics of energy supplies even today is the quest of the US to dominate global energy markets and the American moves to get former Soviet Republics to bypass Russian pipeline networks. This has led to American moves to get pro-Russian governments in the former Soviet Republics replaced by pro-Western dispensations, friendly to Western energy interests.

The most recent manifestation of this was the May 25 inauguration of a $4-billion, 1,760-kilometre pipeline with a capacity of one million barrels of oil per day (mbpd) from Azerbaijan through Georgia to the Turkish port of Ceyhan. The largest foreign shareholders in this pipeline are British Petroleum and the American oil giant Unocal. Both Azerbaijan and Georgia are now ruled by pro-Western regimes.

For over a decade now the US has endeavoured to "persuade" governments in the former Soviet Republic to build pipelines with western assistance that bypass the Russian pipeline grid and Iran. The Baku-Ceyhan pipeline is the first major success it has achieved. But in the process, the former Soviet Republics have become theatres of intense American-Russian rivalry that has strained their bilateral relations. China has broadly supported the Russian approach to developments in Central Asia.

India has achieved only modest success in securing equity stakes in exploiting energy resources abroad in Russia, Sudan, and Vietnam, but has been out-manoeuvred by China in Angola. While talks have been held on projects like the Iran-Pakistan-India gas pipeline, what one has seen in the last few months is more self-serving publicity than a realistic appreciation of geopolitical and regional realities.

The Cabinet Committee on Security has not comprehensively examined issues of security and pricing of oil pipelines, whether from Iran or Turkmenistan. New Delhi first stated that it would go head with the pipeline from Iran only if Pakistan agreed to transit facilities for us to Afghanistan. This policy was abruptly reversed. It, then, proclaimed that we would negotiate only with Iran on this project, giving Teharan the entire responsibility of security of energy supplies. This policy has also been jettisoned and we have established a joint working group with Pakistan.

A similar absence of realistic assessments and inconsistency has also characterised our approach to the proposal for a Myanmar-Bangladesh-India pipeline.

The Prime Minister, Dr Manmohan Singh, alluded to the risks inherent in the Iran-Pakistan-India pipeline while in Washington. Before loosening their purse-strings, international financiers will obviously look closely at the Jihadi instincts of the Pakistan army establishment and the volatile politics of Baluchistan, where Pakistani pipelines are regularly blown up.

The Petroleum Minister, however, is reported to have voiced his unhappiness at the Prime Minister's comments to his Communist comrades, who after all believe that national security is best promoted by reducing the Defence Budget.

Our quest for energy security will have to be multi-dimensional, realistic, bold and imaginative. We will have to import the bulk of our energy requirements from seven Arab Gulf countries and Iran in the Persian Gulf Region. Nearly four million Indians reside in these Arab states.

The only power in the world that can significantly influence major Arab oil exporters such as Saudi Arabia and Iraq is the US. These countries are not likely to be impressed either on issues of pricing or security by other powers.

We will, therefore, first have to consult with major powers such as the US and then with consumers such as Japan and South Korea on how we can guarantee stability and security in the Persian Gulf and in the sea-lanes of the Indian Ocean.

We have, over the years, paid less-than-adequate attention to building influence in this region, particularly with the Arab Gulf countries that are in our immediate neighbourhood. At the same time, Russia and China are making common cause to counter American influence in Central Asia and the Caucasian Region.

New Delhi would, therefore, be well advised to avoid showing undue enthusiasm or interest in American-backed projects such as the Baku-Tbilisi-Ceyhan pipeline that are specifically designed to undermine Russian influence in the former Soviet Republics. Russia has, after all, been a long-term ally and reliable partner.

(The author is a former High Commissioner to Pakistan.)

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